<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number 001-13785
______BMJ MEDICAL MANAGEMENT, INC.______
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 65-0676079
- ---------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
4800 North Federal Highway
Suite 101E
Boca Raton, Florida 33431
- ---------------------------- ------------------------------------
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
</TABLE>
______(561) 391-1311______
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 such
filing requirements for the past 90 days.
YES _X_ NO ___
The number of shares outstanding of the registrant's Common Stock, $0.001
par value per share, as of August 6, 1998 was 17,681,082 shares.
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<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
INDEX
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 1998
and March 31, 1998.......................................... 2
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1998 and 1997........... 3
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30 1998 and 1997............ 4
Notes to Condensed Consolidated Financial Statements........ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 19
Item 2. Changes in Securities and Use of Proceeds................... 19
Item 6. Exhibits and Reports on Form 8-K............................ 20
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 3,606,000 $ 9,483,000
Accounts receivable.................................... 26,442,000 25,794,000
Prepaid expenses and other current assets.............. 790,000 539,000
Due from physician groups, net......................... 4,368,000 2,250,000
------------ ------------
Total current assets................................ 35,206,000 38,066,000
Furniture, fixtures and equipment, net................... 12,540,000 7,948,000
Management services agreements and other intangible
assets, net of
accumulated amortization of $12,261,000 at June 30,
1998 and
$11,362,000 at March 31, 1998.......................... 62,737,000 45,064,000
Other assets............................................. 3,513,000 2,142,000
------------ ------------
Total assets........................................ $113,996,000 $ 93,220,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 3,072,000 $ 1,706,000
Accrued expenses....................................... 7,607,000 6,858,000
Accrued interest....................................... 141,000 520,000
Accrued salaries and benefits.......................... 2,133,000 2,159,000
Current portion of long-term debt...................... 2,042,000 188,000
------------ ------------
Total current liabilities........................... 14,995,000 11,431,000
Long-term debt, less current portion..................... 34,679,000 17,929,000
Convertible notes to affiliates.......................... 1,707,000 --
Short-term debt expected to be refinanced................ -- 7,125,000
Minority Interest........................................ 1,007,000 648,000
Commitments and contingencies:
Series A Redeemable Convertible Preferred Stock, $.01 par
value --
1,473,684 shares authorized, 1,473,684 shares issued
and
outstanding (liquidation value $7,000,000), net of
discount and
issuance costs......................................... 5,744,000 --
Stockholders' equity:
Common stock, $0.001 par value -- 35,000,000 shares
authorized,
17,672,000 shares issued and outstanding at June 30,
1998;
17,384,000 shares issued and outstanding at March 31,
1998;.................................................. 18,000 17,000
Additional paid-in capital............................... 100,321,000 97,801,000
Accumulated deficit...................................... (44,475,000) (41,731,000)
------------ ------------
Total stockholders' equity............................... 55,864,000 56,087,000
------------ ------------
Total liabilities and stockholders' equity............... $113,996,000 $ 93,220,000
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Practice revenues, net.................................... $ 34,395,000 $11,251,000
Less: amounts retained by physician groups................ (16,230,000) (5,321,000)
------------ -----------
Management fee revenue.................................... 18,165,000 5,930,000
Operating expenses:
Medical support services................................ 13,717,000 5,465,000
General and administrative.............................. 1,798,000 1,584,000
Depreciation and amortization........................... 1,253,000 1,028,000
------------ -----------
Total operating expenses.................................. 16,768,000 8,077,000
------------ -----------
Operating income (loss)................................... 1,397,000 (2,147,000)
Other expenses:
Interest expense.......................................... 1,103,000 294,000
------------ -----------
Income (loss) before extraordinary item................... 294,000 (2,441,000)
Extraordinary item, loss on early extinguishment of
debt.................................................... (3,038,000) --
------------ -----------
Net loss.................................................. $ (2,744,000) $(2,441,000)
============ ===========
Net Income (loss) per common share:
Basic:
Income (loss) before extraordinary item................. $ .02 $ (0.43)
Extraordinary item...................................... $ (0.17) $ --
------------ -----------
Net loss................................................ $ (0.15) $ (0.43)
============ ===========
Diluted:
Income (loss) before extraordinary item................. $ .01 $ (0.43)
Extraordinary item...................................... $ (0.15) $ --
------------ -----------
Net loss................................................ $ (0.14) $ (0.43)
============ ===========
Weighted average number of common shares outstanding:
Basic................................................... 17,630,000 5,715,000
============ ===========
Diluted................................................. 20,793,000 5,715,000
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (2,744,000) $(2,441,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 328,000 114,000
Amortization of management services agreements and other
intangible assets.................................... 991,000 1,033,000
Interest expense converted to preferred stock........... -- 34,000
Equity-based compensation expense....................... 53,000 196,000
Changes in operating assets and liabilities:
Accounts receivable.................................. (437,000) (698,000)
Due from physician groups............................ (1,134,000) (1,578,000)
Prepaid expenses and other current assets............ (174,000) (2,000)
Accounts payable..................................... 1,366,000 286,000
Accrued expenses..................................... (1,731,000) 169,000
Accrued salaries and benefits........................ (26,000) 284,000
Accrued interest..................................... (379,000) 109,000
------------ -----------
Net cash used in operating activities..................... (3,887,000) (2,494,000)
Investing activities:
Purchases of furniture, fixtures and equipment............ (3,753,000) (22,000)
Payments for management services agreements and
goodwill................................................ (10,853,000) (2,668,000)
Payments for deferred offering costs...................... -- (528,000)
Cash used for acquisition of non-cash assets of affiliated
practices............................................... (1,260,000) (4,748,000)
Payments for deposits and other assets.................... (1,522,000) (174,000)
------------ -----------
Net cash used in investing activities..................... (17,388,000) (8,140,000)
Financing activities:
Proceeds from issuance of preferred stock................. 7,000,000 3,200,000
Proceeds from debt issuance............................... 32,200,000 7,130,000
Amounts due physician groups.............................. -- 5,631,000
Proceeds from issuance of common stock.................... 77,000 --
Payments on borrowings.................................... (24,238,000) --
Minority interest......................................... 359,000 --
------------ -----------
Net cash provided by financing activities................. 15,398,000 15,961,000
------------ -----------
Net (decrease) increase in cash and cash equivalents...... (5,877,000) 5,327,000
Cash and cash equivalents at beginning of period.......... 9,483,000 722,000
------------ -----------
Cash and cash equivalents at end of period................ $ 3,606,000 $ 6,049,000
============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
1. GENERAL
In management's opinion, the accompanying unaudited condensed consolidated
financial statements of BMJ Medical Management, Inc. and its subsidiaries (the
"Company") contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of June 30, 1998, and the results of its operations for the three months
ended June 30, 1998 and 1997. The results of operations and cash flows for the
three months ended June 30, 1998 are not necessarily indicative of the results
of operations or cash flows which may be reported for the remainder of the
fiscal year.
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission for reporting on Form 10-Q. Pursuant to such
rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements included
in the Company's Transition Report on Form 10-K for the three months ended March
31, 1998.
The accounting policies followed for interim financial reporting are the
same as those disclosed in Note 2 of the Notes to Consolidated Financial
Statements included in the Company's Transition Report on Form 10-K for the
three months ended March 31, 1998.
2. NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components in a full set of general purpose type of
financial statements. SFAS No. 130 also requires companies to report a total for
comprehensive income in condensed financial statements of interim periods issued
to shareholders with no similar requirement for disclosure of its components. As
the Company has no comprehensive income, the adoption of this Statement had no
impact on the Company's net income or shareholders' equity. If the Company has
items of comprehensive income in future periods, these items will be displayed
in accordance with SFAS No. 130.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements, and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 131 will have no impact on the Company's results of operations,
financial position or cash flows, because it is currently not material.
The Emerging Issues Task Force ("EITF") of the FASB reached a consensus
concerning certain matters relating to the physician practice management
industry with respect to the requirements which must be met to consolidate a
managed professional corporation and the accounting for business combinations
involving professional corporations. In accordance with the EITF's guidance, the
Company will discontinue the use of the display method to report revenues from
management contracts in financial statements for periods ending after December
15, 1998. Thus, after December 15, 1998, fees from management contracts will be
reported as a single line item in the Company's consolidated financial
statements.
3. EARNINGS (LOSS) PER SHARE
In 1997, the FASB issued Statement of Financial Accounting Standards No.
128 ("SFAS No. 128"), "Earnings Per Share" which applies to entities with
publicly held common stock and simplifies the standards for computing earnings
per share. SFAS No. 128 replaces the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. SFAS No. 128 is
5
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. EARNINGS (LOSS) PER SHARE -- (CONTINUED)
effective for financial statements issued for periods ending after December 15,
1997, including interim periods and accordingly, all earnings per share amounts
for all periods presented have been conformed to SFAS No. 128 requirements.
Basic net loss per share for the three months ended June 30, 1998 and 1997
was calculated using the weighted average number of shares of Common Stock
outstanding during the respective periods. Diluted net loss per share for the
three months ended June 30, 1998 is calculated using the weighted average number
of shares of Common Stock outstanding and Common Stock equivalents outstanding.
Common Stock equivalents are not included in the computation of diluted net loss
per share for the three month period ended June 30, 1997, as their effect is
antidilutive.
The following table summarizes the amounts used in deriving the earnings
(loss) per share figures included in the accompanying condensed consolidated
statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1998 1997
---------- ---------
<S> <C> <C>
Diluted Shares outstanding:
Weighted average common shares.............................. 17,630,000 5,715,000
Dilutive effect of stock option and warrants................ 1,047,000 --
Convertible debentures...................................... 260,000 --
Convertible preferred stock................................. 1,856,000 --
---------- ---------
Total common and dilutive common equivalent shares.......... 20,793,000 5,715,000
========== =========
</TABLE>
4. PRACTICE AFFILIATIONS AND INVESTMENT IN SUBSIDIARIES
In April 1998, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement with Seaview Orthopaedic & Medical Associates, a
New Jersey general partnership ("Seaview"), in exchange for $3,805,000 in cash
and the issuance of convertible promissory notes for $1,543,000, bearing
interest at 5% and convertible into shares of Common Stock at a conversion rate
of $8.75 on the unpaid principal amounts. The aggregate consideration of
$5,471,000, including transaction costs of $123,000, has been allocated to
Management Services Agreements -- $4,946,000 with the remaining purchase price
allocated primarily to furniture, fixtures and equipment. The total number of
shares to be issued will depend on actual collections of the practice for the
twelve month period ended March 1999. The value of any subsequently issued
shares will increase the cost of the Seaview Management Services Agreement.
In April 1998, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement with Community Orthopedics and Pain Management, a
Florida Corporation ("Community"), in exchange for $611,000 in cash and the
issuance of a convertible promissory note for $604,000, bearing interest at 5%
and convertible into shares of Common Stock at a conversion rate of $8.75 on the
unpaid principal amount. The aggregate consideration of $1,235,000, including
transaction costs of $20,000, has been allocated to Management Services
Agreement -- $1,227,000 with the remaining purchase price allocated to
furniture, fixtures and equipment.
In April 1998, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement with Steven P. Hirsch, D.P.M., P.A., a Florida
professional association ("Hirsch"), in exchange for $160,000 in cash and the
issuance of a convertible promissory note for $130,000, bearing interest at 5%
and convertible into shares of Common Stock at a conversion rate of $8.75 on the
unpaid principal amount. The aggregate consideration of $303,000, including
transaction costs of $13,000, has been allocated to Management Services
Agreement -- $231,000 with the
6
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. PRACTICE AFFILIATIONS AND INVESTMENT IN SUBSIDIARIES -- (CONTINUED)
remaining purchase price allocated primarily to furniture, fixtures and
equipment, and accounts receivable.
In April 1998, the Company entered into a Management Services Agreement
with Douglas A. Bobb, D.O., in exchange for the issuance of 157,071 shares of
Common Stock recorded at $7.38 per share, representing consideration of
$1,159,000. All of the consideration has been allocated to the Management
Services Agreement.
In April 1998, BMJ of Chandler, Inc., a wholly-owned subsidiary of the
Company, purchased the assets of Warner Medical Park Outpatient Surgery, Inc.,
for $1,800,000. In April 1998, Surgical Associates of Bakersfield, Limited
Partnership, a limited partnership controlled by the Company, acquired all of
the assets of Kern Surgery Center, a California limited partnership, for
$2,400,000. These transactions have been accounted for using the purchase method
of accounting. Accordingly, the aggregate purchase price has been allocated as
follows: accounts receivable - $177,000; furniture, fixtures and equipment -
$261,000; goodwill and other intangibles - $3,531,000, with the remaining
purchase price allocated primarily to other assets. The Company is depreciating
the related assets acquired over their estimated useful lives, ranging from
three to seven years. Goodwill is being amortized over its estimated remaining
life of 25 years.
In June 1998, the Company entered into a Stock Purchase Agreement and a
Management Services Agreement with the Boca Raton Orthopaedic Group in exchange
for $3,517,000 in cash, an obligation to issue $2,427,000 of Convertible
Preferred Stock and the assumption of $1,000,000 in liabilities. The aggregate
consideration of $7,668,000 including transaction costs has been allocated to
Management Services Agreement -- $6,685,000, with the remainder allocated
primarily to furniture, fixtures and equipment.
5. DEBT AND PREFERRED STOCK ISSUANCE
In April 1998, the Company issued in the aggregate, $2,300,000 of
convertible promissory notes (the "Convertible Notes") in conjunction with three
practice affiliation transactions. The Convertible Notes bear interest at 5% and
are convertible into shares of Common Stock at a conversion rate of $8.75 on
unpaid principal amounts at the option of the holder after one year from the
affiliation date subject to four year vesting.
In June 1998, the Company, in connection with a practice affiliation
transaction, became obligated to issue $2,400,000 of Series B Convertible
Preferred Stock ("Series B") which is convertible into Common Stock. The Company
has authorized the issuance of up to 500,000 Series B shares. None were issued
and outstanding as of June 30, 1998. The Series B carries a 7% cumulative
dividend that is payable in additional shares of stock or cash. The Company is
not obligated to issue any shares of Series B on account of any transaction
until the first year anniversary of the practice affiliation. The Series B
conversion to Common Stock is based, in part, on the Market Price (as defined in
the Certificate of Designation for the Series B) into shares of Common Stock;
however, the number of Common Stock shares obligated to be issued cannot be
determined at this time.
On June 30, 1998 the Company refinanced substantially all of its existing
debt with its senior lender and other lenders with proceeds from a $60,000,000
credit facility consisting of a $10,000,000 revolving line of credit ("Revolving
Loans"), a $25,000,000 term note ("Tranche B Loan") and a $25,000,000
acquisition line of credit in which all amounts outstanding at June 30, 2000
will convert to a term loan ("Tranche A Loan") (collectively referred to as the
"Credit Facility").
Under the Revolving Loans, the Company may borrow up to $10,000,000 for
working capital and general corporate purposes and to finance start-up costs
relating to certain Ancillary Service Facilities (as defined in the Credit
Facility). The Revolving Loans are subject to a borrowing base equal to 80% of
the product of Eligible Accounts receivable multiplied by the Collection Rate
(each as defined in the
7
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. DEBT AND PREFERRED STOCK ISSUANCE -- (CONTINUED)
Credit Facility). The Revolving Loans mature on June 30, 2001 and interest is
payable quarterly and, at the option of the Company, will equal (a) a function
of the greater of 0.50% plus the Federal Funds Rate or the prime lending rate
plus a margin ranging from 0.00%-1.25% based on the Company's leverage ratio or
(b) the LIBOR rate plus a margin ranging from 1.75%-3.00% based on the Company's
Leverage Ratio (as defined in the Credit Facility).
Under the Tranche A Loans, the Company may borrow up to $25,000,000 through
June 30, 2000 for Qualified Acquisitions (as defined in the Credit Facility).
The Tranche A Loans are payable in quarterly installments (assuming the entire
amount is borrowed) of (a) $1,250,000 beginning September 30, 2000 through June
30, 2001; (b) $1,875,000 from September 30, 2001 through June 30, 2002 and (c)
$3,125,000 from September 30, 2002 through March 31, 2003 with the remaining
unpaid balance due and payable on June 30, 2003. Interest is payable quarterly
and at rates equal to the Revolving Loans.
Under the Tranche B Loan, the Company borrowed $25,000,000 for the sole
purpose of refinancing certain existing indebtedness. The Tranche B Loan is
payable $62,500 quarterly through June 30, 2001; $312,000 quarterly from
September 30, 2001 through June 30, 2003; $5,438,000 quarterly through March 31,
2004 with any unpaid balance due on June 30, 2004. Interest on the Tranche B
Loan is payable quarterly and at the option of the Company, will equal (a) a
function of the greater of 0.50% plus the Federal Funds Rate or the prime
lending rate plus a margin ranging from .75%-l.50%, based on the Company's
Leverage Ratio or (b) the LIBOR rate plus a margin ranging from 2.50%-3.25%
based on the Company's Leverage Ratio.
Under the terms of the Credit Facility, the Company may be required to make
mandatory annual prepayments beginning in 2001 in an amount equal to 50% of
Excess Cash Flow (as defined in the Credit Facility). The Company is also
required to meet certain covenants, including (a) the maintenance of certain
fixed charges, interest coverage, maximum funded indebtedness and leverage
ratios, (b) the maintenance of a minimum level of EBITDA and Tangible Net Worth
(as defined in the Credit Facility) and (c) the limitation on capital
expenditures. The Credit Facility also prohibits, with certain exceptions, the
Company from paying cash dividends. Additionally, under the terms of the Credit
Facility the Company is subject to certain restrictions with respect to issuing
subordinated debt, sales of Company assets, and changes in control of the
Company.
Under the terms of the Credit Facility the Company has the right to request
letters of credit in an aggregate amount not to exceed $2,000,000 with a term
not to exceed one year from the date of issuance.
The Credit Facility is secured by substantially all of the assets of the
Company and is supported by guarantees of the subsidiaries of the Company.
In connection with the Credit Facility, the Company issued pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") a new Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share (the "Series
A"), to an affiliate of its agent bank in exchange for cash of $7,000,000. This
Series A is convertible into 1,473,684 shares of Common Stock. The Series A
carries a 6% cumulative dividend that is payable in cash. Pursuant to the
Purchase Agreement, the Company may also be obligated through September 8, 1998,
to issue an additional $3,000,000 of Series C Redeemable Convertible Preferred
Stock (the "Series C") for cash. The Series C, if issued, will be substantially
identical to the Series A and is also convertible into Common Stock. The number
of shares of Common Stock to be issued upon conversion is subject to certain
future factors and, accordingly, cannot be determined at this time. In addition,
pursuant to the Purchase Agreement, the investor obtained the right to nominate
one member to the Board of Directors of the Company and certain other rights.
8
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. DEBT AND PREFERRED STOCK ISSUANCE -- (CONTINUED)
In connection with the Credit Facility and the Purchase Agreement, the
Company issued an aggregate of 446,451 warrants to purchase Common Stock with
exercise prices ranging from $0.01-$9.00 per share with a weighted average
exercise price of $3.53 per share. The fair values per warrant based on the
Black-Scholes valuation method range from $3.26-$4.75 per share and the related
debt discount for certain of the warrants will be amortized over the life of the
Credit Facility. Certain of the warrants contain put rights, which become
effective upon the earlier of: (1) a change of control or (2) June 30, 2005. In
addition, certain of the warrants are subject to anti-dilution provisions which
may ultimately increase the number of shares of Common Stock issuable upon
exercise of such warrants to 2% of the Company's fully-diluted Common Stock,
resulting in additional financing expense.
Additionally, pursuant to the Purchase Agreement, if the Company is unable
to obtain $26,475,000 in annual pro forma revenues from New Practice
Affiliations (as defined in the Purchase Agreement) by September 8, 1998, the
Company may be required to issue up to an aggregate of 1,051,449 additional
warrants to purchase Common Stock. If the Company does not complete an effective
registration statement to cover the underlying Common Stock for the Series A by
an agreed upon date (as defined in the Purchase Agreement), the Company will be
required to issue additional warrants to purchase Common Stock. The potential
obligations for warrants and the underlying Common Stock cannot be determined at
this time.
The Series A are subject to redemption upon certain events including, but
not limited to, a change in control of the Company or seven years from the date
of the original issuance. However, as long as the Credit Facility is in place,
the redemption by the holder of the Series A is prohibited. If the Series A has
not been converted five years subsequent to the date of issuance, the holder
will receive increased Board of Directors' participation, the dividend rate will
increase to 12%, and the Company may be required to issue additional warrants to
purchase Common Stock.
The Series A is subject to anti-dilution provisions, which may ultimately
decrease the conversion price resulting in the issuance of additional shares of
Common Stock upon the conversion of the Series A.
6. EXTRAORDINARY LOSS
In connection with the refinancing and early extinguishment of its existing
debt, the Company recognized an extraordinary loss of $3,038,000, which related
to the write-off of deferred financing costs.
7. INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. SFAS No.
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. At June 30, 1998, net operating loss carryovers of
approximately $16,000,000 were available to reduce future federal income taxes,
subject to certain annual limitations.
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $15,094,000 and $16,000,000 valuation allowance at March
31, 1998, and June 30, 1998 respectively, was necessary to reduce the deferred
tax assets to the amount that will more than likely be realized.
9
<PAGE>
BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES
On August 15, 1997, an action entitled John Finlay v. Bone, Muscle & Joint,
Inc., was filed in the United States District Court for the Southern District of
Texas. The action asserts claims for breach of contract arising out of an
alleged employment agreement and alleged non-qualified stock option agreement
between plaintiff and the Company. Plaintiff's complaint sought compensatory
damages of approximately $135,000 pursuant to the alleged employment agreement
as well as specific performance for the delivery of 16,071 shares of the
Company's common stock pursuant to the alleged non-qualified stock option
agreement. On May 11, 1998, a Stipulation and Order of Dismissal with Prejudice
was entered in the United States District Court for the Southern District of
Texas pursuant to a settlement agreement dated as of May 11, 1998.
On September 3, 1997, an action entitled Robert P. Lehmann, M.D. et al. v.
Bone, Muscle & Joint, Inc., et al. was filed. In this action, which is currently
pending in the United States District Court for the Southern District of Texas,
plaintiffs have asserted claims for breach of contract, common law fraud and
promissory estoppel arising out of an alleged restricted stock purchase
agreement between plaintiffs and the Company. Plaintiffs amended complaint seeks
unspecified compensatory and exemplary damages as well as specific performance
for the delivery of 117,860 shares of the Company's Common Stock. The Company
intends to defend the action vigorously.
In June 1998, the Company had commitments totaling $2,750,000 for
construction of two ambulatory surgery centers of which $600,000 had been
funded.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash financing and investing activities for the three
months ended June 30, 1998 are summarized as follows:
o The value of stock issued upon execution of Management Services
Agreements was $1,194,000.
o Notes issued upon execution of Management Services Agreements were
$2,080,000.
o Non-cash transactions from practice affiliations including accounts
receivable, Management Services Agreements and due to/from physicians and
accrued expenses amounted to $5,564,000.
o Deferred financing costs related to the issuance of warrants amounted to
$784,000.
o Deferred financing costs related to the issuance of preferred stock,
options and warrants amounted to $338,000.
o Interest paid amounted to $1,046,000.
Significant non-cash financing and investing activities for the three
months ended June 30, 1997 are summarized as follows:
o The value of stock issued upon execution of Management Services
Agreements was $5,070,000.
o Short-term loans converted to preferred stock amounted to $1,000,000.
o Non-cash transactions from practice affiliations including Management
Services Agreements and due to/from physicians amounted to $435,000.
10
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PART I
FINANCIAL INFORMATION -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
Consolidated Financial Statements, the related Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Transition Report on Form 10-K
for the period ended March 31, 1998 and the Condensed Consolidated Financial
Statements included in Item 1 of this Quarterly Report on Form 10-Q. The Company
wishes to caution readers that various factors could cause the actual results of
the Company to differ materially from those indicated by forward-looking
statements included herein and made from time to time by representatives of the
Company. Except for historical information, matters discussed below and in other
oral and written communications such as press releases are forward-looking
statements that involve risks and uncertainties, including but not limited to
the potential inability of the Company to affiliate with physician practices,
the potential termination of contractual relationships, the potential inability
of the Company to establish ancillary service facilities, fluctuations in the
volume of procedures performed by the practices' physicians, changes in the
reimbursement rates for those services, uncertainty about the ability to collect
the appropriate fees for services provided or ordered by the practices'
physicians, taxes, and governmental regulations.
OVERVIEW
The Company is principally a Physician Practice Management Company ("PPM")
that provides management services to its affiliated practices and ancillary
service facilities, and also operates an Independent Physician Association
("IPA"). The Company focuses on musculoskeletal care, which involves the medical
and surgical treatment of conditions related to bones, muscles, joints and
related connective tissues. The broad spectrum of musculoskeletal care offered
by the physician practices ranges from acute procedures, such as spine or other
complex surgeries, to the treatment of chronic conditions, such as arthritis and
back pain. As of June 30, 1998, the Company had affiliated with physician
practices ("Practices") operating in Arizona, California, Florida, Pennsylvania,
New Jersey, Nevada and Texas by entering into Management Services Agreements.
The Company was incorporated in Delaware in January 1996 and affiliated with its
first Practice in July 1996. At December 31, 1996, the Company had entered into
Management Services Agreements with three Practices comprising 34 physicians.
During the year ended December 31, 1997, the Company entered into an IPA with 42
physicians in Arizona and had entered into 22 additional Management Service
Agreements with 80 physicians. During the three months ended March 31, 1998, the
Company entered into Management Services Agreements with two Practices
comprising four physicians. During the three months ended June 30, 1998, the
Company entered into Management Services Agreements with five Practices
comprising 17 physicians. Additionally, the Company has assisted with several
affiliated practices in adding new physicians to the existing practice. The
Company has also facilitated the combination, where appropriate, of certain solo
practices into larger existing practices. Through July 31, 1998, the Company has
affiliated with a total of 34 practices currently comprising 142 physicians, and
currently has 46 physicians affiliated with its IPA.
The total consideration generally paid to a Practice's physicians, once the
Practice has agreed to affiliate with the Company, is based on a multiple of the
Company's management fee plus the fair market value of the Practice's furniture,
fixtures and equipment and, subject to legal limitations regarding Medicare and
Medicaid receivables and the estimated net realized value of its accounts
receivable. The Company, beginning April 1998, typically will not be
11
<PAGE>
PART I
FINANCIAL INFORMATION -- (CONTINUED)
purchasing the Practice's accounts receivable. The consideration historically
paid by the Company generally consisted of the Company's Common Stock, cash and
the assumption of certain liabilities (principally notes payable to financial
institutions secured by receivables of the Practice, which notes were repaid at
the time the transaction was consummated). In exchange for this consideration,
the Practice entered into a 40-year Management Services Agreement with the
Company.
Practice revenues, net represents the gross revenues of the affiliated
Practices, the IPA, and the ancillary service facilities reported at the
estimated realizable amounts from patients, third party payors and others for
services rendered, net of contractual and other adjustments. Contractual
adjustments typically result from the differences between the established rates
for services and the amounts paid by government sponsored health care programs,
other insurers and other payors. The Company estimates that approximately 15%
and 14% of practice revenues, net were received under government sponsored
health care programs (principally, the Medicare and Medicaid programs) during
the three months ended June 30, 1998 and 1997, respectively. The Practices have
numerous agreements with managed care and other organizations to provide
physician services based on negotiated fee schedules.
Laws and regulations governing Medicare and Medicaid programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory actions including fines, penalties and exclusion
from the Medicare and Medicaid programs. Management fee revenue primarily
represents practice revenues, net less amounts retained by the Practices
(consisting principally of compensation and fees paid to physicians and other
health care providers) which are paid to the physicians pursuant to the
Management Services Agreements. Under each Management Services Agreement, the
Company assumes responsibility for the management of the non-medical operations
of the Practice, employs substantially all of the non-professional personnel
utilized by the Practice and may provide the Practice with the facilities and
equipment used in its medical practice. The Company's management fee revenue
typically consists of four components: (i) a percentage of the Practices' net
collected revenues (generally ranging from 10% to 15%), plus (ii) 100% of the
non-physician affiliated practice expenses (generally expected to range from 45%
to 55% of the Practices' net collected revenues), plus (iii) 66 2/3% of the cost
savings the Company is able to achieve through its purchasing power (generally
related to medical malpractice insurance, property and liability insurance,
group benefits and certain major medical supplies) plus (iv) a percentage of the
profits from new ancillary services at the Practices. The portion of the
management fee revenue that represents a percentage of net collected revenues is
dependent upon the Practices' revenues which must be billed and collected.
The Company's operating expenses consist primarily of the expenses incurred
in fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic and ancillary
service facilities overhead expenses, including non-professional employee
salaries, employee benefits, medical supplies, malpractice insurance premiums,
building and equipment rental and other expenses related to operations) and
general and administrative expenses (personnel and administrative expenses in
connection with maintaining a corporate office function that provides
management, contracting, administrative, marketing and development services).
As the Company continues to develop, acquire and operate additional
Ancillary Service Facilities such as ambulatory surgery centers, MRI diagnostic
imaging centers and rehabilitative therapy units, the mix and relationship of
revenues and operating expenses will differ from historical trends through
12
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PART I
FINANCIAL INFORMATION -- (CONTINUED)
June 30, 1998. The impact of these activities on the mix of revenues and
expenses cannot be determined at this time.
The Company's future revenues and profitability are largely dependent upon
its ability to continue to affiliate with new Practices and develop Ancillary
Service Facilities. As a result of the Company's rapid growth, costs and
expenses have exceeded management fee revenues due to the start-up nature of the
Company. The level of these costs and expenses are expected to continue to
increase but at a decreasing rate as affiliations with additional Practices are
achieved and the Company adds to its management infrastructure.
On November 20, 1997, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board reached a consensus concerning certain
matters relating to the physician practice management industry with respect to
the requirements which must be met to consolidate a managed professional
corporation and the accounting for business combinations involving professional
corporations. In accordance with the EITF's guidance, the Company will
discontinue use of the display method to report revenues from management
contracts in financial statements for periods ending after December 15, 1998.
Thus, after December 15, 1998 fees from management contracts will be reported as
a single line item in the Company's consolidated financial statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
The following table sets forth the percentages of the Practices' revenue
represented by certain items reflected in the Company's condensed consolidated
statements of operations. As a result of the Company's limited period of
existence and affiliation with the Practices, the Company does not believe that
comparisons between periods and percentage relationships within the periods set
forth below are meaningful.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
30,
-----------------------
1998 1997
------ ------
<S> <C> <C>
Practice revenues, net.................................... 100.0% 100.0%
Less: amounts retained by physician groups................ (47.2) (47.3)
------ ------
Management fee revenue.................................... 52.8 52.7
Operating expenses and other expenses:
Medical support services................................ 39.9 48.6
General and administrative.............................. 5.3 14.1
Depreciation and amortization........................... 3.6 9.1
------ ------
Total expenses....................................... 48.8 71.8
------ ------
Interest Expense.......................................... 3.2 2.6
Income (loss) before extraordinary item................... 0.8 (21.7)
------ ------
Extraordinary item, loss on extinguishment of debt........ (8.8) 0.0
------ ------
Net loss.................................................. (8.0)% (21.7)%
====== ======
</TABLE>
Practices revenues, net. For the three months ended June 30, 1998,
practice revenues, net was $34.4 million compared to $11.3 million for the three
months ended June 30, 1997. The significant increase was the result of the
Company reflecting revenues from 32 practice affiliation transactions for the
three months ended June 30, 1998 compared to the Company reflecting revenues
from a total of 8
13
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PART I
FINANCIAL INFORMATION -- (CONTINUED)
practice affiliation transactions for the three months ended June 30, 1997.
Additionally, the Company also reflected revenues from its two surgery centers,
the expansion of other ancillary services, in particular, physical and
rehabilitative therapy and its IPA for the three months ending June 30, 1998.
Amounts retained by physician groups. For the three months ended June 30,
1998, amounts retained by physician groups was $16.2 million compared to $5.3
million for the three months ended June 30, 1997. The significant increase was
the result of the Company having had an additional 24 practice affiliation
transactions for the three months ended June 30, 1998 compared to the Company
having only 8 practice affiliation transactions for the three months ended June
30, 1997.
Management fee revenue. For the three months ended June 30, 1998,
management fee revenue was $18.2 million compared to $5.9 million for the three
months ended June 30, 1997. The $12.3 million increase was a result of the
factors set forth above.
Medical Support services. For the three months ended June 30, 1998, medical
support services, principally clinic overhead expenses, was $13.7 million
compared to $5.5 million for the three months ended June 30, 1997. The $8.2
million increase was a result of the factors set forth above.
General and administrative. General and administrative expenses for the
three months ended June 30, 1998 were $1.8 million, as compared to $1.6 million
for the three months ended June 30, 1997. The increase primarily relates to the
Company's increased development of infrastructure to support the additional
practice affiliations.
While the Company expects that general and administrative expenses will
continue to increase as more practices affiliate with the Company and the
Company continues to build its infrastructure, it also expects them to decline
as a percentage of both practice revenues, net and management fee revenue.
Depreciation and amortization. Depreciation and amortization for the three
months ended June 30, 1998 was $1.3 million, as compared to $1.0 million for the
three months ended June 30, 1997. The depreciation expense related to acquired
furniture, fixtures and equipment and the amortization expense related primarily
to Management Services Agreements. The increase related to the additional
practice affiliation transactions entered into since June 30, 1997. The
intangible assets related to the Management Services Agreements were being
amortized over 4 years during the three months ended June 30, 1997 as a result
of the vesting provisions contained in the restricted stock agreements relating
to Common Stock which was issued by the Company to physicians in connection with
the practice affiliation transactions. As of April 1, 1998, the Company amended
and restated substantially all of its restricted stock agreements to eliminate
the vesting provisions related to these shares of Common Stock. Accordingly, in
April 1998 the Company revised the estimated useful lives of its assets related
to the Management Services Agreements and is amortizing the remaining balances
over periods ranging from 4 to 25 years. Consequently, the monthly per practice
amortization expense related to the practice affiliation transactions decreased
beginning April 1998. The Company expects that depreciation and amortization
expense levels will continue to increase as additional practices affiliate with
the Company. The depreciation and amortization expense, based on amortization
periods ranging from 4 to 25 years, is expected to remain relatively constant as
a percentage of both practice revenue, net and management fee revenue. Although
the Company's net unamortized balance of intangible assets acquired ($62.7
million at June 30, 1998) is not considered to be impaired at June 30, 1998, any
future determination that a significant impairment has occurred would require
the write-off of the impaired portion of unamortized intangible assets, which
could have a material adverse effect on the Company's results of operations.
14
<PAGE>
PART I
FINANCIAL INFORMATION -- (CONTINUED)
Interest expense. Interest expense for the three months ended June 30,
1998, was $1.1 million compared to $294,000 for the three months ended June 30,
1997. This increase related to borrowings related to practice affiliation
transactions and ancillary service facilities acquisitions. The company expects
to continue to incur interest expense primarily as a result of borrowings
related to anticipated future affiliation transactions and ancillary service
facilities acquisitions.
Extraordinary item. The Company incurred an extraordinary loss of $3.0
million related to the write-off of deferred financing costs as a result of
refinancing its existing debt. See -- "Liquidity and Capital Resources" for
further discussion.
Net loss. The net loss for the three months ended June 30, 1998 was $2.7
million, or $0.14 per share of Common Stock, as a result of the factors set
forth above. The net loss for the three months ended June 30, 1997 was $2.4
million, or $0.43 per share of Common Stock as a result of the factors set forth
above.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 and March 31, 1998, the Company had $20.2 million and
$26.6 million, respectively in working capital and $3.6 million, and $9.5
million, respectively in cash and cash equivalents. The Company's principal
sources of liquidity as of June 30, 1998 and March 31, 1998 consisted of cash
and cash equivalents of $3.6 million and $9.5 million, respectively, and $26.4
million and $25.8 million of accounts receivable, respectively.
Cash used in operating activities for the three months ended June 30, 1998
and 1997, was $3.9 million and $2.5 million, respectively. The increase in cash
used in operating activities as compared to the three months ended June 30, 1997
was primarily related to the decrease in accrued expenses and interest partially
offset by the increase in accounts payable.
Cash used in investing activities for the three months ended June 30, 1998
and 1997 was $17.4 million and $8.1 million, respectively, an increase of $9.3
million, primarily related to practice affiliation transactions and acquisitions
of ancillary service facilities. The resulting increases were primarily related
to intangible assets, accounts receivable and furniture, fixtures and equipment.
Cash provided by financing activities for the three months ended June 30,
1998 and 1997 was $15.4 million and $16.0 million, respectively. The decrease
was primarily attributable to the additional debt borrowings due to refinancing
substantially all of the Company's debt and the proceeds from the issuance of
redeemable preferred stock partially offset by payments on the Company's debt.
In April 1998, the Company issued in the aggregate, $2.3 million of
convertible promissory notes (the "Convertible Notes") in conjunction with three
practice affiliation transactions. The Convertible Notes bear interest at 5% and
are convertible into shares of Common Stock at a conversion rate of $8.75 on
unpaid principal amounts at the option of the holder after one year from the
affiliation date subject to vesting over a period of four years.
In June 1998, the Company, in connection with a practice affiliation
transaction, became obligated to issue $2.4 million of Series B Convertible
Preferred Stock ("Series B") which is convertible into Common Stock. The Company
has authorized the issuance of up to 500,000 Series B shares. None were issued
and outstanding as of June 30, 1998. The Series B carries a 7% cumulative
dividend that is payable in additional shares of stock or cash. The Company is
not obligated to issue any shares of Series B on account of any transactions
until the first year anniversary of the practice affiliation. The Series B
conversion to Common Stock is based, in part, on the Market Price (as defined in
the Certificate of Designation for the Series B) into shares of
15
<PAGE>
PART I
FINANCIAL INFORMATION -- (CONTINUED)
Common Stock; however, the number of Common Stock shares obligated to be issued
cannot be determined at this time.
On June 30, 1998 the Company refinanced substantially all of its debt with
its senior lender and other lenders with proceeds from a $60.0 million credit
facility consisting of $10.0 million revolving line of credit (the "Revolving
Loans"), $25.0 million term note (the "Tranche B Loan") and a $25.0 million
acquisition line of credit in which all amounts outstanding at June 30, 2000
will convert to a term loan (the "Tranche A Loan") (collectively referred to as
the "Credit Facility"). The Credit Facility is secured by substantially all of
the assets of the Company and is supported by guarantees of the subsidiaries of
the Company.
Under the Revolving Loans, the Company may borrow up to $10.0 million
subject to a borrowing base equal to 80% of the product of Eligible Accounts
receivable multiplied by the Collection Rate (each as defined in the Credit
Facility). The Revolving Loans have a maturity of June 30, 2001 (the Revolving
Loans may be extended for two one-year terms at the discretion of the lender)
and interest is payable quarterly and, at the option of the Company, will equal
(a) a function of the greater of 0.50% plus the Federal Funds Rate or the prime
lending rate plus a margin ranging from .0%-1.25% based on the Company's
leverage ratio or (b) the LIBOR rate plus a margin ranging from 1.75%-3.00%
based on the Company's Leverage Ratio (as defined in the Credit Facility) (each
such rate the "Interest Rate").
Under the Tranche A Loans, the Company may borrow up to $25.0 million
through June 30, 2000 for Qualified Acquisitions (as defined in the Credit
Facility). The Tranche A Loans are payable in quarterly installments (assuming
the entire amount is borrowed) of (a) $1.25 million beginning September 30, 2000
through June 30, 2001; (b) $1.88 million from September 30, 2001 through June
30, 2002 and (c) $3.1 million from September 30, 2002 through March 31, 2003
with the remaining unpaid balance due and payable on June 30, 2003. Interest is
payable quarterly at rates equal to the Interest Rate.
The Tranche B Loan is payable $62,500 quarterly through June 30, 2001;
$312,000 quarterly from September 30, 2001 through June 30, 2003; $5.4 million
quarterly through March 31, 2004 with any unpaid balance due on June 30, 2004.
Interest on the Tranche B Loan is payable quarterly, varies, and at the option
of the Company will equal (a) a function of the greater of 0.50% plus the
Federal Funds Rate or the prime lending rate (8.5% at June 24, 1998) plus a
margin ranging from .75%-1.50%, based on the Company's Leverage Ratio (as
defined in the Credit Facility) or (b) the LIBOR rate approximately 5.5% at June
24, 1998) plus a margin ranging from 2.5%-3.25% based on the Company's Leverage
Ratio.
Under the terms of the Credit Facility, the Company may be required to make
mandatory annual prepayments beginning in 2002 in an amount equal to 50% of
Excess Cash Flow (as defined in the Credit Facility). The Company is also
required to meet certain covenants, including (a) the maintenance of certain
fixed charge, interest coverage and leverage ratios, (b) the maintenance of a
minimum level of EBITDA and tangible net worth (as defined in the Credit
Facility) and (c) limitations on capital expenditures. The Credit Facility also
prohibits, with certain exceptions, the Company from paying cash dividends.
After giving effect to the Credit Facility, the Company's indebtedness as
of March 31, 1998 that was refinanced has been classified as long-term debt in
the accompanying condensed consolidated balance sheet. For the three months
ended June 30, 1998 the Company incurred an extraordinary charge of $3.0 million
related to the write-off of deferred financing costs in connection with early
extinguishment of its debt.
16
<PAGE>
PART I
FINANCIAL INFORMATION -- (CONTINUED)
Under the terms of the Credit Facility the Company has the right to request
letters of credit in an aggregate amount not to exceed $2.0 million and with a
term not to exceed one year from the date of issuance.
In connection with the Credit Facility, the Company issued pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") a new Series A
Redeemable Convertible Preferred Stock, par value $.01 per share, (the "Series
A") to an affiliate of its agent bank in exchange for cash of $7.0 million This
Series A is convertible into 1,473,684 shares of Common Stock. The Series A
carries a 6% cumulative dividend that is payable in cash. Pursuant to the
Purchase Agreement, the Company may also be obligated through September 8, 1998,
to issue an additional $3.0 million of Series C Redeemable Convertible Preferred
Stock (the "Series C") for cash. The Series C, if issued, will be substantially
identical to the Series A and is also convertible into Common Stock. The number
of shares of Common Stock to be issued upon conversion is subject to certain
future factors and, accordingly, cannot be determined at this time. In addition,
pursuant to the Purchase Agreement, the investor obtained the right to nominate
one member to the Board of Directors of the Company and certain other rights.
If the Company is unable to obtain $26.5 million in annual pro forma
revenues from New Practice Affiliations (as defined in the Purchase Agreement),
by September 8, 1998, the Company may be required to issue up to an aggregate of
1,051,449 additional nominally priced warrants to purchase Common Stock. If the
Company does not complete an effective registration statement to cover the
underlying shares of its Common Stock issued pursuant to the Purchase Agreement
by an agreed upon date (as defined in the Purchase Agreement) the Company will
be required to issue additional warrants to purchase Common Stock. The potential
obligations for the warrants described above are based on certain future targets
and accordingly the actual amount of warrants and the underlying Common Stock
that may be issued pursuant to the Purchase Agreement cannot be determined at
this time.
The Series A are subject to redemption upon certain events including, but
not limited to, a change in control of the Company or seven years from the date
of the original issuance. However, as long as the Credit Facility is in place,
the redemption by the holder of the Series A is prohibited. If the Series A has
not been converted five years subsequent to the date of issuance, the holder
will receive increased participation on the Board of Directors, the dividend
rate will increase to 12% and the Company may be required to issue additional
warrants to purchase Common Stock.
The Series A are subject to anti-dilution provisions which may ultimately
decrease the conversion price resulting in the issuance of additional shares of
Common Stock upon the conversion of the Series A.
In connection with the Credit Facility and the Purchase Agreement, the
Company issued an aggregate of 446,451 warrants to purchase Common Stock with
exercise prices ranging from $0.01-$9.00 per share with a weighted average
exercise price of $3.53 per share. The fair values per warrant based on the
Black-Scholes valuation method range from $3.26-$4.75 per share. Certain of the
warrants contain put rights.
The Company's affiliation and expansion programs will require substantial
capital resources. In addition, the operations and expansion of the existing
practice affiliations, including the addition of ancillary service facilities,
will require ongoing capital expenditures. The financing of future affiliations,
business expansion and ongoing operations is anticipated to be provided by a
combination of the Credit Facility, certain lease agreements and cash flows from
operations. In addition, the Company's short term liquidity is also affected by
the amounts and timing of collections received on accounts receivable balances.
No assurance can be given that the collections will be received on a
17
<PAGE>
PART I
FINANCIAL INFORMATION -- (CONTINUED)
timely basis or in amounts sufficient to meet the short term liquidity needs of
the Company. The Company believes that the combination of the Credit Facility,
certain lease agreements and cash flows from operations will be sufficient to
meet its currently anticipated operating and capital expenditure requirements
and working capital needs over the short term. In order to meet its affiliation
and expansion goals as well as its long-term liquidity needs, the Company
expects to incur, from time to time, additional short-term and long-term
indebtedness and to issue additional debt and equity securities, the
availability and terms of which will depend upon market and other conditions;
and thus, no assurance can be given that such financing sources will be
available on terms acceptable to the Company.
Impact of Year 2000. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any computer programs having time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions in a timely
manner. As part of the Company's organization and development, the software
purchased and installed to date, as well as the software under evaluation for
future purchase and installation, is Year 2000 compliant. The Company is in the
process of initiating formal communication with all of the significant payors
and third-party insurers of its affiliated practices to determine the extent to
which the interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. There is no assurance the systems of other
companies, on which the Company's systems rely or interface, will be timely
converted and would not have an adverse effect on the Company's operations or
cash flows.
REIMBURSEMENT RATES
The health care industry is experiencing a trend toward cost containment as
payors seek to improve lower reimbursement and utilization rates with providers.
Further reductions in payments to health care providers or other changes in
reimbursement for health care services could adversely affect the practices with
which the Company is affiliated and adversely affect the Company's results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 15, 1997, an action entitled John Finlay v. Bone, Muscle & Joint,
Inc., was filed in the United States District Court for the Southern District of
Texas. The action asserts claims for breach of contract arising out of an
alleged employment agreement and alleged non-qualified stock option agreement
between plaintiff and the Company. Plaintiff's complaint sought compensatory
damages of approximately $135,000 pursuant to the alleged employment agreement
as well as specific performance for the delivery of 16,071 shares of the
Company's common stock pursuant to the alleged non-qualified stock option
agreement. On May 11, 1998, a Stipulation and Order of Dismissal with Prejudice
was entered in the United States District Court for the Southern District of
Texas pursuant to a settlement agreement dated as of May 11, 1998.
On September 3, 1997, an action entitled Robert P. Lehmann, M.D. et al. v.
Bone, Muscle & Joint, Inc., et al. was filed. In this action, which is currently
pending in the United States District Court for the Southern District of Texas,
plaintiffs have asserted claims for breach of contract, common law fraud and
promissory estoppel arising out of an alleged restricted stock purchase
agreement between plaintiffs and the Company. Plaintiffs amended complaint seeks
unspecified compensatory and exemplary damages as well as specific performance
for the delivery of 117,860 shares of the Company's Common Stock. The Company
intends to defend the action vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has issued certain of its securities in transactions exempt
from registration under the Securities Act of 1933 (the "Act") as follows:
In reliance upon Section 4(2) of the Act, in April 1998 the Company
issued approximately $1.5 million of promissory notes convertible into
Common Stock to Seaview in connection with a Management Services Agreement.
See Note 4 to the Condensed Consolidated Financial Statements.
In reliance upon Section 4(2) of the Act, in April 1998 the Company
issued a $604,000 promissory note convertible into Common Stock to
Community in connection with a Management Services Agreement. See Note 4 to
the Condensed Consolidated Financial Statements.
In reliance upon Section 4(2) of the Act, in April 1998 the Company
issued a $130,000 promissory note convertible into Common Stock to Hirsch
in connection with a Management Services Agreement. See Note 4 to the
Condensed Consolidated Financial Statements.
In reliance upon Section 4(2) of the Act, in April 1998 the Company
issued 157,071 shares of Common Stock to Douglas A. Bobb, D.O. at a value
of $7.38 per share in connection with a Management Services Agreement. See
Note 4 to the Condensed Consolidated Financial Statements.
In reliance upon Section 4(2) of the Act, in June 1998 the Company
entered into a Management Services Agreement with Boca Raton Orthopaedic
Group, whereby the Company is obligated to issue $2.4 million of Series B
Preferred Stock (the "Series B"), which is convertible into Common Stock.
The Company did not issue any shares of Series B during the period covered
by this Quarterly Report on Form 10-Q.
In reliance upon section 4(2) of the Act, on June 30, 1998 the Company
issued, pursuant to a Securities Purchase Agreement (the "Purchase
Agreement") 1,473,684 shares of its Series A Preferred Stock, which is
convertible into an equal number of shares of Common Stock, to Paribas
Principal Incorporated. At such time, the Company refinanced substantially
all of its then existing debt with the proceeds from a $60.0 million credit
facility (the "Credit Facility"). In connection with the Purchase Agreement
and the Credit Facility, the Company issued to certain of
19
<PAGE>
the parties thereto an aggregate of 446,451 warrants to purchase Common
Stock, with exercise prices ranging from $0.01-$9,00 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Warrant Agreement, dated as of June 30, 1998, between the Company and
Paribas Principal Incorporated. Incorporated herein by reference to Exhibit
4.1 of the Schedule 13D of the Company as filed with the Securities and
Exchange Commission on July 10, 1998.
4.2 Certificate of Designation for the Series A Preferred Stock, filed with the
Secretary of State of the State of Delaware on June 29, 1998. Incorporated
herein by reference to Exhibit 4.2 of the Schedule 13D of the Company as
filed with the Securities and Exchange Commission on July 10, 1998.
4.3 Certificate of Designation for the Series B Preferred Stock, filed with the
Secretary of State of the State of Delaware on July 28, 1998.
4.4 Securities Purchase Agreement, dated as of June 30, 1998, between the
Company and Paribas Principal Incorporated. Incorporated herein by
reference to Exhibit 4.3 of the Schedule 13D of the Company as filed with
the Securities and Exchange Commission on July 10, 1998.
4.5 Common Stock Purchase Warrant, dated as of June 30, 1998, exercisable into
165,000 shares of Common Stock, between the Company and Paribas.
Incorporated herein by reference to Exhibit 4.4 of the Schedule 13D of the
Company as filed with the Securities and Exchange Commission on July 10,
1998.
4.6 Common Stock Purchase Warrant, dated as of June 30, 1998, exercisable into
175,000 shares of Common Stock between the Company and Paribas.
Incorporated herein by reference to Exhibit 4.5 of the Schedule 13D of the
Company as filed with the Securities and Exchange Commission on July 10,
1998.
10.1 Credit Agreement, dated as of June 30, 1998, entered into by and among the
Company, the lenders named therein and Paribas, as agent.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On May 22, 1998, a Current Report on Form 8-K was filed with the Securities
and Exchange Commission regarding the change in the fiscal year of the Company.
20
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
<TABLE>
<S> <C>
Date: August 14, 1998 BMJ MEDICAL MANAGEMENT, INC.
By: /s/David H. Fater
David H. Fater
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
4.1 Warrant Agreement, dated as of June 30, 1998, between the
Company and Paribas Principal Incorporated. Incorporated
herein by reference to Exhibit 4.1 of the Schedule 13D of
the Company as filed with the Securities and Exchange
Commission on July 10, 1998.
4.2 Certificate of Designation for the Series A Preferred Stock,
filed with the Secretary of State of the State of Delaware
on June 29, 1998. Incorporated herein by reference to
Exhibit 4.2 of the Schedule 13D of the Company as filed with
the Securities and Exchange Commission on July 10, 1998.
4.3 Certificate of Designation for the Series B Preferred Stock,
filed with the Secretary of State of the State of Delaware
on July 28, 1998.
4.4 Securities Purchase Agreement, dated as of June 30, 1998,
between the Company and Paribas Principal Incorporated.
Incorporated herein by reference to Exhibit 4.3 of the
Schedule 13D of the Company as filed with the Securities and
Exchange Commission on July 10, 1998.
4.5 Common Stock Purchase Warrant, dated as of June 30, 1998,
exercisable into 165,000 shares of Common Stock, between the
Company and Paribas. Incorporated herein by reference to
Exhibit 4.4 of the Schedule 13D of the Company as filed with
the Securities and Exchange Commission on July 10, 1998.
4.6 Common Stock Purchase Warrant, dated as of June 30, 1998,
exercisable into 175,000 shares of Common Stock between the
Company and Paribas. Incorporated herein by reference to
Exhibit 4.5 of the Schedule 13D of the Company as filed with
the Securities and Exchange Commission on July 10, 1998.
10.1 Credit Agreement, dated as of June 30, 1998, entered into by
and among the Company, the lenders named therein and
Paribas, as agent.
27.1 Financial Data Schedule
</TABLE>
22
Exhibit 4.3
BMJ MEDICAL MANAGEMENT, INC.
--------------------------------------------------------
CERTIFICATE OF DESIGNATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
--------------------------------------------------------
Series B Convertible Preferred Stock
--------------------------------------------------------
The undersigned, Neil F. Luria, Secretary of BMJ Medical
Management, Inc., a Delaware corporation (the "Corporation"), does hereby
certify that the following resolution has been duly adopted by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation (the "Board of
Directors") by the provisions of the Amended and Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), there
hereby is created, out of the shares of Preferred Stock of the Corporation
authorized in Article IV of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock of the Corporation consisting of
500,000 shares, par value $0.01 per share, which series shall have the following
powers, designations, preferences and relative, participating, optional and
other rights, and the following qualifications, limitations and restrictions (in
addition to the powers, designations, preferences and relative, participating,
optional and other rights, and the qualifications, limitations and restrictions,
set forth in the Certificate of Incorporation which are applicable to the
Preferred Stock):
1. Designation and Amount; Ranking. (a) This series of
Preferred Stock shall be designated Series B Convertible Preferred Stock (the
"Convertible Preferred Stock"), and the authorized number of shares constituting
such series shall be 500,000, par value $0.01 per share. The price and
liquidation preference (the "Liquidation Preference") of shares of Convertible
Preferred Stock shall be $100.00 per share.
(b) The shares of Convertible Preferred Stock shall rank
senior to all other classes of equity securities of the Corporation as to the
payment of dividends and the distribution of assets upon a liquidation,
dissolution or winding up of the Corporation except that the shares of
Convertible Preferred Stock shall rank junior to the shares of Series A
Preferred Stock and the Series C Preferred Stock as to the payment of dividends
and the distribution of assets upon a liquidation, dissolution or winding up of
the Corporation.
1
<PAGE>
2. Dividends. The holders (the "Holders") of record of the Original
Convertible Preferred Stock (as hereinafter defined) shall be entitled to
receive, out of any assets legally available therefor, cash dividends on the
shares of Original Convertible Preferred Stock at the annual rate of 7% of the
Liquidation Preference per share of Original Convertible Preferred Stock in
accordance with this Section 2; provided, however, that in lieu of paying
dividends in cash, the Corporation may, at its sole option and discretion, elect
to pay such dividends in kind, in the equivalent number of shares of Convertible
Preferred Stock (such in kind dividend is the "PIK Dividend"). The Holders of
shares of Convertible Preferred Stock received as a PIK Dividend shall not be
entitled to receive any dividends on such shares. An initial dividend shall be
payable to the Holders on the date that any shares of Original Convertible
Preferred Stock are first issued in an amount equal to the product of (a) the
aggregate Liquidation Preference applicable to such Original Convertible
Preferred Stock and (b) either (i) in the event that such Original Convertible
Preferred Stock is issued on the first anniversary of the consummation of the
applicable Affiliation Transaction (as hereinafter defined), 7%, or (ii) in the
event that such Original Convertible Preferred Stock is issued on the third
anniversary of the consummation of the applicable Affiliation Transaction, 21%.
Dividends shall also be payable to the Holders of the outstanding shares of
Original Convertible Preferred Stock on the last Business Day (as hereinafter
defined) immediately preceding the Anniversary Date (as hereinafter defined)
(the "Annual Dividend"). The Annual Dividend on shares of Original Convertible
Preferred Stock shall accrue from and including the date of original issuance
thereof up to but excluding the Anniversary Date. The Annual Dividend shall be
payable to Holders of record as they appear on the stock register of the
Corporation on the last Business Day immediately preceding the Anniversary Date.
During any period when the Corporation has failed to issue any dividend on the
Original Convertible Preferred Stock for any period and until all unissued
dividends, whether or not declared, on the Original Convertible Preferred Stock
shall have been issued in full or declared and set apart for issuance, the
Corporation shall not: (i) declare or pay dividends or make any other
distributions on any shares of capital stock of the Corporation, whether common
or preferred which are junior to the Convertible Preferred Stock (the "Junior
Stock"), other than dividends or distributions payable in Junior Stock or (ii)
redeem, purchase or otherwise acquire for consideration any shares of Junior
Stock, other than redemptions, purchases or other acquisitions of shares of
Junior Stock in exchange for any other shares of Junior Stock. If, for any
reason, the Corporation shall fail to pay a dividend on the Original Convertible
Preferred Stock when due, such dividend shall nonetheless accrue on such due
date but no interest or right to further dividends shall accrue thereon.
3. Mandatory and Optional Conversions.
(a) Mandatory Conversion.
(i) On the Anniversary Date, the Corporation and each Holder of any
such Original Convertible Preferred Stock shall take such steps as are necessary
to cause all shares of Convertible Preferred Stock then held by such Holder,
together with all accrued and unpaid PIK Dividends thereon, less any shares of
Convertible Preferred Stock previously converted by the Holder pursuant to
Section 3(b) hereof, to be converted (the "Mandatory Conversion") into a number
of shares of common stock, par value $0.001 per share, of the Corporation (the
"Common Stock") equal to the quotient obtained by dividing (A) the aggregate
Liquidation Preference
2
<PAGE>
applicable to the number of shares of Convertible Preferred Stock (whether
accrued or outstanding) to be converted, by (B) the Market Price (as hereinafter
defined).
(ii) Notwithstanding Section 3(a)(i) hereof, on the Anniversary
Date, the Corporation may, at its sole option and discretion and in lieu of the
issuance of Common Stock pursuant to Section 3(a)(i) hereof, elect to pay to the
applicable Holder an amount in cash equal to the Liquidation Preference of all
such shares of Convertible Preferred Stock (whether accrued or outstanding) to
be converted into Common Stock pursuant to Section 3(a)(i) hereof.
(iii) On the Anniversary Date, each applicable Holder shall present
and surrender to the Corporation at its principal executive offices the
certificate or certificates representing the shares of Convertible Preferred
Stock to be converted into Common Stock or cash pursuant to this Section 3(a).
All such certificates shall be in proper form for transfer to the Corporation
duly executed by the registered Holder thereof or shall be accompanied by a duly
executed stock power in proper form for transfer to the Corporation. On the
Anniversary Date, all applicable shares of Convertible Preferred Stock shall
cease to accrue dividends, shall be cancelled and shall represent only the right
to receive shares of Common Stock or cash as provided in this Section 3(a). As
promptly as possible following the Anniversary Date and the receipt of the
certificate or certificates representing shares of Convertible Preferred Stock
affected thereby (together with all associated transfer documentation required
by this Section 3(a)(iii)) and, in any event, not later than 20 Business Days
thereafter, the Corporation shall (i) cause a certificate representing the
number of shares of Common Stock into which such Convertible Preferred Stock is
converted pursuant to Section 3(a)(i) hereof to be issued in the name of the
surrendering Holder and mail such certificate to such Holder at his or her
address as it appears on the stock records of the Corporation, or (ii) pay to
the surrendering Holder the cash payable to such Holder in accordance with
Section 3(a)(ii) hereof by check made payable to such Holder and mail such check
to such Holder at his or her address as it appears on the stock records of the
Corporation.
(b) Conversion at the Option of the Holder.
(i) At any time and from time to time during the period beginning on
the first Business Day following the issuance of any Original Convertible
Preferred Stock and ending on the last Business Day immediately preceding the
Anniversary Date, each applicable Holder of any Convertible Preferred Stock
shall have the right to convert (the "Optional Conversion") all shares of
Convertible Preferred Stock then held by such Holder, together with all accrued
and unpaid PIK Dividends thereon, into a number of shares of Common Stock equal
to the quotient obtained by dividing (A) the aggregate Liquidation Preference
applicable to the number of shares of Convertible Preferred Stock (whether
accrued or outstanding)to be converted by (B) 125% of the Market Price;
provided, however, that in no event shall the amount computed in accordance with
this clause (B) be less than $4.50.
(ii) In the event that any applicable Holder desires to convert
shares of Convertible Preferred Stock into shares of Common Stock pursuant to
Section 3(b)(i) hereof, such Holder shall deliver (A) written notice thereof
(the "Notice") to the Corporation, which notice shall (x) specify the precise
numberof shares of Convertible Preferred Stock which such Holder desires to be
converted into shares of Common Stock and (y) actually be received by the
3
<PAGE>
Corporation not later than the last Business Day immediately preceding the
Anniversary Date and (B) the certificate or certificates representing the shares
of Convertible Preferred Stock to be converted into Common Stock pursuant to
Section 3(b)(i) hereof. All such certificates shall be in proper form for
transfer to the Corporation duly executed by the registered Holder thereof or
shall be accompanied by a duly executed stock power in proper form for transfer
to the Corporation. Upon receipt of the Notice and the certificate or
certificates representing the shares of Convertible Preferred Stock described
therein, all affected shares of Convertible Preferred Stock shall cease to
accrue dividends, shall be cancelled and shall represent only the right to
receive shares of Common Stock as provided in Section 3(b)(i) hereof (any such
date is hereinafter referred to an "Optional Conversion Date"). As promptly as
possible following the Optional Conversion Date and, in any event, not later
than 20 Business Days thereafter, the Corporation shall cause a certificate
representing the number of shares of Common Stock into which such Convertible
Preferred Stock is converted pursuant to Section 3(b)(i) hereof to be issued in
the name of the surrendering Holder and mail such certificate to such Holder at
his or her address as it appears on the stock records of the Corporation.
Subject to Section 5 hereof, in case fewer than all of the shares of Convertible
Preferred Stock represented by any such surrendered certificate are affected by
any optional conversion pursuant to this Section 3(b), the Corporation shall, at
its expense, cause a new certificate representing the unconverted shares of
Convertible Preferred Stock to be issued to, and in the name of, the applicable
Holder.
4. Change of Control. (a) In the event of a Change of Control (as
hereinafter defined), the Corporation shall have the option, at its sole option
and discretion, to redeem all of the shares of Convertible Preferred Stock then
outstanding at a price per share payable in cash equal to the Liquidation
Preference applicable to each such share plus all accrued and unpaid dividends
thereon (the "Redemption Price") to and including the Redemption Date (as
hereinafter defined). Notwithstanding the first sentence of this Section 4(a),
the Company may, at its sole option and discretion and in lieu of the payment
of cash contemplated by such first sentence, cause the Acquiror (as hereinafter
defined) to issue and deliver to each Holder, in exchange for all of the shares
of Convertible Preferred Stock then held by such Holder, together with all
accrued and unpaid dividends thereon, a preferred stock equity security of the
Acquiror (the "Substituted Security") equal in face amount to the Redemption
Price containing terms and provisions substantially identical in all material
respects to the terms and provisions of the Convertible Preferred Stock so
exchanged. The Substituted Security shall (i) have a liquidation preference
equal to the Liquidation Preference, (ii) accrue and pay dividends of the type
and in the amounts contemplated hereby (such dividends to begin to accrue on the
first day following the Redemption Date), (iii) be convertible into shares of
common stock of the Acquiror substantially as set forth herein, and (iv)
otherwise contain such other terms and provisions as are necessary to ensure
that the provisions hereof are applicable to the Substituted Security as nearly
as may be practicable.
(b) In the event that the Company desires to redeem the shares
of Convertible Preferred Stock pursuant to Section 4(a) hereof, the Company
shall, not later than 30 days following the consummation of any Change of
Control, mail written notice thereof (the "Redemption Notice") to each Holder
(the date of the Redemption Notice being referred to as the "Redemption Date").
The Redemption Notice shall (i) indicate that a Change of Control has occurred,
(ii) specify the form of payment to be made to the Holders on account of the
Change of Control, and (iii) specify the procedures required to be followed by
the Holders in order to receive
4
<PAGE>
the Redemption Price. On the Redemption Date, all shares of Convertible
Preferred Stock shall cease to accrue dividends, shall be canceled and shall
represent only the right to receive the Redemption Price.
5. No Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of any shares of Convertible Preferred Stock. In lieu of
any fractional share otherwise issuable in respect of the aggregate number of
shares of Convertible Preferred Stock of any Holder that are converted, such
Holder shall be entitled to receive an amount in cash (computed to the nearest
cent) equal to the same fraction of the applicable Market Price. If more than
one certificate representing the Convertible Preferred Stock shall be
surrendered for conversion at one time by or for the same Holder, the number of
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of the Convertible Preferred Stock so
surrendered.
6. Reservation of Common Stock. The Corporation shall at all times reserve
and keep available out of its authorized and unissued Common Stock, solely for
issuance upon the conversion of shares of Convertible Preferred Stock, as herein
provided, free from preemptive rights, such maximum number of shares of Common
Stock as shall from time to time be issuable upon the conversion of all of the
shares of Convertible Preferred Stock then outstanding.
7. Effect of Conversions. The person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
any conversion shall be deemed to have become the holder or holders of record of
the shares represented thereby on (a) in the case of the Mandatory Conversion,
the Anniversary Date, and (b) in the case of an Optional Conversion, the
applicable Optional Conversion Date.
8. Reissuance. Shares of Convertible Preferred Stock that have been issued
and reacquired by the Corporation in any manner, including shares purchased,
exchanged or converted, shall not be reissued and shall (upon compliance with
any applicable provisions of the Delaware General Corporation Law (the "DGCL")
have the status of authorized and unissued shares of the Preferred Stock
undesignated as to series and may be redesignated and reissued as part of any
other series of Preferred Stock.
9. No Preemptive Rights. The Holders of shares of Convertible Preferred
Stock shall have no preemptive rights, including preemptive rights with respect
to any shares of capital stock or other securities of the Corporation
convertible into or carrying rights or options to purchase any such shares.
10. Voting Rights. Except as otherwise expressly required by
the DGCL or as to any repeal, modification, or amendment to this Certificate of
Designation, which repeal, modification, or amendment shall require the
affirmative vote of the Holders of at least a majority of the shares of the
Convertible Preferred Stock then outstanding, voting separately as a class, the
Holders of the Convertible Preferred Stock shall have no voting power
whatsoever, and no Holder of the Convertible Preferred Stock shall vote or
otherwise participate in any proceeding in which actions shall be taken by the
Corporation or the stockholders thereof, or be entitled to notification of any
meeting of the Board of Directors or the stockholders of the Corporation.
5
<PAGE>
11. Transferability. No Holder of shares of Convertible Preferred Stock
shall, directly or indirectly, sell, distribute, transfer, assign, gift, pledge,
hypothecate or otherwise dispose of or encumber (whether voluntary or
involuntary) any of such shares, unless such transfer is made (a) pursuant to
either a valid gift to a member of the Immediate Family (as hereinafter defined)
of the Holder, or to an entity controlled by either the Holder, the spouse of
the Holder, or a member of the Holder's Immediate Family, or by will or the laws
of descent and distribution or (b) to any physician in the same Medical Group
(as defined in the Management Services Agreement executed and delivered in
connection with the applicable Affiliate Transaction) (any person so receiving
such shares of Convertible Preferred Stock shall be deemed a "Permitted
Transferee").
12. Liquidation. In the event of a liquidation, dissolution or winding up of
the Corporation (the "Liquidation"), the Holders of shares of Convertible
Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount in cash per share of Convertible Preferred Stock equal
to the Liquidation Preference, together with all their accrued and unpaid
dividends thereon, in preference to and in priority over any such distribution
upon shares of Junior Stock. If upon any Liquidation, the assets of the
Corporation available for distribution to the Holders of the Convertible
Preferred Stock shall be insufficient to pay such Holders the full Liquidation
Preference, the assets of the Corporation available for distribution to the
Holders of the Convertible Preferred Stock shall be distributed to such Holders
who shall share pro rata in such distribution in accordance with the number of
shares of Convertible Preferred Stock held by such Holders.
13. Antidilution. In case the Corporation shall at any time subdivide the
outstanding shares of Common Stock into a greater number of shares, the Market
Price otherwise applicable to any conversion subsequent thereto shall be
proportionately reduced and the number of shares issuable upon such conversion
shall be proportionately increased, and, conversely, in case the outstanding
shares of Common Stock shall be combined at any time into a smaller number of
shares, the Market Price otherwise applicable to any conversion subsequent
thereto shall be proportionately increased and the number of shares issuable
upon such conversion shall be proportionately reduced.
14. Definitions:
"Acquiror" shall mean the "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange Act") who or which becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of shares of Common Stock representing a
majority of the total voting power thereof on a fully diluted basis as a result
of a Change of Control.
"Affiliation Transaction" shall mean any (x) affiliation
transaction (in whatever form) occurring after the date hereof (i) between the
Corporation and any musculoskeletal physician or physical or occupational
therapy practice and (ii) in which shares of Convertible Preferred Stock are
issued by the Corporation on account of such transaction or (y) any other
applicable transaction in which the Board of Directors of the Corporation has
approved the issuance of Original Convertible Preferred Stock.
6
<PAGE>
"Anniversary Date" shall mean the first anniversary of the
issuance of any shares of the Original Convertible Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of Florida are
authorized or obligated by law or executive order to close or are closed because
of a banking moratorium or otherwise.
"Change of Control" shall mean the occurrence of either of the
following:
(a) a sale of all or substantially all the assets of the
Corporation; or
(b) any transaction, including a merger or consolidation,
the result of which is any "person" or "group"
becomes the "beneficial owner" of shares of Common
Stock representing a majority of the total voting
power thereof on a fully diluted basis.
"Immediate Family" shall mean the spouse or lineal descendants of
any Holder.
"Market Price" shall mean (a) in the case of the Mandatory
Conversion, (i) if the Common Stock is listed on one or more stock exchanges or
is quoted on the NASDAQ National Market (the "National Market"), the average of
the closing sales prices of a share of Common Stock on the primary national or
regional stock exchange on which such shares are listed or on the National
Market if quoted thereon or (ii) if the Common Stock is not so listed or quoted,
but is traded in the over the counter market (other than the National Market)
((i) or (ii) above being hereinafter referred to as the "Principal Trading
Market"), the average of the closing bid and asked prices of a share of Common
Stock, in either case for the 20 consecutive Trading Days immediately prior to
the Anniversary Date, and (b) in the case of an Optional Conversion, the average
of the closing sales price of a share of Common Stock or the average of the
closing bid and asked prices of a share of Common Stock, as applicable, on the
Principal Trading Market for the 20 consecutive Trading Days immediately
preceding the closing date of the applicable Affiliation Transaction.
"Original Convertible Preferred Stock" shall mean shares of
Convertible Preferred Stock originally issued by the Corporation to any Holder
pursuant to an Affiliation Transaction or any Permitted Transferee of such a
Holder but shall not include any shares of Convertible Preferred Stock issued as
a PIK Dividend.
"Trading Days" shall mean any day during which the Principal
Trading Market shall be open for business and the Common Stock shall have traded
on the Principal Trading Market.
7
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Neil F. Luria
-----------------
Name: Neil F. Luria
Title: Secretary
8
Exhibit 10.1
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
BMJ MEDICAL MANAGEMENT, INC.
THE LENDERS NAMED HEREIN
and
PARIBAS
As Agent
Dated as of June 30, 1998
$60,000,000
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
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Page
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<S> <C> <C>
SECTION 1. DEFINITIONS....................................................................................... 1
Section 1.1 Definitions........................................................... 1
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES............................................................ 28
Section 2.1 Tranche A Loans.......................................................28
Section 2.2 Tranche B Loans.......................................................29
Section 2.3 Revolving Loans.......................................................30
Section 2.4 Letters of Credit.....................................................31
Section 2.5 Notice of Borrowing...................................................34
Section 2.6 Disbursement of Funds.................................................34
Section 2.7 Notes.................................................................36
Section 2.8 Interest..............................................................36
Section 2.9 Interest Periods......................................................37
Section 2.10 Minimum Amount of Eurodollar
Loans.................................................................39
Section 2.11 Conversion or Continuation............................................39
Section 2.12 Voluntary Reduction of
Commitments...........................................................40
Section 2.13 Voluntary Prepayments.................................................40
Section 2.14 Mandatory Prepayments.................................................40
Section 2.15 Application of Prepayments; Mandatory
Reduction of Commitments..............................................42
Section 2.16 Method and Place of Payment...........................................44
Section 2.17 Fees..................................................................44
Section 2.18 Interest Rate Unascertainable,
Increased Costs, Illegality...........................................45
Section 2.19 Funding Losses........................................................48
Section 2.20 Increased Capital.....................................................49
Section 2.21 Taxes.................................................................51
Section 2.22 Change of Lending Office..............................................51
Section 2.23 Participations Purchased by Lenders
in the Letter of Credit Liability.....................................51
Section 2.24 Extension of Revolving Loan
Maturity Date.........................................................53
SECTION 3. CONDITIONS PRECEDENT..............................................................................54
Section 3.1 Conditions Precedent to Initial
Loans and Effectiveness of this
Agreement.............................................................54
Section 3.2 Conditions Precedent to All Loans.....................................60
i
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Page
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Section 3.3 Conditions Precedent to Each
Tranche A Funding of Acquisitions.....................................61
Section 3.4 Representation; Delivery of
Documents.............................................................63
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................................................63
Section 4.1 Corporate Status......................................................63
Section 4.2 Corporate Power and Authority.........................................64
Section 4.3 No Violation..........................................................64
Section 4.4 Litigation............................................................64
Section 4.5 Financial Statements; Financial
Condition; etc........................................................65
Section 4.6 Solvency..............................................................65
Section 4.7 Material Adverse Change...............................................65
Section 4.8 Use of Proceeds; Margin Regulations...................................65
Section 4.9 Governmental Approvals................................................65
Section 4.10 Security Interests and Liens..........................................66
Section 4.11 Tax Returns and Payments..............................................66
Section 4.12 ERISA.................................................................66
Section 4.13 Investment Company Act; Public
Utility Holding Company Act...........................................67
Section 4.14 True and Complete Disclosure..........................................68
Section 4.15 Corporate Structure; Capitalization...................................68
Section 4.16 Environmental Matters.................................................69
Section 4.17 Patents, Trademarks, etc..............................................70
Section 4.18 Ownership of Property.................................................70
Section 4.19 No Default............................................................70
Section 4.20 Licenses, etc.........................................................70
Section 4.21 Compliance With Law and Licensing
Requirements; Patient Trust Funds.....................................70
Section 4.22 Accounts..............................................................71
Section 4.23 Year 2000.............................................................72
Section 4.24 Additional Representations
and Warranties........................................................73
SECTION 5. AFFIRMATIVE COVENANTS.............................................................................73
Section 5.1 Information Covenants.................................................73
Section 5.2 Books, Records, Inspections and
Collateral Audits.....................................................78
Section 5.3 Maintenance of Insurance..............................................79
Section 5.4 Taxes.................................................................79
Section 5.5 Corporate Franchises..................................................79
Section 5.6 Compliance with Law...................................................80
Section 5.7 Performance of Obligations............................................80
ii
<PAGE>
Page
----
Section 5.8 Maintenance of Properties.............................................80
Section 5.9 Interest Rate Protection...............................................80
Section 5.10 Additional Collateral..................................................80
Section 5.11 Subsidiary Guarantees and Security
Agreements.............................................................81
Section 5.12 Licensure; Medicaid/Medicare
Cost Reports...........................................................81
Section 5.13 Use of Proceeds........................................................81
Section 5.14 Year 2000..............................................................82
SECTION 6. NEGATIVE COVENANTS............................................................................... 82
Section 6.1 Financial Covenants....................................................82
Section 6.2 Indebtedness...........................................................84
Section 6.3 Liens..................................................................85
Section 6.4 Restriction on Fundamental Changes.....................................87
Section 6.5 Sale of Assets.........................................................87
Section 6.6 Contingent Obligations.................................................88
Section 6.7 Dividends..............................................................88
Section 6.8 Capital Expenditures...................................................89
Section 6.9 Advances, Investments and Loans........................................89
Section 6.10 Transactions with Affiliates...........................................90
Section 6.11 Limitation on Voluntary
Payments; Management Services Agreements...............................90
Section 6.12 Changes in Business....................................................91
Section 6.13 Certain Restrictions...................................................91
Section 6.14 Sale and Leasebacks....................................................91
Section 6.15 Sale of Accounts.......................................................92
SECTION 7. EVENTS OF DEFAULT.................................................................................92
Section 7.1 Events of Default......................................................92
Section 7.2 Rights and Remedies....................................................96
SECTION 8. THE AGENT.........................................................................................97
Section 8.1 Appointment............................................................97
Section 8.2 Delegation of Duties...................................................98
Section 8.3 Exculpatory Provisions.................................................98
Section 8.4 Reliance by Agent......................................................98
Section 8.5 Notice of Default......................................................99
Section 8.6 Non-Reliance on Agent and Other
Lenders................................................................99
Section 8.7 Indemnification.......................................................100
Section 8.8 Agent in its Individual Capacity......................................101
iii
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Page
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Section 8.9 Resignation by the Agent..............................................101
SECTION 9. MISCELLANEOUS....................................................................................102
Section 9.1 Payment of Expenses, Indemnity etc....................................102
Section 9.2 Right of Setoff.......................................................103
Section 9.3 Notices...............................................................104
Section 9.4 Successors and Assigns;
Participation; Assignments............................................104
Section 9.5 Amendments and Waivers................................................107
Section 9.6 No Waiver; Remedies Cumulative........................................108
Section 9.7 Sharing of Payments...................................................108
Section 9.8 Governing Law.........................................................109
Section 9.9 Consent to Jurisdiction...............................................109
Section 9.10 Counterparts..........................................................109
Section 9.11 Effectiveness.........................................................109
Section 9.12 Headings Descriptive..................................................110
Section 9.13 Marshalling; Recapture................................................110
Section 9.14 Severability..........................................................110
Section 9.15 Survival..............................................................110
Section 9.16 Domicile of Loans.....................................................110
Section 9.17 Limitation of Liability...............................................111
Section 9.18 Calculations; Computations............................................111
Section 9.19 Waiver of Trial by Jury...............................................111
Schedule 1 -- Lenders and Commitments
Schedule 4.1 -- Organizational Chart; Capital Stock
Schedule 4.10 -- Third Party Rights
Schedule 4.12 -- ERISA
Schedule 4.18 - Real Property
Schedule 6.2 -- Existing Indebtedness
Schedule 6.3 -- Existing Liens
Schedule 6.6 -- Existing Contingent Obligations
Schedule A - Partnership Subsidiaries
Schedule B - Partial Period Pro Forma Consolidated EBITDA
Exhibit A-1 -- Form of Tranche A Note
Exhibit A-2 -- Form of Tranche B Note
Exhibit A-3 -- Form of Revolving Note
Exhibit B-1 - Form of Borrower Security Agreement
Exhibit B-2 - Form of Subsidiary Security Agreement
Exhibit C-1 - Form of Borrower Pledge Agreement
Exhibit C-2 - Form of Subsidiary Pledge Agreement
Exhibit D -- Reserved
Exhibit E -- Form of Guarantee
Exhibit F -- Form of Borrowing Base Certificate
iv
<PAGE>
Exhibit G -- Form of Assignment and Acceptance
Exhibit H -- Reserved
Exhibit I - Form of Compliance Certificate
Exhibit J - Form of Qualified Acquisition Certificate
Exhibit K - Certificate of Designation for the Borrower's
Series A Convertible Preferred Stock
Exhibit L - Certificate of Designation for the Borrower's
Series B Convertible Preferred Stock
</TABLE>
v
<PAGE>
CREDIT AGREEMENT, dated as of June 30, 1998, among BMJ Medical
Management, Inc., a Delaware corporation (the "Borrower"), the Lenders (as
hereinafter defined) and Paribas, acting in its capacity as agent for
the Lenders.
SECTION 1. DEFINITIONS.
Section 1.1 Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural number the singular.
"Account" shall mean, with respect to any Person, any
"account" as such term is defined in the Uniform Commercial Code as in effect on
the date hereof in the State of New York, now or hereafter owned by such Person
and any proceeds arising therefrom, including, without limitation, of such
Person's rights to payment for goods sold or leased or services performed by
such Person, whether due or to become due, whether now in existence or arising
from time to time hereafter, including, without limitation, rights evidenced by
an account, note, contract, security agreement, chattel paper, instrument,
document or other evidence of indebtedness or security, together with (a) all
security pledged, assigned, hypothecated or granted to or held by such Person to
secure the foregoing, (b) all of such Person's right, title and interest in and
to any goods, the sale of which gave rise thereto, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, (d) all
powers of attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith, (e) all books, records, ledger cards,
customer lists and invoices relating thereto, (f) all evidences of the filing of
financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to other
creditors or secured parties, and certificates from filing or other registration
officers, (g) all credit information, reports and memoranda relating thereto,
and (h) all other writings related in any way to the foregoing.
1
<PAGE>
"Account Debtor" shall mean any Person who is or may become
obligated to any Loan Party under, with respect to, or on account of, an
Account, including, without limitation, any Insurer and any Medicaid/Medicare
Account Debtor.
"Acquisition" shall mean any transaction pursuant to which the
Borrower or any of its Subsidiaries acquires or otherwise affiliates with (i) a
Medical Group or (ii) an independent physician association or (iii) an Ancillary
Service Facility, in each case by purchase in cash, exchange of property or
securities, or by any other method, pursuant to Acquisition Documents.
"Acquisition Certificate" shall mean a certificate executed by
the Borrower substantially in the form of Exhibit J.
"Acquisition Documents" shall mean each Management Services
Agreement, asset purchase agreement, restricted stock agreement, stockholder
noncompetition agreement and all other agreements, instruments, schedules,
exhibits, opinions and documents executed and delivered in connection with any
Acquisition.
"Additional Security" shall have the meaning provided in
Section 5.10.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to (i)
vote 5% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Affiliated Medical Entity" shall mean any Affiliated Medical
Group and any Ancillary Service Facility or independent physician association
that has become affiliated with the Borrower or any of its Subsidiaries pursuant
to a Management Services Agreement and the other documents described in the
definition of
2
<PAGE>
"Acquisition Documents" prior to or after the Closing Date.
"Affiliated Medical Group" shall mean any Medical Group that
has become affiliated with the Borrower or any of its Subsidiaries pursuant to a
Management Services Agreement and the other documents described in the
definition of "Acquisition Documents" prior to or after the Closing Date.
"Agent" shall mean Paribas acting in its capacity as sole
agent for the Lenders and any successor agent appointed in accordance with
Section 8.9.
"Agent's Office" shall mean the office of the Agent located at
2029 Century Park East, Suite 3900, Los Angeles, CA 90067, or such other office
as the Agent may hereafter designate in writing as such to the other
parties hereto.
"Agreement" shall mean this Credit Agreement as the same may
from time to time hereafter be modified, supplemented or amended.
"Amounts Due From Affiliated Physicians" shall mean any
amounts overpaid to physicians in the quarterly draw by the relevant Affiliated
Medical Group and owing by such physicians.
"Ancillary Service Facility" shall mean an ancillary
musculoskeletal facility such as ambulatory surgery, physical therapy or
magnetic resonance imaging center or mobile unit.
"Annual Management Fee" shall mean the annual amount to be
paid by the Affiliated Medical Entity to the Borrower on a regular (periodic)
basis pursuant to the Management Services Agreement entered into between the
Borrower and such Affiliated Medical Entity.
"Applicable Margin" shall mean as of any date the applicable
margin (expressed as a percentage) determined by reference to the Leverage Ratio
of the Borrower and its consolidated Subsidiaries for the previous fiscal
quarter as set forth in the Compliance Certificate delivered with respect to
such fiscal quarter, as set forth in (i) the following table, with respect to
any Tranche A Loans and Revolving Loans:
3
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Level Leverage Ratio Eurodollar Margin Base Rate Margin
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
I greater than 3.25:1 3.00% 1.25%
II greater than 3.00-3.25:1 2.75% 1.00%
III greater than 2.50-3.00:1 2.50% 0.75%
IV greater than 2.00-2.50:1 2.00% 0.25%
V less than or equal to 2:00:1 1.75% 0.00%
==========================================================================================================
and (ii) the following table with respect to any Tranche B Loans:
==========================================================================================================
Level Leverage Ratio Eurodollar Margin Base Rate Margin
- ----------------------------------------------------------------------------------------------------------
I greater than 3.25:1 3.25% 1.50%
II greater than 3.00-3.25:1 3.00% 1.25%
III greater than 2.50-3.00:1 2.75% 1.00%
IV less than or equal to 2.50:1 2.50% 0.75%
==========================================================================================================
</TABLE>
provided, however, that prior to the six-month anniversary of the Closing Date
the Applicable Margin shall be that applicable to Level I in each case.
"Assignee" shall have the meaning provided in Section 9.4(c).
"Assignment and Acceptance" shall have the meaning provided in
Section 9.4(c).
"Auditors" shall mean Ernst & Young LLP or other independent
certified public accountants of recognized national standing reasonably
acceptable to the Required Lenders.
"Bankruptcy Code" shall mean Title 11 of the United States
Code entitled "Bankruptcy", as amended from time to time, and any successor
statute or statutes.
"Base Rate" shall mean, at any particular date, the higher of
(x) the rate which is 1/2 of 1% plus the Federal Funds Effective Rate and (y)
the Prime Rate in effect from time to time.
4
<PAGE>
"Base Rate Loans" shall mean Loans made and/or being
maintained at a rate of interest based upon the Base Rate.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrowing" shall mean the incurrence of one Type of Loan of
one Facility from all the Lenders on a given date (or resulting from conversions
or continuations on a given date), having in the case of Eurodollar Loans the
same Interest Period.
"Borrowing Base" shall mean, as of any date of determination,
an amount (as determined from the Borrowing Base Certificate most recently
delivered to the Agent) equal to the product of (A) (Eligible Accounts x
Collection Rate), and (B) .80.
"Borrowing Base Certificate" shall have the meaning provided
in Section 5.1(d).
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in California or Florida a legal holiday or a day on which
banking institutions are authorized or required by law or other government
actions to close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
any day which is a Business Day described in clause (i) and which is also a day
for trading by and between banks for U.S. dollar deposits in the relevant
interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, all
expenditures with respect to management information systems in excess of
$6,000,000 and assets or maintenance (whether paid in cash or accrued as a
liability) by the Loan Parties during such period that, in conformity with GAAP,
are included in "capital expenditures" or comparable items in the consolidated
financial statements of the Loan Parties; for the purposes of clarification,
"Capital Expenditures" shall not include any such expenditures in respect of (i)
Acquisitions or (ii) management information systems up to an aggregate amount of
$6,000,000.
5
<PAGE>
"Capitalized Lease" shall mean (i) any lease of property, real
or personal, the obligations under which are capitalized on the consolidated
balance sheet of the Loan Parties, and (ii) any other such lease to the extent
that the then present value of the minimum rental commitment thereunder should,
in accordance with GAAP, be capitalized on a balance sheet of the lessee.
"Capitalized Lease Obligations" shall mean all obligations of
the Loan Parties under or in respect of Capitalized Leases.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than 90 days from the date of acquisition, (ii) time deposits and
certificates of deposit of any Lender or any domestic commercial bank of
recognized standing having capital and surplus in excess of $500,000,000 with
maturities of not more than 90 days from the date of acquisition, (iii) fully
secured repurchase obligations with a term of not more than 7 days for
underlying securities of the types described in clause (i) entered into with any
bank meeting the qualifications specified in clause (ii) above, (iv) commercial
paper issued by the parent corporation of any Lender or any domestic commercial
bank of recognized standing having capital and surplus in excess of $500,000,000
and commercial paper rated at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investor
Services, Inc. and in each case maturing within 90 days after the date of
acquisition and (v) money market accounts or funds with or issued by a
commercial bank meeting the standards set forth in clause (iv) that invest
substantially in investments described in clauses (i) through (iv).
"Change in Control" shall mean (i) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof), of 25% of the outstanding common stock of the Borrower; or (ii) the
failure of (a) Dr. Naresh Nagpal at any time to own
6
<PAGE>
beneficially or of record at least 1,000,000 shares of the outstanding common
stock of the Borrower; or (b) Dr. Naresh Nagpal, all of the Affiliated Medical
Entities and all of the physicians associated therewith to own, in the
aggregate, at least 35% of the fully diluted outstanding common stock of the
Borrower; or (c) the disposition by Dr. Naresh Nagpal of more than 200,000
shares of outstanding common stock of the Borrower in any 12 month period.
"Closing Date" shall mean the date on which the initial Loans
are advanced hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.
"Collateral" shall mean all property and interests in property
now owned or hereafter acquired in or upon which a Lien has been or is purported
or intended to have been granted to the Agent or any Lender under any of the
Security Documents.
"Collection Rate" shall mean the ratio (expressed as a
decimal) of (a) the dollar amount of collections on Accounts experienced by the
Loan Parties for the 12 month period ended as of the most recently ended fiscal
quarter to (b) the gross dollar amount of Accounts for such period, as specified
in the latest Borrowing Base Certificate provided hereunder. Notwithstanding the
foregoing: (x) in no event shall the Collection Rate exceed .70, and (y) for the
period from the Closing Date until September 30, 1998, the Collection Rate shall
be .50.
"Commitment" shall mean, for each Lender at any given time,
the sum of such Lender's Tranche A Commitment, its Tranche B Commitment and its
Revolving Loan Commitment.
"Commitment Percentage" shall mean, for each Lender at any
given time, the percentage equivalent of such Lender's Commitment divided by the
Total Commitment.
"Compliance Certificate" shall mean a certificate signed by
the chief financial officer of the Borrower setting forth a reasonably detailed
calculation of the covenants set forth in Sections 6.1(a), (b), (c),
7
<PAGE>
(d), (e) and (f) of the Agreement and attesting to the compliance of the
Borrower with the requirements of the Agreement in respect of such ratios,
substantially in the form of Exhibit I.
"Consolidated Current Assets" shall mean, at any time, the
current assets of the Borrower and its Subsidiaries at such time, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Current Liabilities" shall mean, at any time,
the current liabilities of the Borrower and its Subsidiaries at such time,
determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" shall mean, with respect to any Person,
for any period, the Consolidated Net Income of such Person and its Subsidiaries
for such period adjusted to add thereto (to the extent deducted from revenues in
determining Consolidated Net Income) (i) consolidated tax expense, (ii)
depreciation and amortization expense, (iii) Consolidated Interest Expense,(iv)
any extraordinary or non-recurring cash expenses (including, without limitation,
the cash expense portion of Transaction Costs), and (v) any non-cash charges
(including, without limitation, charges associated with compensation and stock
options), in each case determined for such period on a consolidated basis for
such Person and its Subsidiaries in accordance with GAAP, and net of the greater
of minority interests (as defined by GAAP) and cash distributions paid by
Partnership Subsidiaries.
"Consolidated Interest Expense" shall mean, for any fiscal
period of the Borrower, the total interest expense (including, without
limitation, interest expense attributable to Capitalized Leases in accordance
with GAAP, amortization or write-off of debt discount and debt issuance costs
and commissions, other discounts and other fees associated with Indebtedness
(including the Loans) and the net amount payable (or plus the net amount
receivable) under interest rate protection agreements) of the Borrower and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided that (i) Consolidated Interest Expense for each of the
fiscal quarters ending September 30, 1998, December 31, 1998, March 31, 1999 and
June 30, 1999 shall be calculated by multiplying the actual Consolidated
8
<PAGE>
Interest Expense for such fiscal quarter by four (4); (ii) Consolidated Interest
Expense for the fiscal quarter ending September 30, 1999 shall be calculated by
multiplying the actual Consolidated Interest Expense for the fiscal quarters
ending June 30 and September 30, 1999 by two (2); (iii) Consolidated Interest
Expense for the fiscal quarter ending December 31, 1999 shall be calculated by
multiplying the actual Consolidated Interest Expense for the fiscal quarters
ending June 30, September 30 and December 31, 1999 by four-thirds (4/3); and
Consolidated Interest Expense for each fiscal quarter thereafter shall be the
actual Consolidated Interest Expense for the last four fiscal quarters.
"Consolidated Net Income" shall mean, for any period, the net
income (or loss) of the Borrower and its Subsidiaries on a consolidated basis
for such period (taken as a single accounting period) determined in accordance
with GAAP.
"Consolidated Net Worth" shall mean, at any time, the sum of
the amount by which the total consolidated assets of the Borrower and its
Subsidiaries exceeds the total consolidated liabilities of the Borrower and its
Subsidiaries at such time, as determined in accordance with GAAP.
"Consolidated Total Indebtedness" shall mean, at any time, all
Indebtedness of the Borrower and its Subsidiaries, as determined in accordance
with GAAP.
"Consolidated Working Capital" shall mean, at any time, an
amount equal to Consolidated Current Assets minus Consolidated Current
Liabilities at such time.
"Contingent Obligation" as to any Person shall mean any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") (but excluding any Subsidiary of the
first Person) in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary obligation or (y) to maintain working capital or
equity capital of the
9
<PAGE>
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Credit Exposure" shall have the meaning provided in Section
9.4(b).
"Current Maturities of Funded Indebtedness" shall mean, at any
time and with respect to any item of Funded Indebtedness, the portion of such
Funded Indebtedness outstanding at such time which by the terms of such Funded
Indebtedness or the terms of any instrument or agreement relating thereto is due
on demand or within one year from such time (whether by sinking fund, other
required prepayment or final payment at maturity), and is not directly or
indirectly renewable, extendible or refundable at the option of the obligor
under an agreement or firm commitment in effect at such time to a date one year
or more from such time.
"Default" shall mean any event, act or condition which, with
notice or lapse of time, or both, would constitute an Event of Default.
"Default Rate" shall have the meaning provided in Section
2.8(b).
"Delinquent Account" shall mean any account that remains
unpaid for more than 120 days past the original invoice date.
10
<PAGE>
"Dividends" shall have the meaning provided in Section 6.7.
"Domestic Lending Office" shall mean, as to any Lender, the
office of such Lender designated as such on Schedule 1, or such other office
designated by such Lender from time to time by written notice to the Agent and
the Borrower.
"Eligible Accounts" shall mean the gross dollar amount of the
Accounts of each Loan Party which arise in the ordinary course of business or
are acquired from Affiliated Medical Groups and which conform to the warranties
contained herein and in the Security Documents and which shall not have become
unacceptable to the Required Lenders in their reasonable judgment, and less
reserves for any other matter affecting the creditworthiness of Account Debtors,
and excluding Delinquent Accounts.
"Environmental Affiliate" shall mean, with respect to any
Person, any other Person whose liability for any Environmental Claim such Person
has or may have retained, assumed or otherwise become liable for (contingently
or otherwise), either contractually or by operation of law.
"Environmental Approvals" shall mean any permit, license,
approval, ruling, variance, exemption or other authorization required under
applicable Environmental Laws.
"Environmental Claim" shall mean, with respect to any Person,
any notice, claim, demand or similar communication (written or oral) by any
other Person alleging potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property damages,
personal injuries, fines or penalties arising out of, based on or resulting from
(i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by such Person or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
"Environmental Laws" shall mean all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the
11
<PAGE>
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time. Section references to ERISA are to ERISA,
as in effect at the date of this Agreement and any subsequent provisions of
ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Controlled Group" shall mean a group consisting of any
ERISA Person and all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under common control with
such Person that, together with such Person, are treated as a single employer
under regulations of the PBGC.
"ERISA Person" shall have the meaning set forth in Section
3(9) of ERISA for the term "person."
"ERISA Plan" shall mean (i) any Plan that (x) is not a
Multiemployer Plan and (y) has Unfunded Benefit Liabilities in excess of $50,000
and (ii) any Plan that is a Multiemployer Plan.
"Eurocurrency Reserve Requirements" shall mean, with respect
to each day during an Interest Period for Eurodollar Loans, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Federal Reserve Board or other governmental authority or agency having
jurisdiction with respect thereto for determining the maximum reserves
(including, without limitation, basic, supplemental, marginal and emergency
reserves) for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate" shall mean, with respect to any Loan to
be made, continued as or converted into a Eurodollar Loan, the London Inter-Bank
Offered Rate
12
<PAGE>
(determined by the Agent), rounded upward to the nearest 1/16th of one percent
(0.0625%), at which dollar deposits are offered to Paribas by major banks in the
London interbank market at or about 11:00 a.m., London time, on the Interest
Rate Determination Day with respect to such Loan in an aggregate amount
approximately equal to the amount of such Loan and for a period of time
comparable to the number of days in the applicable Interest Period. The
determination of the Eurodollar Base Rate by the Agent shall be conclusive in
the absence of manifest error.
"Eurodollar Lending Office" shall mean, as to any Lender, the
office of such Lender designated as such on Schedule 1, or such other office
designated by such Lender from time to time by written notice to the Agent and
the Borrower.
"Eurodollar Loans" shall mean Loans made and/or being
maintained at a rate of interest based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean with respect to each day during
an Interest Period for Eurodollar Loans, a rate per annum determined for such
day in accordance with the following formula (rounded upwards to the nearest
whole multiple of 1/16th of one percent (0.0625%)):
Eurodollar Base Rate
--------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default" shall have the meaning provided in
Section 7.
"Excess Cash Flow" shall mean, with respect to any fiscal
period of the Borrower, a positive number, if any, equal to (i) Consolidated Net
Income for such period plus (ii) to the extent deducted in the calculation of
Consolidated Net Income for such period, depreciation and amortization expense,
plus (iii) federal and state income taxes expressed but not paid in cash for
such period, plus (or minus) (iv) decreases (or increases) in Consolidated
Working Capital (other than decreases or increases in any cash included therein)
from the last day of the preceding fiscal period to the last day of such fiscal
period, minus (v) the aggregate amount actually paid in cash by the Borrower and
its Subsidiaries during
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<PAGE>
such fiscal period for Capital Expenditures permitted pursuant to Section 6.8
(except to the extent financed with the proceeds of purchase money Indebtedness
or insurance), minus (vi) all prepayments of Tranche A Loans and Tranche B Loans
pursuant to Section 2.1(b) and 2.2, respectively, made during such fiscal
period, minus (vii) all prepayments on Revolving Loans to the extent such
prepayments are accompanied by a permanent reduction of the Revolving Loan
Commitment, minus (viii) all regularly scheduled principal payments made during
such fiscal period in respect of other Indebtedness to the extent such
Indebtedness and payments are permitted to be incurred and made hereunder, minus
(ix) Net Sale Proceeds to the extent reinvested in other assets and all non-cash
gains on any sale or other disposition of assets.
"Existing Indebtedness" shall mean Indebtedness outstanding on
the Closing Date and described (which description shall include the maturity
date of such Indebtedness and its nature as senior or subordinated, and such
other information as the Agent shall require) on Schedule 6.2 hereto, which
Indebtedness shall be satisfactory to the Agent.
"Facility" shall mean the nature of the Loans,
i.e. Tranche A Loans, Tranche B Loans or the Revolving
Loans (including any Letters of Credit).
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Federal Reserve Board" shall mean the Board of Governors of
the Federal Reserve System as constituted from time to time.
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<PAGE>
"Fee Letter" shall mean that certain letter, dated April 15,
1998, from the Agent to the Borrower, in respect of certain fees payable by the
Borrower.
"Fees" shall mean all amounts payable pursuant to Section
2.17.
"Final Maturity Date" shall mean the later of the Revolving
Loan Maturity Date, the Tranche A Loan Maturity Date and the Tranche B Loan
Maturity Date.
"Fixed Charges" shall mean, without duplication, for any
period, (i) all Consolidated Interest Expense for such period, plus (ii)
scheduled payments due in such period for principal of the Loans and other
permitted Indebtedness, plus (iii) all principal payments accrued in such period
under Capitalized Leases under which the Borrower or any of its Subsidiaries is
the lessee, plus (iv) all cash taxes paid and reserves for taxes made by any
Loan Party for such period, plus (v) cash Dividends.
"Funded Indebtedness" shall mean, with respect to any Person,
all Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise payable
or unpaid, one year or more from, or is directly or indirectly renewable or
extendible at the option of the obligor in respect thereof to a date one year or
more (including, without limitation, an option of such obligor under a revolving
credit, term loan, convertible subordinated note or other similar instrument
(including, without limitation, the Nagpal Note) or similar agreement obligating
the lender or lenders to extend credit over a period of one year or more) from,
the date of the creation thereof; provided that Funded Indebtedness shall
include, at any date of determination, Current Maturities of Funded
Indebtedness.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board or in such other statements by such
other entity as may be in general use by significant segments of the United
States accounting profession,
15
<PAGE>
which are applicable to the circumstances of the Borrower as of the date of
determination, except that for the purposes of Section 6.1 (including the
accounting terms used therein and defined herein) GAAP shall be determined on
the basis of such principles in effect on the date hereof and consistent with
those used in the preparation of the audited financial statements of the
Borrower in respect of the fiscal year ended December 31, 1997 delivered
pursuant to Section 3.1(j) . In the event that any "Accounting Change" (as
defined below) shall occur and such change results in a change in the method of
calculation of financial covenants, standards or terms in this Agreement, then
the Borrower and the Agent agree to enter into negotiations in order to amend
such provisions of this Agreement so as to equitably reflect such Accounting
Changes with the desired result that the criteria for evaluating the Borrower's
financial condition shall be the same after such Accounting Changes as if such
Accounting Changes had not been made. Until such time as such an amendment shall
have been executed and delivered by the Borrower, the Agent and the Required
Lenders, all financial covenants, standards and terms in this Agreement shall
continue to be calculated or constructed as if such Accounting Changes had not
occurred. "Accounting Changes" refers to changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion
by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants (or successor thereto or agencies with similar
functions), the Securities and Exchange Commission or any other qualified,
authoritative agency or organization.
"Governmental Authority" shall mean any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States or
foreign.
"Guarantee" shall have the meaning provided in Section
3.1(a)(v).
"Guarantor" shall mean each Subsidiary of the Borrower which
has executed a Guarantee.
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of
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<PAGE>
property or services (other than trade payables incurred in the ordinary course
of business of such Person), (ii) all indebtedness of such Person evidenced by a
note, bond, debenture or similar instrument, (iii) the principal component of
all Capitalized Lease Obligations of such Person, (iv) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all unreimbursed amounts drawn thereunder, (v) all indebtedness of
any other Person secured by any Lien on any property owned by such Person,
whether or not such indebtedness has been assumed, to the extent secured by such
Lien, (vi) all Contingent Obligations of such Person, and (vii) all payment
obligations of such Person under any interest rate protection agreement
(including, without limitation, any interest rate swaps, caps, floors, collars
and similar agreements) and currency swaps and similar agreements.
"Indemnitee" shall have the meaning provided in Section
9.1(c).
"Insurer" shall mean any Person that insures a Patient against
certain of the costs incurred in the receipt by such Patient of Medical
Services, or that has an agreement with an Affiliated Medical Group to
compensate such Affiliated Medical Group for providing services to a Patient.
"Interest Rate Determination Date" shall mean each date for
calculating the Eurodollar Base Rate for purposes of determining the interest
rate in respect of an Interest Period. The Interest Rate Determination Date
shall be the second Business Day prior to the first day of the related Interest
Period for such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section
2.9.
"Issuing Lender" shall mean Paribas or any other Lender which
shall be designated in writing from time to time by the Agent as the issuing
bank hereunder and shall consent in writing to such designation.
"Lenders" shall mean the Persons listed on Schedule 1 hereto
and the persons which from time to time become a party hereto in accordance with
Section 9.4(c).
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<PAGE>
"Letter of Credit" shall mean any standby letter of credit
issued pursuant hereto by the Issuing Lender for the account of the Borrower.
"Letter of Credit Liability" shall mean, as of any date of
determination, the aggregate face amount of all drafts which may then or
thereafter be presented by beneficiaries under all Letters of Credit then
outstanding plus, without duplication, the face amount of all drafts which have
been presented under Letters of Credit but have not yet been honored.
"Letter of Credit Request" shall have the meaning provided in
Section 2.4(b).
"Leverage Ratio" shall have the meaning provided in Section
6.1(a)
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same effect as
any of the foregoing and the filing of any financing statement or similar
instrument under the Uniform Commercial Code or comparable law of any
jurisdiction, domestic or foreign.
"Loan Documents" shall mean this Agreement, the Notes, any
Environmental Indemnity Agreement, each Letter of Credit, each Letter of Credit
Request, each Compliance Certificate, each Borrowing Base Certificate, each
Notice of Borrowing, each Notice of Conversion or Continuation, the Security
Documents and any other document executed and delivered in connection herewith.
"Loan Party" shall mean the Borrower and each of its
Subsidiaries.
"Loans" shall mean and include Tranche A Loans, Tranche B
Loans and Revolving Loans (including the Letters of Credit).
"Management Services Agreement" shall mean any management
services agreement entered into between any
18
<PAGE>
Loan Party and a Medical Group or Ancillary Service Facility.
"Margin Stock" shall have the meaning provided such term in
Regulation U of the Federal Reserve Board.
"Material Adverse Effect" shall mean a material adverse effect
upon (i) the rights or remedies of the Lenders under any of the Loan Documents,
(ii) the ability of any Loan Party to perform its respective obligations to the
Lenders or (iii) the performance, business, properties, assets, nature of assets
or condition (financial or otherwise) of the Borrower or of the Loan Parties
taken as a whole.
"Materials of Environmental Concern" shall mean and include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products.
"Medical Account" shall mean the third-party reimbursable
portion of healthcare accounts owing to any Affiliated Medical Group arising out
of the rendition of Medical Services.
"Medical Group" shall mean a physician practice the primary
business of which is to provide Medical Services focusing on musculoskeletal
care.
"Medicaid/Medicare Account Debtor" shall mean any Account
Debtor which is (i) the United States of America acting under the
Medicaid/Medicare program established pursuant to the Social Security Act, (ii)
any state or the District of Columbia acting pursuant to Title XIX of the Social
Security Act or (iii) any agent, carrier, administrator or intermediary for any
of the foregoing.
"Medical Services" shall mean medical and health care services
provided to a Patient, including, without limitation, medical and health care
services provided to a patient and performed by an Affiliated Medical Group
which are covered by a policy of insurance issued by an Insurer, and includes
physician services, nurse and therapist services, hospital services, skilled
nursing facility services, comprehensive outpatient rehabilitation services,
home health care services, residential and out-patient behavioral healthcare
services, and medicine or health care equipment provided
19
<PAGE>
by an Affiliated Medical Group to a Patient for a necessary or specifically
requested valid and proper health or medical purpose.
"Multiemployer Plan" shall mean a Plan which is a
"Multiemployer plan" as defined in Section 4001(a)(3) of ERISA.
"Nagpal Note" shall mean the Amended and Restated Promissory
Note due December 31, 2000, issued by the Borrower in favor of Dr. Naresh
Nagpal, as the same may be amended, supplemented or otherwise modified from time
to time.
"Net Partnership Cash Flow" shall have the meaning assigned to
the term "Net Cash Flow" in the applicable partnership agreement for each
Partnership Subsidiary.
"Net Sale Proceeds" shall mean all cash proceeds of each sale
or other disposition of assets by any Loan Party (other than sales of inventory
in the ordinary course of business), if such proceeds exceed $100,000 in respect
of any transaction or series of related transactions, in each case net of (i)
reasonable expenses incurred or reasonably expected to be incurred in connection
with such sale or disposition, (ii) any income, franchise, transfer or other tax
payable by such Loan Party in connection with such sale or disposition and (iii)
any Indebtedness secured by a Lien on such property or assets and required to be
repaid as a result of such sale or other disposition.
"Notes" shall mean and include each Revolving Note, each
Tranche A Note and each Tranche B Note.
"Notice of Borrowing" shall have the meaning provided in
Section 2.5.
"Notice of Conversion or Continuation" shall have the meaning
provided in Section 2.11.
"Obligations" shall mean all obligations, liabilities and
indebtedness of every nature of each Loan Party from time to time owing to the
Agent or any Lender under or in connection with this Agreement or any other Loan
Document.
20
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"Overdue Account Party" shall mean any Account Debtor, or
consolidated group including such Account Debtor, having greater than 15% of its
Accounts owed to any one or more Loan Parties as Delinquent Accounts.
"Participant" shall have the meaning provided in Section
9.4(b).
"Partnership Subsidiaries" shall include the entities set
forth on Schedule A.
"Patient" shall mean any Person receiving Medical Services
from an Affiliated Medical Group and all Persons legally liable to pay such
Affiliated Medical Group for such Medical Services other than Insurers.
"Payment Date" shall mean the last day of each March, June,
September and December of each year.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under ERISA, or any successor thereto.
"Person" shall mean and include any individual, partnership,
joint venture, firm, corporation, association, limited liability company, trust
or other enterprise or any government or political subdivision or agency,
department or instrumentality thereof.
"Plan" shall mean any employee benefit plan subject to Title
IV of ERISA, the funding requirements of which, in whole or in part:
(i) were the responsibility of the Borrower or a
member of its ERISA Controlled Group at any time within the five years
immediately preceding the date hereof,
(ii) are currently the responsibility of the Borrower
or a member of its ERISA Controlled Group, or
(iii) hereafter become the responsibility of the
Borrower or a member of its ERISA Controlled Group, including any such plans as
may have been, or may hereafter be, terminated for whatever reason.
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<PAGE>
"Pledge Agreements" shall have the meaning provided in Section
3.1(a)(iv).
"Prime Rate" shall mean the rate of interest from time to time
announced by the Agent at the Agent's Office as its prime commercial lending
rate.
"Pro Forma Consolidated EBITDA" for any period shall mean
Consolidated EBITDA for such period, calculated in accordance with the
following:
(A) (i) Pro Forma Consolidated EBITDA for each of the fiscal
quarters ending September 30, 1998, December 31, 1998, March 31, 1999 and June
30, 1999 shall be calculated by multiplying the actual Consolidated EBITDA for
such fiscal quarter by four (4); (ii) Pro Forma Consolidated EBITDA for the
fiscal quarter ending September 30, 1999 shall be calculated by multiplying the
actual Consolidated EBITDA for the fiscal quarters ending June 30 and September
30, 1999 by two (2); (iii) Pro Forma Consolidated EBITDA for the fiscal quarter
ending December 31, 1999 shall be calculated by multiplying the actual
Consolidated EBITDA for the fiscal quarters ending June 30, September 30 and
December 31, 1999 by four- thirds (4/3); and Pro Forma Consolidated EBITDA for
each fiscal quarter thereafter shall be the actual Consolidated EBITDA for the
last four fiscal quarters then ended; and
(B) Pro Forma Consolidated EBITDA for any Affiliated Medical
Entity acquired prior to the last day of any of the fiscal periods which form
the basis of the calculation pursuant to clause (A) above shall be calculated as
set forth on Schedule B. The amount so determined shall be added to the
annualized Consolidated EBITDA determined in accordance with clause (A) above.
"Pro Rata Share" as to any Lender shall mean a fraction
(expressed as a percentage), the numerator of which shall be the aggregate
amount of such Lender's Commitments and the denominator of which shall be the
Total Commitment.
"Qualified Acquisition" shall have the meaning provided in
Section 3.3.
"Qualified Target" shall have the meaning provided in Section
3.3(a)(iv).
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"Qualifying Net Income" shall mean, with respect to any Person
for which information is available regarding its net income for (i) three or
more of its fiscal years prior to its Acquisition, positive net income for each
of its last three fiscal years on a pre- physician compensation basis, (ii) less
than three but at least one of its fiscal years prior to its Acquisition,
positive net income for such period on a pre-physician compensation basis, and
(iii) less than one full fiscal year, the consent of the Agent with respect to
such net income; provided that in each case such Person shall continue (based on
pro forma financial information in form and substance satisfactory to the Agent)
to have positive net income following the Acquisition after giving effect to any
agreed upon adjustments.
"Regulation D" shall mean Regulation D of the Federal Reserve
Board as from time to time in effect and any successor to all or any portion
thereof.
"Reportable Event" shall have the meaning set forth in Section
4043(b) of ERISA (other than a Reportable Event as to which the provision of 30
days notice to the PBGC is waived under applicable regulations), or is the
occurrence of any of the events described in Section 4068(a) or 4063(a) of
ERISA.
"Required Lenders" shall mean Lenders holding more than (i) at
any time when any Commitments are outstanding, 50% of the sum of such
Commitments plus the principal amount of outstanding Loans and (ii) at any time
when no undrawn Commitments are outstanding, 50% of the principal amount of the
outstanding Loans.
"Revolving Lender" shall mean at any time, any Lender with a
Revolving Loan Commitment or, if no Revolving Loan Commitments are then
outstanding, any Lender with Revolving Loans outstanding.
"Revolving Loan Commitment" shall mean at any time, for any
Lender, the amount set forth opposite such Lender's name on Schedule 1 hereto
under the heading "Revolving Loan Commitment," as such amount may be reduced
from time to time pursuant to Sections 2.12, 2.15 or 9.4(c).
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"Revolving Loan Maturity Date" shall mean June 30, 2001 (as
the same may be extended pursuant to Section 2.24.)
"Revolving Loans" shall have the meaning provided in Section
2.3(a).
"Revolving Notes" shall have the meaning provided in Section
2.7(a).
"Securities Purchase Agreement" shall mean the securities
purchase agreement or similar agreement and all related documents pursuant to
which preferred and/or common stock of the Company is issued to the purchaser or
purchasers thereof.
"Security Agreements" shall have the meaning provided in
Section 3.1(a)(iii) hereof.
"Security Documents" shall mean and include the Security
Agreements, the Pledge Agreements, any account control agreements and any pledge
of accounts agreements.
"Series A Preferred Stock" shall mean the Borrower's Series A
Convertible Preferred Stock, par value $.01 per share.
"Series B Preferred Stock" shall mean the Borrower's Series B
Convertible Preferred Stock, par value $.001 per share.
"Series C Preferred Stock" shall mean the Borrower's Series C
Convertible Preferred Stock, par value $.01 per share.
"Solvent" as to any Person shall mean that (i) the sum of the
assets of such Person, both at a fair valuation and at present fair salable
value, will exceed its liabilities, including contingent liabilities, (ii) such
Person will have sufficient capital with which to conduct its business as
presently conducted and as proposed to be conducted and (iii) such Person has
not incurred debts, and does not intend to incur debts, beyond its ability to
pay such debts as they mature. For purposes of this definition, "debt" means any
liability on a claim, and "claim" means (x) a right to payment, whether or not
such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured,
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unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y)
a right to an equitable remedy for breach of performance if such breach gives
rise to a payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured. With respect to any such contingent liabilities, such
liabilities shall be computed at the amount which, in light of all the facts and
circumstances existing at the time, represents the amount which can reasonably
be expected to become an actual or matured liability.
"Subsidiary" of any Person shall mean and include (i) any
corporation 50% or more of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, is either a general partner, manager of a limited liability
company or has a 50% or more equity interest at the time.
"Termination Event" shall mean (i) a Reportable Event, or (ii)
the initiation of any action by any Loan Party, any member of any Loan Party's
ERISA Controlled Group or any ERISA Plan fiduciary to terminate an ERISA Plan or
the treatment of an amendment to an ERISA Plan as a termination under ERISA, or
(iii) the institution of proceedings by the PBGC under Section 4042 of ERISA to
terminate an ERISA Plan or to appoint a trustee to administer any ERISA Plan.
"Total Capitalization" means the total value of all equity
owned by shareholders of the Borrower and its Subsidiaries, determined in
accordance with GAAP, plus Funded Indebtedness minus Amounts Due From Affiliated
Physicians.
"Total Commitment" shall mean, at any time, the sum of the
Commitments of all of the Lenders at such time.
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<PAGE>
"Total Revolving Loan Commitment" shall have the meaning set
forth in Section 2.3(a).
"Total Tranche A Commitment" shall have the meaning provided
in Section 2.1(a).
"Tranche A Commitment" shall mean, at any time, for any
Lender, the amount set forth opposite such Lender's name in Schedule 1 hereto
under the heading "Tranche A Commitment", as the same may be reduced from time
to time pursuant to Sections 2.12, 2.15 or 9.4(c).
"Tranche A Lender" shall mean, at any time, any Lender with a
Tranche A Commitment or, if no Tranche A Commitments are then outstanding, any
Lender with Tranche A Loans outstanding.
"Tranche A Loans" shall have the meaning provided in Section
2.1(a).
"Tranche A Loan Maturity Date" shall mean June 30, 2003.
"Tranche A Note" shall have the meaning provided in Section
2.7(a).
"Tranche A Period" shall mean the period from and including
the Closing Date to but excluding the date which is the second anniversary of
the Closing Date.
"Tranche A Period Date" shall mean the last day of the Tranche
A Period.
"Tranche B Commitment" shall mean, at any time, for any
Lender, the amount set forth opposite such Lender's name in Schedule 1 hereto
under the heading "Tranche B Commitment," as the same may be reduced from time
to time pursuant to Sections 2.12, 2.15 or 9.4(c).
"Tranche B Lender" shall mean at any time, any Lender with a
Tranche B Commitment or, if no Tranche B Commitments are then outstanding, any
Lender with Tranche B Loans outstanding.
"Tranche B Loans" shall have the meaning provided in Section
2.2.
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<PAGE>
"Tranche B Note" shall have the meaning provided in Section
2.7(a).
"Tranche B Loan Maturity Date" shall mean June 30, 2004.
"Transaction Costs" shall mean all costs and expenses paid or
payable by the Borrower relating to the Transactions including, without
limitation, investment banking fees, financing fees, advisory fees, appraisal
fees, legal fees and accounting fees.
"Transactions" shall mean each of the transactions
contemplated by the Loan Documents.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Base Rate Loan or a Eurodollar
Loan.
"Unfunded Benefit Liabilities" shall mean with respect to any
Plan at any time, the amount (if any) by which (i) the present value of all
benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA,
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such Plan
(on the basis of assumptions prescribed by the PBGC for the purpose of Section
4044 of ERISA).
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES.
Section 2.1 Tranche A Loans. (a) Subject to and upon the terms
and conditions herein set forth, each Tranche A Lender severally and not jointly
agrees at any time and from time to time during the Tranche A Period to make
revolving loans (collectively, "Tranche A Loans") to the Borrower, which Tranche
A Loans shall not exceed in aggregate principal amount at any time outstanding
(x) with respect to Tranche A Loans outstanding from all Tranche A Lenders,
$25,000,000 (the "Total Tranche A Commitment"), and (y) with respect to Loans
outstanding from any Tranche A Lender, such Lender's Tranche A Commitment. Until
the thirtieth day following the Closing Date, each Tranche A Loan shall be made
as a Base Rate Loan and may thereafter be made or maintained at the option of
the Borrower as a Base Rate Loan or a
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Eurodollar Loan, in accordance with the provisions hereof.
(b) Each Tranche A Commitment shall
expire, and each outstanding Tranche A Loan shall convert into a term loan, on
the Tranche A Period Date, without further action on the part of the Tranche A
Lenders or the Agent. Each Tranche A Loan shall be repaid, without premium or
penalty, by the Borrower, in amounts equal to the percentage of the amount
outstanding on the Tranche A Period Date, on the Payment Date specified below
for each such payment:
Payment Date Percentage Amount of
- ------------ --------------------
Installment (based on
---------------------
Percentage Amount as of
-----------------------
Tranche A Period Date)
----------------------
September 30, 2000 5.00%
December 31, 2000 5.00%
March 31, 2001 5.00%
June 30, 2001 5.00%
September 30, 2001 7.50%
December 31, 2001 7.50%
March 31, 2002 7.50%
June 30, 2002 7.50%
September 30, 2002 12.50%
December 31, 2002 12.50%
March 31, 2003 12.50%
Tranche A Loan Maturity Date Amount outstanding.
The Tranche A Loans shall mature on the Tranche A Loan Maturity Date.
(c) Prior to the Tranche A Period Date,
the Tranche A Loans may be voluntarily prepaid (without premium or penalty)
pursuant to Section 2.13, and, subject to the other provisions of this
Agreement, any amounts so prepaid may be reborrowed prior to the Tranche A
Period Date.
(d) Each Borrowing of Tranche A Loans shall be in the
aggregate minimum amount of $750,000 or any integral multiple of $100,000 in
excess thereof.
Section 2.2 Tranche B Loans. Subject to and upon the terms and
conditions herein set forth, each Tranche B Lender severally and not jointly
agrees to make
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a single loan to the Borrower on the Closing Date of a sum not to exceed the
Tranche B Commitment of such Tranche B Lender (each such loan, a "Tranche B
Loan"). The aggregate principal amount of the Tranche B Commitments shall not
exceed $25,000,000 (the "Total Tranche B Commitment"). All unutilized Tranche B
Commitments shall expire simultaneously with the making of the Tranche B Loans
on the Closing Date. Each Tranche B Loan made on the Closing Date shall be
initially made as a Base Rate Loan and may thereafter (subject to Section
2.11(a)) be maintained at the option of the Borrower as a Base Rate Loan or a
Eurodollar Loan, in accordance with the provisions hereof. Once repaid, Tranche
B Loans may not be reborrowed. The Tranche B Loans shall mature on the Tranche B
Loan Maturity Date and shall be repaid, without premium or penalty, by the
Borrower, in amounts equal to the percentage of the amount outstanding on the
Closing Date, on the Payment Date specified below for each such payment:
Payment Date Percentage Amount of Installment
- ------------ --------------------------------
(based on Percentage Amount as
------------------------------
of Closing Date)
----------------
September 30, 1998 0.25%
December 31, 1998 0.25%
March 31, 1999 0.25%
June 30, 1999 0.25%
September 30, 1999 0.25%
December 31, 1999 0.25%
March 31, 2000 0.25%
June 30, 2000 0.25%
September 30, 2000 0.25%
December 31, 2000 0.25%
March 31, 2001 0.25%
June 30, 2001 0.25%
September 30, 2001 1.25%
December 31, 2001 1.25%
March 31, 2002 1.25%
June 30, 2002 1.25%
September 30, 2002 1.25%
December 31, 2002 1.25%
March 31, 2003 1.25%
June 30, 2003 1.25%
September 30, 2003 21.75%
December 31, 2003 21.75%
March 31, 2004 21.75%
Tranche B Loan Maturity Date Amount outstanding.
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Section 2.3 Revolving Loans. (a) Subject to and upon the terms
and conditions herein set forth, each Revolving Lender severally and not jointly
agrees, at any time and from time to time on and after the Closing Date and
prior to the Revolving Loan Maturity Date, to make revolving loans
(collectively, "Revolving Loans") to the Borrower, which Revolving Loans
(inclusive of any Letter of Credit Liability) shall not exceed in aggregate
principal amount at any time outstanding (which amount shall include any Letter
of Credit Liability) (x) with respect to Revolving Loans outstanding from all
Revolving Lenders, the lesser of (i) the Total Revolving Loan Commitment at such
time and (ii) the Borrowing Base, and (y) with respect to Revolving Loans
outstanding from any Revolving Lender, such Lender's Revolving Commitment. The
sum of the Revolving Loan Commitments of all of the Revolving Lenders (the
"Total Revolving Loan Commitment") on the Closing Date shall be $10,000,000.
Until the thirtieth day following the Closing Date, each Revolving Loan shall be
made as a Base Rate Loan and may thereafter be made or maintained at the option
of the Borrower as a Base Rate Loan or a Eurodollar Loan, in accordance with the
provisions hereof.
(b) Revolving Loans may be voluntarily prepaid
(without premium or penalty) pursuant to Section 2.13, and, subject to the other
provisions of this Agreement, any amounts so prepaid may be reborrowed. Each
Revolving Loan Commitment shall expire, and each Revolving Loan shall mature on,
the Revolving Loan Maturity Date, without further action on the part of the
Lenders or the Agent.
(c) Each Borrowing of Revolving Loans shall be in the
aggregate minimum amount of $750,000 or any integral multiple of $100,000 in
excess thereof, except that, in the event that the aggregate undrawn Commitments
are less than $750,000, the Borrower may make a Borrowing in an amount equal to
the aggregate undrawn Commitments.
Section 2.4 Letters of Credit. (a) Provided that the Borrower
is in compliance with all of the terms and conditions for the making of
Revolving Loans by the Revolving Lenders, the Borrower shall have the right to
request, through a Letter of Credit Request pursuant to Section 2.4(b), the
Issuing Lender to deliver from time
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to time Letters of Credit, and the Issuing Lender shall promptly upon such
request issue the requested Letter of Credit, each of which shall be in a form
approved by the Issuing Lender; provided that (i) the maximum Letter of Credit
Liability at any one time outstanding shall not exceed $2,000,000, (ii) such
Letter of Credit shall have a maturity not greater than one year after the date
of issuance and not later than the Revolving Loan Maturity Date and (iii) such
Letter of Credit shall not contain automatic renewal or "evergreen" provisions.
Each drawing under a Letter of Credit shall be payable in full upon the date
thereof by the Borrower, without notice or demand of any kind. Subject to the
terms and conditions otherwise applicable to advances of the Revolving Loans
hereunder, the Borrower may request a Revolving Loan hereunder to be used to
reimburse the Issuing Lender for the amount so drawn. The liability of the
Borrower to reimburse the Issuing Lender for the amounts drawn under Letters of
Credit shall be included within the terms "Revolving Loan" and "Loan" for all
purposes of this Agreement, and any amounts so drawn shall bear interest until
paid in full (whether out of the proceeds of a Revolving Loan otherwise
permitted hereunder or otherwise) at the Base Rate, subject to Section 2.8(b).
The Borrower's obligation to reimburse the Issuing Lender for any and all
amounts drawn under any Letter of Credit and all interest thereon shall be
secured by the Collateral. The Borrower's obligations to repay any and all
drawings under any Letter of Credit and any and all other amounts payable to the
Issuing Lender, the Agent or any other Revolving Lender hereunder shall be
absolute, irrevocable and unconditional under any and all circumstances
whatsoever and irrespective of any set-off, counterclaim or defense to payment
which the Borrower may have or have had against the Issuing Lender, the Agent or
any other Revolving Lender (except such as may arise out of the Issuing
Lender's, the Agent's or any other Revolving Lender's gross negligence or
willful misconduct hereunder) or any other Person, including, without
limitation, any setoff, counterclaim or defense based upon or arising out of:
(A) Any lack of validity or enforceability of this
Agreement or any of the other Loan Documents or such Letter of Credit;
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(B) Any amendment or waiver of or any consent to or
departure from the terms of the Loan Documents or such Letter of
Credit;
(C) The existence of any claim, setoff, defense or
other right which the Borrower or any other Person may have at any time
against any beneficiary or any transferee of such Letter of Credit (or
any Person for whom any such beneficiary or any such transferee may be
acting), the Issuing Lender, the Agent or any other Lender or any other
Person, whether in connection with such Letter of Credit, the Loan
Documents or any unrelated transaction;
(D) Any demand, statement or any other document
presented under such Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect, or any statement therein being
untrue or inaccurate in any respect whatsoever or any variations in
punctuation, capitalization, spelling or format of the drafts or any
statements presented in connection with any drawing under such Letter
of Credit;
(E) The surrender or impairment of any security for
the performance or observance of any of the terms of such Letter of
Credit or the Loan Documents; and
(F) The failure, for any reason, of any Lender to
fund advances to the Borrower hereunder for any purpose.
Nothing contained herein shall constitute a waiver of any rights or remedies of
the Borrower against the Issuing Lender, the Agent or any other Lender arising
out of the gross negligence or willful misconduct of the Issuing Lender, the
Agent or any such other Lender.
(b) Whenever the Borrower desires the issuance of a
Letter of Credit, it shall deliver to the Agent and the Issuing Lender a written
notice no later than 10:00 A.M. California time at least three Business Days
prior to the proposed date of issuance (each such notice, a "Letter of Credit
Request"). Such Letter of Credit Request shall specify (i) the proposed date of
issuance (which shall be a Business Day under the laws of
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the jurisdiction of the Issuing Lender), (ii) the face amount of the Letter of
Credit, which shall not be less than $50,000, (iii) the expiration date of the
Letter of Credit, which shall not exceed the Business Day prior to the Revolving
Loan Maturity Date, (iv) the name and address of the beneficiary of the Letter
of Credit, and (v) a precise description of the documents and the verbatim text
of any certificate to be presented by the beneficiary of such Letter of Credit
which, if presented by such beneficiary prior to the expiration date of such
Letter of Credit, would require the Issuing Lender to make payments under the
Letter of Credit (provided that the Issuing Lender, in its sole discretion, may
require changes in any such documents and certificates). The Issuing Lender
shall notify the Agent of the issuance of each Letter of Credit promptly
following the issuance thereof. Promptly after receipt of notice of the issuance
of a Letter of Credit, the Agent shall notify each Revolving Lender and the
Borrower of the issuance thereof and the amount of each Revolving Lender's
respective participation therein.
(c) The payment of drafts under any Letter of Credit
shall be made in accordance with the terms of such Letter of Credit and, in that
connection, the Issuing Lender shall be entitled to honor any drafts and accept
any documents presented to it by the beneficiary of such Letter of Credit in
accordance with the terms of such Letter of Credit and believed by the Issuing
Lender to be genuine. The Issuing Lender shall not have any duty to the Borrower
or any Lender to inquire as to the accuracy or authenticity of any draft or
other drawing documents which may be presented to it, but shall be responsible
only to determine that the documents which are required to be presented before
payment or acceptance of a draft under any Letter of Credit have been delivered
and that they comply on their face with the requirements of that Letter of
Credit.
(d) The Borrower, the Lenders, each Issuing Lender
and the Agent agree that, in the event that an Issuing Lender and the Borrower
enter into any letter of credit application or agreement in relation to any
Letter of Credit which contains provisions that are inconsistent with the
express provisions of this Section 2.4, then the provisions of this Section 2.4
shall be controlling.
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Section 2.5 Notice of Borrowing. (a) Whenever the Borrower
desires to borrow Loans hereunder, it shall give the Agent at the Agent's Office
prior to 10:00 A.M., California time, at least one Business Day's prior telecopy
or telephonic notice (promptly confirmed in writing) of each Base Rate Loan, and
at least three Business Days' prior telecopy or telephonic notice (promptly
confirmed in writing) of each Eurodollar Loan to be made hereunder. Each such
notice (a "Notice of Borrowing") shall be irrevocable and shall specify (i) the
aggregate principal amount of the requested Loans, (ii) during the Tranche A
Period, whether such Loans shall be Tranche A Loans or Revolving Loans, (iii)
the date of Borrowing (which shall be a Business Day), and (iv) whether such
Loans shall consist of Base Rate Loans or Eurodollar Loans and, if Eurodollar
Loans, the initial Interest Period to be applicable thereto (provided that no
Eurodollar Loans may be requested or made when any Default or Event of Default
has occurred and is continuing).
(b) Promptly after receipt of a Notice of
Borrowing, the Agent shall provide each Lender with a copy thereof and inform
each Lender as to its Pro Rata Share of the Loans requested thereunder.
Section 2.6 Disbursement of Funds. (a) No later than 1:00
P.M., California time, on the date specified in each Notice of Borrowing, each
Lender will make available its Pro Rata Share of the Loans requested to be made
on such date, in U.S. dollars and immediately available funds, at the Agent's
Office. After the Agent's receipt of the proceeds of such Loans, the Agent will
make available to the Borrower by depositing (in such account of the Borrower as
the Agent shall be instructed from time to time by the Borrower) the aggregate
of the amounts so made available in the type of funds actually received.
(b) Unless the Agent shall have been notified by any
Lender prior to the date of a Borrowing that such Lender does not intend to make
available to the Agent its portion of the Loans to be made on such date, the
Agent may assume that such Lender has made such amount available to the Agent on
such date and the Agent in its sole discretion may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
corresponding amount is
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not in fact made available to the Agent by such Lender and the Agent has made
such amount available to the Borrower, the Agent shall be entitled to recover
such corresponding amount on demand from such Lender. If such Lender does not
pay such corresponding amount forthwith upon the Agent's demand therefor, the
Agent shall promptly notify the Borrower and the Borrower shall immediately
repay such corresponding amount to the Agent. The Agent shall also be entitled
to recover from such Lender or the Borrower, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Agent to the Borrower to the date
such corresponding amount is recovered by the Agent, at a rate per annum equal
to the then applicable rate of interest, calculated in accordance with Section
2.8, for the respective Loans. Nothing herein shall be deemed to relieve any
Lender from its obligation to fulfill its commitments hereunder or to prejudice
any rights which the Borrower may have against any Lender as a result of any
default by such Lender hereunder. Notwithstanding anything contained herein or
in any other Loan Document to the contrary, the Agent may apply all funds and
proceeds of Collateral available for the payment of any Obligations first to
repay any amount owing by any Lender to the Agent as a result of such Lender's
failure to fund its Loans hereunder.
Section 2.7 Notes. (a) The Borrower's obligation to pay the
principal of, and interest on, each Lender's Loans (including Loans made
pursuant to Section 2.4(a)) shall be evidenced in the case of such Lender's (i)
Tranche A Loans, by a promissory note (a "Tranche A Note") duly executed and
delivered by the Borrower substantially in the form of Exhibit A-1 hereto in a
principal amount equal to such Lender's Tranche A Commitment with blanks
appropriately completed in conformity herewith, (ii) Tranche B Loans, by a
promissory note (a "Tranche B Note") duly executed and delivered by the Borrower
substantially in the form of Exhibit A-2 hereto in a principal amount equal to
such Lender's Tranche B Loan with blanks appropriately completed in conformity
herewith and (iii) Revolving Loans, by a promissory note (a "Revolving Note")
duly executed and delivered by the Borrower substantially in the form of Exhibit
A-3 hereto in a principal amount equal to such Lender's Revolving Loan
Commitment, with blanks appropriately completed in conformity herewith. Each
Note issued to a Lender shall (x) be payable to the
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order of such Lender, (y) be dated the Closing Date, and (z) mature on the
Tranche A Loan Maturity Date, the Tranche B Loan Maturity Date or the Revolving
Loan Maturity Date, as applicable.
(b) Each Lender is hereby authorized, at its option,
either (i) to endorse on the schedule attached to its Notes (or on a
continuation of such schedule attached to such Note and made a part thereof) an
appropriate notation evidencing the date and amount of each Loan evidenced
thereby and the date and amount of each principal and interest payment in
respect thereof, or (ii) to record such Loans and such payments in its books and
records. Such schedule or such books and records, as the case may be, shall
constitute prima facie evidence of the accuracy of the information contained
therein.
Section 2.8 Interest. (a) The Borrower agrees to pay interest
in respect of the unpaid principal amount of each Loan from the date of the
making of such Loan to but excluding the date that such Loan is paid in full or
converted into a Base Rate Loan or Eurodollar Loan, as the case may be, (i)
during any period when such Loan is a Base Rate Loan, at a rate per annum which
shall be equal to the sum of the Base Rate in effect from time to time plus the
Applicable Margin, such rate to change as and when the Base Rate or the
Applicable Margin changes, such interest to be computed on the basis of the
actual number of days elapsed over a year of 360 days and (ii) during any period
when such Loan is a Eurodollar Loan, at a rate per annum which shall be equal to
the sum of the Eurodollar Rate plus the Applicable Margin, such rate to change
as and when the Applicable Margin changes, such interest to be computed on the
basis of a 360-day year.
(b) In the event that, and for so long as, any Event
of Default shall have occurred and be continuing, the outstanding principal
amount of all Loans and, to the extent permitted by law, overdue interest in
respect of all Loans, shall be payable on demand and bear interest at a rate per
annum (the "Default Rate") equal to the greater of (i) the Base Rate plus 2.00%
and (ii) the sum of two percent (2%) plus the interest rate otherwise applicable
hereunder to such principal amount in effect from time to time.
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(c) Interest on each Loan shall accrue from and
including the date of the Borrowing thereof to but excluding the date of any
repayment thereof (provided that any Loan borrowed and repaid on the same day
shall accrue one day's interest) and shall be payable (i) in respect of each
Base Rate Loan, quarterly in arrears on each Payment Date, (ii) in respect of
each Eurodollar Loan, on the last day of each Interest Period applicable to such
Loan and, in the case of an Interest Period of six months, on the date occurring
three months from the first day of such Interest Period and on the last day of
such Interest Period, and (iii) in the case of all Loans, on any prepayment or
conversion (on the amount prepaid or converted), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(d) The Agent shall, upon determining the Eurodollar
Rate for any Interest Period, promptly notify the Borrower and the Lenders
thereof.
Section 2.9 Interest Periods. (a) The Borrower shall, in each
Notice of Borrowing or Notice of Conversion or Continuation in respect of the
making of, conversion into or continuation of a Eurodollar Loan, select the
interest period (each an "Interest Period") applicable to such Eurodollar Loan,
which Interest Period shall, at the option of the Borrower, be either a
one-month, two-month, three-month or six-month period, provided that:
(i) the initial Interest Period for any Eurodollar
Loan shall commence on the date of the making of such Loan (including the date
of any conversion from a Base Rate Loan) and each Interest Period occurring
thereafter in respect of such Loan shall commence on the date on which the next
preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on
a day which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, however, that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the month
after which no further Business Day occurs in such month, such Interest Period
shall expire on the next preceding Business Day;
(iii) if any Interest Period begins on a day for
which there is no numerically corresponding day
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in the calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iv) no Interest Period in respect of any Revolving
Loan, Tranche A Loan or Tranche B Loan shall extend beyond the Revolving Loan
Maturity Date, the Tranche A Loan Maturity Date or the Tranche B Loan Maturity
Date, as applicable; and
(v) no Interest Period in respect of a Tranche A Loan
or Tranche B Loan shall extend beyond any date upon which a repayment of such
Loan is required to be made pursuant to Section 2.1 or Section 2.2, as the case
may be, unless the aggregate principal amount of Tranche A Loans and Tranche B
Loans which are Base Rate Loans or which have Interest Periods which will expire
on or before such date is equal to or in excess of the amount of the repayment
of such loans required to be made on such date.
(b) If upon the expiration of any Interest Period,
the Borrower has failed to elect a new Interest Period to be applicable to the
respective Eurodollar Loan as provided above, the Borrower shall be deemed to
have elected to convert such Eurodollar Loans into Base Rate Loans effective as
of the expiration date of such current Interest Period.
Section 2.10 Minimum Amount of Eurodollar Loans. All
borrowings, conversions, continuations, payments, prepayments and selection of
Interest Periods hereunder shall be made or selected so that, after giving
effect thereto, (i) the aggregate principal amount of any Borrowing comprised of
Eurodollar Loans shall not be less than $750,000 or an integral multiple of
$100,000 in excess thereof, and (ii) there shall be no more than six Borrowings
comprised of Eurodollar Loans outstanding at any time.
Section 2.11 Conversion or Continuation. (a) Subject to the
other provisions hereof, the Borrower shall have the option (i) to convert at
any time on or after the 30th day following the Closing Date all or any part of
outstanding Base Rate Loans to Eurodollar Loans, (ii) to convert all or any part
of outstanding Eurodollar Loans to Base Rate Loans, on the expiration date of
the Interest Period applicable thereto, or (iii) to continue
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all or any part of outstanding Eurodollar Loans which comprise part of the same
Borrowing as Eurodollar Loans for an additional Interest Period, on the
expiration of the Interest Period applicable thereto; provided that no Loan may
be continued as, or converted into, a Eurodollar Loan when any Event of Default
has occurred and is continuing.
(b) In order to elect to convert or continue a Loan
under this Section 2.11, the Borrower shall deliver an irrevocable notice
thereof (a "Notice of Conversion or Continuation") to the Agent no later than
10:00 A.M., California time, (i) at least one Business Day in advance of the
proposed conversion date in the case of a conversion to a Base Rate Loan and
(ii) at least three Business Days in advance of the proposed conversion or
continuation date in the case of a conversion to, or a continuation of, a
Eurodollar Loan. A Notice of Conversion or Continuation shall specify (w) the
requested conversion or continuation date (which shall be a Business Day), (x)
the amount and Facility of the Loan to be converted or continued, (y) whether a
conversion or continuation is requested, and (z) in the case of a conversion to,
or a continuation of, a Eurodollar Loan, the requested Interest Period. Promptly
after receipt of a Notice of Conversion or Continuation under this Section
2.11(b), the Agent shall provide each Lender with a copy thereof.
Section 2.12 Voluntary Reduction of Commitments. Upon at least
three Business Day's prior irrevocable written notice (or telephonic notice
promptly confirmed in writing) to the Agent (which notice the Agent shall
promptly transmit to each of the Lenders), the Borrower shall have the right,
without premium or penalty, to permanently reduce each Lender's Pro Rata Share
of all or part of the Total Revolving Loan Commitment and, prior to the Tranche
A Period Date, the Tranche A Commitment, provided that any such partial
reduction shall be in the minimum aggregate amount of $750,000 or any integral
multiple of $100,000 in excess thereof.
Section 2.13 Voluntary Prepayments. The Borrower shall have
the right to prepay (without premium or penalty) the Loans in whole or in part
from time to time on the following terms and conditions: (i) the Borrower shall
give the Agent written notice (or
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telephonic notice promptly confirmed in writing), which notice shall be
irrevocable, of its intent to prepay the Loans, at least three Business Days
prior to a prepayment of Eurodollar Loans and at least one Business Day prior to
a prepayment of Base Rate Loans, which notice shall specify the amount of such
prepayment and what Types of Loans and which Facilities are to be prepaid and,
in the case of Eurodollar Loans, the specific Borrowing(s) pursuant to which
made, and which notice the Agent shall promptly transmit to each of the Lenders,
(ii) each prepayment shall be in an aggregate principal amount of $1,000,000 or
any integral multiple of $100,000 in excess thereof, (iii) prepayments of
Eurodollar Loans made pursuant to this Section may only be made on the last day
of the Interest Period applicable thereto, and (iv) partial prepayments of the
Tranche B Loans and, from and after the Tranche A Period Date, the Tranche A
Loans shall be applied to the scheduled installments of principal thereof in the
inverse order of maturity.
Section 2.14 Mandatory Prepayments. The Borrower shall make
the following payments at the following times and in the following amounts:
(a) On or before the 10th day after each
date after the Closing Date on which any Loan Party receives any Net Sale
Proceeds, the Borrower shall prepay (without premium or penalty) the outstanding
Loans in an amount equal to 100% of the amount of such Net Sale Proceeds, in
accordance with the provisions of Section 2.15(a); provided that the Borrower
may, upon written notice to the Agent prior to the receipt of such Net Sale
Proceeds, invest such Net Sale Proceeds in replacement assets used in the
ordinary course of its business within 180 days of such receipt; provided
further that such Net Sale Proceeds shall be prepaid in accordance with the
first sentence of this Section 2.14(a) on the day following such 180-day period
if such Net Sale Proceeds have not been so invested.
(b) On each date after the Closing Date
on which any Loan Party receives any proceeds from any capital contribution or
from the issuance of any equity securities (excluding proceeds from the exercise
of warrants or employee stock options and excluding any issuances of securities
pursuant to the Securities Purchase Agreement), the Borrower shall prepay the
outstanding Loans in an amount equal to 100% of such
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proceeds (net of any underwriting discounts or commissions and any other
reasonable costs or expenses directly attributable to such incurrence or
issuance, including attorneys fees and investment banker fees), in accordance
with the provisions of Section 2.15(a). In the event the Nagpal Note is
exchanged for additional equity securities of the Borrower, such exchange shall
not be deemed to result in the receipt by the Borrower of any proceeds or a
capital contribution as a consequence of the extinguishment of the debt
represented by the Nagpal Note.
(c) Within 90 days after the date on which the
Borrower or any of its Subsidiaries receives any proceeds of any insurance
payment or condemnation award in excess of $100,000, which proceeds are not
applied by the Borrower or such Subsidiary during such period to the repair or
replacement of the property insured or affected by such condemnation, the
Borrower shall prepay the outstanding Loans in an amount equal to 100% of such
proceeds, in accordance with the provisions of Section 2.15(a); provided that,
if the Borrower or such Subsidiary shall have commenced such repair or
replacement during such period and for so long as it shall diligently proceed
therewith, or if the Borrower has certified to the Agent that it will use such
proceeds for such repair or replacement, the Borrower shall not be required to
make such prepayment to the extent that such proceeds are reasonably expected by
the Borrower to be required to complete such repair or replacement.
(d) On each date after the third anniversary of the
Closing Date on which the audited financial statements of the Borrower and its
Subsidiaries are delivered to each Lender pursuant to Section 5.1(b), the
Borrower shall prepay the outstanding Loans in an amount equal to 50% of Excess
Cash Flow, in accordance with the provisions of Section 2.15(a).
(e) On each day on which the sum of (x) Revolving
Loans outstanding plus (y) the Letter of Credit Liability exceeds the lesser of
(i) the Total Revolving Loan Commitment or (ii) the Borrowing Base, the Borrower
shall prepay the Revolving Loans (or, if no Revolving Loans are outstanding, pay
to the Agent as cash collateral for the obligation of the Borrower to reimburse
any future drawings on any Letter of Credit, with respect to any such amounts
the Borrower hereby
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grants to the Agent, for the pro rata, pari passu benefit of the Revolving
Loans, a first priority perfected security interest therein and hereby
irrevocably agrees that amounts so held may be applied from time to time in
reimbursement of drawings on such Letters of Credit as the same may occur, until
the expiration of such Letters of Credit and payment in full of all amounts due
with respect to any drawing thereon) to the extent that the outstanding
principal amount of the Revolving Loans plus the Letter of Credit Liability
exceeds either the Total Revolving Loan Commitment or the Borrowing Base. On
each day on which the sum of Tranche A Loans outstanding exceeds the Total
Tranche A Commitment, the Borrower shall prepay the Tranche A Loans in an amount
equal to such excess.
Section 2.15 Application of Prepayments; Mandatory Reduction
of Commitments. (a) Subject to Section 2.15(b), all prepayments of the Loans
required by Sections 2.14(a) - (d) shall be applied as follows: (i) during the
Tranche A Period, first, to prepay the Tranche B Loans until such Tranche B
Loans shall have been repaid in full, together with accrued and unpaid interest
thereon, second, to prepay the Tranche A Loans until such Tranche A Loans shall
have been repaid in full, together with accrued and unpaid interest thereon,
third, to prepay the Revolving Loans until such Revolving Loans shall have been
repaid in full, together with accrued and unpaid interest thereon, fourth, to
provide cash collateral for any outstanding Letter of Credit and fifth, to all
other outstanding Obligations, if any; and (ii) after the Tranche A Period Date,
first, to prepay the Tranche A Loans and the Tranche B Loans, on a pro rata
basis among such Loans, at such time until such Tranche A Loans and Tranche B
Loans shall have been repaid in full, together with accrued and unpaid interest
thereon, second, to prepay the Revolving Loans until such Revolving Loans shall
have been repaid in full, together with accrued and unpaid interest thereon,
third, to provide cash collateral for any outstanding Letter of Credit and
fourth, to all other outstanding Obligations, if any. All prepayments of the
Tranche A Loans and Tranche B Loans shall be applied first to Base Rate Loans
then to Eurodollar Loans, in each case to the scheduled installments of
principal thereof in the inverse order of maturity; provided that if the
Borrower offers to any Tranche B Lender the right to waive any such prepayment,
and any such Lender notifies the Agent of such Lender's
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waiver of such prepayment not later than three Business Days prior to the date
upon which prepayment is due, 50% of the portion of any prepayment which would
have been applied to such Tranche B Lender's Tranche B Loans shall be applied
pro rata to the remaining installments of the Tranche A Loans and the remaining
50% shall be applied pro rata to repay the outstanding Revolving Loans, if any,
or, if no Revolving Loans are outstanding, 100% of the portion of any prepayment
which would have been applied to such Tranche B Lender's Tranche B Loans shall
be applied pro rata to the remaining installments of the Tranche A Loans; and
provided further that once the Tranche A Loans shall have been fully prepaid,
such remaining prepayment amounts, if any, shall be applied pro rata to the
Tranche B Loans.
(b) Upon any payment by the Borrower pursuant to
Section 2.14(a), (b), (c) or (d), the Commitment of each Lender with respect to
the Facility to which such payment is applied shall be permanently reduced by an
amount equal to the sum of such payment multiplied by such Lender's Commitment
Percentage.
Section 2.16 Method and Place of Payment. (a) Except as
otherwise specifically provided herein, all payments and prepayments under this
Agreement and the Notes shall be made to the Agent for the account of the
Lenders entitled thereto not later than 12:00 noon, California time, on the date
when due and shall be made in lawful money of the United States of America in
immediately available funds at the Agent's Office, and any funds received by the
Agent after such time shall, for all purposes hereof (including the following
sentence), be deemed to have been paid on the next succeeding Business Day.
Except as otherwise specifically provided herein, the Agent shall thereafter
cause to be distributed on the date of receipt thereof to each Lender in like
funds its Pro Rata Share of payments so received.
(b) Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable at the
applicable rate during such extension.
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(c) All payments made by the Borrower hereunder and
under the other Loan Documents shall be made irrespective of, and without any
reduction for, any setoff or counterclaims.
Section 2.17 Fees. (a) The Borrower agrees to pay (without
duplication) the fees in the amounts and on the dates specified in the Fee
Letter.
(b) The Borrower agrees to pay to the Agent for the
account of each Revolving Lender and Tranche A Lender, respectively, a
commitment fee, computed at the per annum rate of 1/2 of 1% on the average daily
unused portion (minus any undrawn amounts on outstanding Letters of Credit) of
(i) the Revolving Loan Commitment, from and including the Closing Date to the
Revolving Loan Maturity Date, payable quarterly in arrears on each Payment Date
and on the Revolving Loan Maturity Date or such earlier date, if any, on which
the Revolving Loan Commitment shall terminate in accordance with the terms
hereof and (ii) the Tranche A Commitment, from and including the Closing Date to
the Tranche A Period Date, payable quarterly in arrears on each Payment Date and
on the Tranche A Period Date or such earlier date, if any, on which the Tranche
A Commitment shall terminate in accordance with the terms hereof.
(c) The Borrower agrees to pay to the Agent for the
ratable benefit of the Revolving Lenders a letter of credit commitment fee in an
amount equal to the sum of (i) the face amount of any Letter of Credit
multiplied by (ii) the percentage amount set forth under the heading "Eurodollar
Margin" in the definition of "Applicable Margin" which would then be applicable
to the Borrower with respect to Revolving Loans outstanding in an amount equal
to the aggregate daily undrawn amount of all Letters of Credit outstanding.
(d) Such fees as described in clause (c) above shall
accrue from the date of issuance of each Letter of Credit to the date of the
expiration or cancellation thereof, and shall be due and payable in arrears
quarterly on each Payment Date, on the Revolving Loan Maturity Date, and on any
other date on which the Revolving Loans are paid in full and the Revolving Loan
Commitment permanently terminated.
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(e) The fees described in clauses (a), (b) and (c)
above shall be computed on the basis of the actual number of days elapsed over a
year of 360 days.
Section 2.18 Interest Rate Unascertainable, Increased Costs,
Illegality. (a) In the event that the Agent, in the case of clause (i) below, or
any Lender, in the case of clauses (ii) and (iii) below, shall have determined
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate
for any Interest Period, that by reason of any changes arising after the date of
this Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the basis
provided for in the definition of the Eurodollar Rate; or
(ii) at any time, that the relevant Eurodollar Rate
applicable to any of its Loans shall not represent the effective pricing to such
Lender for funding or maintaining a Eurodollar Loan, or such Lender shall incur
increased costs or reductions in the amounts received or receivable hereunder in
respect of any Eurodollar Loan, in any such case because of (x) any change since
the date of this Agreement in any applicable law or governmental rule,
regulation, guideline or order or any interpretation thereof and including the
introduction of any new law or governmental rule, regulation, guideline or order
(such as, for example but not limited to, a change in official reserve
requirements, but, in all events, excluding reserves required under Regulation D
of the Federal Reserve Board to the extent included in the computation of the
Eurodollar Rate), whether or not having the force of law and whether or not
failure to comply therewith would be unlawful, and/or (y) other circumstances
affecting such Lender or the interbank Eurodollar market or the position of such
Lender in such market; or
(iii) at any time, that the making or continuance by
it of any Eurodollar Loan has become unlawful by compliance by such Lender in
good faith with any law or governmental rule, regulation, guideline or order
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) or
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has become impracticable as a result of a contingency occurring after the date
of this Agreement which materially and adversely affects the interbank
Eurodollar market; then, and in any such event, the Agent or such Lender shall,
promptly after making such determination, give notice (by telephone promptly
confirmed in writing) to the Borrower and (if applicable) the Agent of such
determination (which notice the Agent shall promptly transmit to each of the
other Lenders). Thereafter (x) in the case of clause (i) above, the Borrower's
right to request Eurodollar Loans shall be suspended, and any Notice of
Borrowing or Notice of Conversion or Continuation given by the Borrower with
respect to any Borrowing of Eurodollar Loans which has not yet been made shall
be deemed cancelled and rescinded by the Borrower, (y) in the case of clause
(ii) above, the Borrower shall pay to such Lender, upon such Lender's delivery
of written demand therefor to the Borrower with a copy to the Agent, such
additional amounts (in the form of an increased rate of interest, or a different
method of calculating interest, or otherwise, as such Lender in its sole
discretion shall determine) as shall be required to compensate such Lender for
such increased costs or reduction in amounts received or receivable hereunder
and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in clause (b) below as promptly as possible and, in any event,
within the time period required by law. The written demand provided for in
clause (y) shall, absent manifest error, be final and conclusive and binding
upon all of the parties hereto.
(b) In the case of any Eurodollar Loan or
requested Eurodollar Loan affected by the circumstances described in clause
(a)(ii) above, the Borrower may, and in the case of any Eurodollar Loan affected
by the circumstances described in clause (a)(iii) above the Borrower shall,
either (i) if any such Eurodollar Loan has not yet been made but is then the
subject of a Notice of Borrowing or a Notice of Conversion or Continuation, be
deemed to have cancelled and rescinded such notice, or (ii) if any such
Eurodollar Loan is then outstanding, require the affected Lender to convert each
such Eurodollar Loan into a Base Rate Loan at the end of the applicable Interest
Period or such earlier time as may be required by law, in each case by giving
the Agent notice (by telephone promptly confirmed in writing) thereof on
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the Business Day that the Borrower was notified by the Lender pursuant to clause
(a) above; provided, however, that all Lenders whose Eurodollar Loans are
affected by the circumstances described in clause (a) above shall be treated in
the same manner under this clause (b).
(c) In the event that the Agent determines at any
time following its giving of notice based on the conditions described in clause
(a)(i) above that none of such conditions exist, the Agent shall promptly give
notice thereof to the Borrower and the Lenders, whereupon the Borrower's right
to request Eurodollar Loans from the Lenders and the Lenders' obligation to make
Eurodollar Loans shall be restored.
(d) In the event that a Lender determines at any time
following its giving of a notice based on the conditions described in clause
(a)(iii) above that none of such conditions exist, such Lender shall promptly
give notice thereof to the Borrower and the Agent, whereupon the Borrower's
right to request Eurodollar Loans from such Lender and such Lender's obligation
to make Eurodollar Loans shall be restored.
Section 2.19 Funding Losses. The Borrower shall compensate
each Lender, upon such Lender's delivery of a written demand therefor to the
Borrower, with a copy to the Agent (which demand shall, absent manifest error,
be final and conclusive and binding upon all of the parties hereto), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by such Lender in connection with the
liquidation or reemployment of deposits or funds required by it to make or carry
its Eurodollar Loans), that such Lender sustains: (i) if for any reason (other
than a default by such Lender) a Borrowing of, or conversion from or into, or a
continuation of, Eurodollar Loans does not occur on a date specified therefor in
a Notice of Borrowing or Notice of Conversion or Continuation (whether or not
rescinded, cancelled or withdrawn or deemed rescinded, cancelled or withdrawn,
pursuant to Section 2.18(a) or 2.18(b) or otherwise), (ii) if any repayment
(including, without limitation, payment after acceleration) or conversion of any
of its Eurodollar Loans occurs on a date which is not the last day of the
Interest Period applicable thereto, (iii) if any prepayment of any of its
Eurodollar Loans is not made on any date specified in a
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notice of prepayment given by the Borrower, or (iv) as a consequence of any
default by the Borrower in repaying its Eurodollar Loans or any other amounts
owing hereunder in respect of its Eurodollar Loans when required by the terms of
this Agreement. Calculation of all amounts payable to a Lender under this
Section 2.19 shall be made on the assumption that such Lender has funded its
relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing
interest at the Eurodollar Rate in an amount equal to the amount of such
Eurodollar Loan with a maturity equivalent to the Interest Period applicable to
such Eurodollar Loan, and through the transfer of such Eurodollar deposit from
an offshore office of such Lender to a domestic office of such Lender in the
United States of America, provided that each Lender may fund its Eurodollar
Loans in any manner that it in its sole discretion chooses and the foregoing
assumption shall only be made in order to calculate amounts payable under this
Section 2.19.
Section 2.20 Increased Capital. If any Lender shall have
determined at any time that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to any
Loan because of any change since the date of this Agreement in any applicable
law or governmental rule, regulation, order or request (whether or not having
the force of law) (or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule, regulation,
order or request), then from time to time, upon such Lender's delivering a
written demand therefor to the Agent and the Borrower (with a copy to the
Agent), the Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender or Person for such increased costs or reduction.
Section 2.42 Taxes. (a) All payments made by the Borrower
under this Agreement shall be made free and clear of, and without reduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
governmental authority excluding, in the case of the Agent and each Lender, net
income and franchise taxes imposed on the Agent or such Lender by the
jurisdiction under the laws of which the Agent or such Lender is organized or
any political subdivision or taxing authority thereof or
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therein, or by any jurisdiction in which such Lender's Domestic Lending Office
or Eurodollar Lending Office, as the case may be, is located or any political
subdivision or taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, deductions, charges or withholdings being hereinafter called
"Taxes"). If any Taxes are required to be withheld from any amounts payable to
the Agent or any Lender hereunder or under the Notes, the amounts so payable to
the Agent or such Lender shall be increased to the extent necessary to yield to
the Agent or such Lender (after payment of all Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes. Whenever any Taxes are payable by the Borrower, as
promptly as possible thereafter, the Borrower shall send to the Agent for its
own account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Lenders for any incremental taxes, interest or penalties that may become payable
by the Agent or any Lender as a result of any such failure. The agreements in
this Section 2.21 shall survive the termination of this Agreement and the
payment of the Notes and all other Obligations.
(b) Each Lender that is not incorporated
under the laws of the United States of America or a state thereof (including
each Assignee that becomes a party to this Agreement pursuant to Section 9.4)
agrees that, prior to the first date on which any payment is due to it
hereunder, it will deliver to the Borrower and the Agent two duly completed
copies of United States Internal Revenue Service Form 1001 or 4224 or successor
or other applicable form, as the case may be, certifying in each case that such
Lender is entitled to receive payments under this Agreement and the Notes
payable to it, without deduction or withholding of any United States federal
income taxes. Each Lender which delivers to the Borrower and the Agent a Form
1001 or 4224 or other applicable form pursuant to the preceding sentence further
undertakes to deliver to the Borrower and the Agent two further copies of such
letter and Form 1001 or 4224, or successor or other applicable forms, or other
manner of certification, as the case may be, on or before the date
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that any such letter or form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent letter and form previously
delivered by it to the Borrower, and such extensions or renewals thereof as may
reasonably be requested by the Borrower, certifying in the case of a Form 1001
or 4224 or other applicable form that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes, unless in any such case an event (including,
without limitation, any change in treaty, law or regulation) has occurred prior
to the date on which any such delivery would otherwise be required which renders
all such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such letter or form with respect to it and such
Lender advises the Borrower that it is not capable of receiving payments without
any deduction or withholding of United States federal income tax.
Section 2.22 Change of Lending Office. Each Lender agrees
that, upon the occurrence of any event giving rise to the operation of Section
2.18, 2.20 or 2.21(a) with respect to such Lender, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
the Lender) to designate another lending office for any Loans affected by such
event with the object of avoiding the consequences of such event; provided, that
such designation is made on terms that, in the sole judgment of the Lender,
cause such Lender or its lending office(s) to suffer no economic, legal or
regulatory disadvantage, and provided, further, that nothing in this Section
2.22 shall affect or postpone any of the obligations of the Borrower or any of
the rights of any Lender pursuant to Section 2.l8, 2.20 or 2.21(a).
Section 2.23 Participations Purchased by Lenders in the Letter
of Credit Liability.
(a) On the date of the issuance of each Letter of
Credit, the Issuing Lender shall be deemed irrevocably and unconditionally to
have sold and transferred to each Revolving Lender (other than the Issuing
Lender) and each Revolving Lender shall be deemed to have irrevocably and
unconditionally purchased and received from the Issuing Lender, an undivided
interest and participation, to the extent of such Revolving
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Lender's Commitment Percentage in effect from time to time, in such Letter of
Credit and all Letter of Credit Liability with respect thereto. The Revolving
Commitment of each Revolving Lender hereunder shall include that Revolving
Lender's share of the Letter of Credit
Liability.
(b) In the event that any reimbursement obligation
under this Agreement is not paid when due to the Issuing Lender with respect to
any Letter of Credit, the Issuing Lender shall promptly notify the Agent to that
effect, and the Agent shall promptly notify each Revolving Lender (other than
the Issuing Lender) of the amount of such reimbursement obligation and each
Revolving Lender other than the Issuing Lender shall immediately pay to the
Agent for distribution to the Issuing Lender, in lawful money of the United
States and in same day funds, an amount equal to such Revolving Lender's
Commitment Percentage then in effect of the amount of such unpaid reimbursement
obligation.
(c) The obligation of each Revolving Lender other
than the Issuing Lender to make payments under subsection (b) above shall be
unconditional and irrevocable and shall be made under all circumstances,
including, without limitation, following the occurrence of any Default or any
Event of Default or any of the circumstances referred to in Section 2.4 hereof.
(d) Prior to the occurrence of any Event of Default,
the Agent shall promptly distribute to each Revolving Lender its Commitment
Percentage (or other applicable share as expressly provided herein) of all
amounts received on account of the obligations of the Borrower to repay amounts
drawn under any Letter of Credit (in like funds as received). Following the
occurrence of an Event of Default, all amounts received by the Agent on account
of such obligations shall be disbursed by the Agent as follows:
(i) First, to the payment of expenses incurred by
the Agent in the performance of its duties and enforcement of its rights under
the Loan Documents, including, without limitation, all costs and expenses of
collection, reasonable attorneys' fees, court costs and foreclosure expenses;
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(ii) Then, to the Revolving Lenders, pro rata in
accordance with their respective Commitment Percentages until all outstanding
reimbursement obligations for drawing on such Letter of Credit and interest
accrued thereon have been paid in full; and
(iii) Then, and if but only if there remains any
available amount which has not been drawn under such Letter of Credit, to the
Agent to hold as cash collateral for the obligation of the Borrower to reimburse
any future drawings on such Letter of Credit, the Borrower hereby granting to
the Agent, for the pro rata, pari passu benefit of the Revolving Lenders, a
first perfected security interest therein and hereby irrevocably agreeing that
amounts so held may be applied from time to time in reimbursement of drawings on
such Letter of Credit as the same may occur, until the expiration of such Letter
of Credit and payment in full of all amounts due with respect to any drawing
thereon.
(e) If any payment received from the Borrower on
account of any reimbursement obligation with respect to any Letter of Credit and
distributed to a Lender under Section 2.23(d) hereof is thereafter recovered
from the Issuing Lender, each Revolving Lender which received such distribution
shall, upon demand by the Agent, repay to the Issuing Lender such Revolving
Lender's ratable share of the amount so recovered together with an amount equal
to such Revolving Lender's ratable share (according to the proportion of (i) the
amount of such Revolving Lender's required repayment to (ii) the total amount so
recovered) of any interest or other amount paid or payable by the Issuing Lender
in respect of the total amount so recovered.
Section 2.24 Extension of Revolving Loan Maturity Date. (a)
Subject to the terms and conditions hereunder (including the absence of any
Default or Event of Default), the Borrower may direct a written request to the
Agent that the Revolving Loan Maturity Date then in effect be extended for a
one-year period. Any such request for extension must be delivered to the Agent
not later than six months prior to the Revolving Loan Maturity Date. Each
Revolving Lender may grant or deny its consent to extending the Revolving Loan
Maturity Date in its sole discretion by notifying the Agent in writing;
provided, however, that any Revolving Lender that fails to respond to such
request for extending the Revolving
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Loan Maturity Date within 30 days after its receipt thereof shall be deemed to
have denied such request for extending the Revolving Loan Maturity Date.
(b) In connection with a written request of the
Borrower for an extension of the Revolving Loan Maturity Date, upon the request
of the Borrower, the Borrower shall be permitted to replace any non-consenting
Revolving Lender and any Revolving Lender that fails to respond to the Agent's
written request for an extension of the Revolving Loan Maturity Date within the
time period specified in clause (a) above (each, a "Non-Consenting Lender") with
a replacement bank or other financial institution (a "Replacement Lender")
satisfactory to the Agent, with such replacement to be effective as of the
Revolving Loan Maturity Date in effect prior to the requested extension of the
Revolving Loan Maturity Date; provided, however, that (i) such replacement does
not conflict with any applicable law, (ii) the Replacement Lender shall purchase
from the Non-Consenting Lender (A) at par, all Revolving Loans, (B) all accrued
interest, and (C) all other amounts owing to such Non-Consenting Lender in
respect of such Revolving Lender's Revolving Loans on or prior to the date of
replacement, in each case, (iii) the Borrower shall be liable to such
Non-Consenting Lender under Section 2.19 if any Loan owing to such
Non-Consenting Lender shall be prepaid (or purchased) other than on the last day
of the Interest Period or Interest Periods relating thereto, (iv) such
replacement shall be made in accordance with the provisions of Section 9.4
(provided that the Borrower or the relevant Replacement Lender shall be
obligated to pay the transaction expenses arising in connection therewith), (v)
the Replacement Lender shall have agreed to be subject to all of the terms and
conditions of this Agreement (including the extension of the Revolving Loan
Maturity Date) and (vi) no Event of Default shall have occurred and be
continuing. The Agent hereby agrees to cooperate with the Borrower in its
efforts to arrange one or more Replacement Lenders as contemplated by this
Section 2.24(b).
(c) Any extension of the Revolving Loan Maturity Date
contemplated by Section 2.24(a) shall be effective only upon the consent of all
Revolving Lenders after giving effect to the provisions of Section 2.24(b).
Except as otherwise provided in this Section 2.24, all
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other terms of this Agreement shall remain unchanged and with the same force and
effect.
(d) If the extension of the Revolving Loan Maturity
Date is approved by all of the Revolving Lenders as provided in Section 2.24(c),
the Borrower shall retain the right to request one additional one year extension
in the manner provided in this Section 2.24.
SECTION 3. CONDITIONS PRECEDENT.
Section 3.1 Conditions Precedent to Initial Loans and
Effectiveness of this Agreement. The effectiveness of this Agreement and the
obligation of each Lender to make its initial Loans is subject to the
satisfaction on the Closing Date of the following conditions precedent:
(b) Loan Documents.
(i) Credit Agreement. The Borrower shall have
executed and delivered this Agreement to the Agent.
(ii) Notes. The Borrower shall have executed and
delivered to each of the Lenders the appropriate Notes in the amount, maturity
and as otherwise provided herein.
(iii) Security Agreements. The Borrower shall have
executed and delivered to the Agent a security agreement substantially in the
form set forth as Exhibit B-1 hereto and each Guarantor shall have executed and
delivered to the Agent a security agreement substantially in the form set forth
as Exhibit B-2 hereto (each such agreement, as amended, modified or supplemented
from time to time, a "Security Agreement").
(iv) Pledge Agreements. The Borrower shall have
executed and delivered to the Agent a pledge agreement substantially in the form
set forth as Exhibit C-1 hereto and each Guarantor shall have executed and
delivered to the Agent a pledge agreement substantially in the form set forth as
Exhibit C-2 hereto (each such agreement, as amended, modified or supplemented
from time to time, a "Pledge Agreement").
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(v) Guarantees. Each Subsidiary of the Borrower shall
have executed and delivered to the Agent a guarantee substantially in the form
set forth as Exhibit E hereto (as amended, modified or supplemented from time to
time, a "Guarantee").
(vi) Other Documents. The Borrower shall have
executed and delivered to the Agent all other Loan Documents to be entered into
in connection with the Transactions.
(b) Opinions of Counsel. The Agent shall have
received legal opinions, dated the Closing Date, from Jones, Day, Reavis & Pogue
and Broad and Cassel, counsel to the Loan Parties in form and substance
satisfactory to the Agent.
(c) Corporate Documents. The Agent shall have
received the Articles of Incorporation (or other formation documents) of each
Loan Party as amended, modified or supplemented to the Closing Date, certified
to be true, correct and complete by the Secretary of State of the appropriate
jurisdiction as of a date not more than five days prior to the Closing Date,
together with a good standing certificate from such Secretary of State to be
dated a date not more than eight days prior to the Closing Date.
(d) Certified Resolutions, etc. The Agent shall have
received a certificate of the Secretary or Assistant Secretary of each Loan
Party and dated the Closing Date certifying (i) the names and true signatures of
the incumbent officers of such Loan Party authorized to sign the applicable Loan
Documents, (ii) the By-Laws or limited partnership agreement, as applicable, of
such Loan Party as in effect on the Closing Date, (iii) the resolutions of such
Loan Party's Board of Directors approving and authorizing the execution,
delivery and performance of all Transaction Documents executed by such Loan
Party, and (iv) that there have been no changes in the Articles of Incorporation
(or other formation document) of such Loan Party since the date of the most
recent certification thereof by the Secretary of State of the appropriate
jurisdiction.
(e) Insurance. The Agent shall have received an
independent insurance profile on the Loan Parties prepared by Morgan and
Brewster or such other
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Person as the Agent shall appoint, which profile shall reflect insurance on the
Loan Parties' operations satisfactory to the Agent.
(f) Lien Search Reports. The Agent shall have
received satisfactory reports of Uniform Commercial Code, tax lien, judgment and
litigation searches conducted by a search firm acceptable to the Agent with
respect to the Loan Parties in each of the locations set forth in Schedule II of
the Security Agreement.
(g) UCC-1 Financing Statements. The Agent shall have
received acknowledgment copies (or other evidence of filing) of each UCC-1
financing statement relating to the Collateral and all of the security interests
created under the Loan Documents shall, except for Liens permitted pursuant to
Section 6.3, be perfected first priority security interests.
(h) Pledged Stock. The Agent shall have received the
original stock certificates or other evidence of beneficial ownership evidencing
the stock and partnership interests pledged pursuant to each Pledge Agreement,
together with undated stock powers duly executed in blank in connection
therewith.
(i) Corporate, Capital and Legal Structure. The
corporate, capital and legal structure of the Loan Parties, all agreements
relating thereto, and all organizational documents of the Loan Parties shall be
satisfactory in form and substance to the Agent.
(j) Financial Statements and Projections. The Agent
shall have received (i) the audited financial statements of the Borrower and its
Subsidiaries for the fiscal years ending December 31, 1996 and December 31, 1997
(ii) the unaudited financial statements of the Borrower and its Subsidiaries for
the fiscal period ending on March 31, 1998 (which unaudited financial statements
the Borrower shall cause to be audited by the Auditors in accordance with GAAP
as promptly after the Closing Date as is reasonably practicable) and (iii)
financial projections, prepared in good faith using reasonable assumptions,
demonstrating the projected financial condition of the Borrower and its
Subsidiaries for the six year period following the Closing Date, which
projections shall be accompanied by a written statement
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of the assumptions underlying the projections, in each case in form and
substance satisfactory to the Agent.
(k) Environmental Matters. The Agent shall (i) be
satisfied that no Loan Party is subject to any present or contingent
environmental liability which could have a Material Adverse Effect and (ii) have
received an environmental audit report in form and substance satisfactory to the
Agent prepared by an independent environmental consultant acceptable to the
Agent with respect to the properties and business of each Loan Party and each of
their Environmental Affiliates.
(l) Funds Flow Instructions. The Agent shall have
received detailed instructions satisfactory to it describing the funds flow in
connection with the Transactions on the Closing Date.
(m) Fees and Expenses. The Agent shall have received,
for its account and for the account of each Lender, as applicable, all Fees and
other fees and expenses due and payable hereunder on or before the Closing Date,
including, without limitation, the reasonable fees and expenses accrued through
the Closing Date of Skadden, Arps, Slate, Meagher & Flom LLP and any other
counsel retained by the Agent.
(n) Consents, Licenses, Approvals, etc. The Agent
shall have received copies of all consents, licenses and approvals, if any,
required in connection with the execution, delivery and performance by each Loan
Party and the validity and enforceability, of the Loan Documents, or in
connection with the Transactions, and such consents, licenses and approvals
shall be in full force and effect.
(o) Borrowing Base Certificate. The Agent shall have
received a Borrowing Base Certificate and an accounts receivable aging schedule
from the Borrower, in each case satisfactory to the Agent, completed using
relevant data from April 30, 1998.
(p) Material Adverse Change. Since December 31, 1997
there shall not have occurred any event, act or condition (and the Lenders shall
not have become aware of any facts or conditions not previously known) with
respect to the consolidated assets, liabilities, operations, business or
financial condition
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of any Loan Party which has had, or could have, a Material Adverse Effect.
(q) Certain Changes. Trading in securities generally
on The New York Stock Exchange or American Stock Exchange or NASDAQ shall not
have been suspended and minimum or maximum prices shall not have been
established on any such exchange; (ii) a banking moratorium shall not have been
declared by United States or New York banking authorities; (iii) there shall not
have been (A) an outbreak or escalation of hostilities between the United States
and any other power, or (B) an outbreak or escalation of any other insurrection
or armed conflict involving the United States or any other national or
international calamity or emergency, or (C) any material change in, or
development with respect to, the financial markets of the United States or
elsewhere, which, in the sole judgment of the Lenders, makes it impracticable or
inadvisable to proceed with the consummation of the Transactions.
(r) No Litigation. No law or regulation shall have
been adopted, no order, judgment or decree of any Governmental Authority shall
have been issued, and no litigation shall be pending or threatened (i) with
respect to the Transactions or the Loan Documents or (ii) which the Borrower or
any Lender shall determine is reasonably likely to have a Material Adverse
Effect.
(s) Officer's Certificate. The Agent and each of the
Lenders shall have received a certificate of the chief financial officer of the
Borrower, dated the Closing Date, together with such supporting factual
information as the Agent and each Lender shall reasonably request, certifying
that, after giving effect to the Transactions, each Loan Party shall (i) be
Solvent and shall remain Solvent as a result of incurring the Indebtedness
contemplated in connection with the Loan Documents, (ii) have sufficient capital
to engage in its respective business and (iii) not have incurred Indebtedness
which the Borrower or any Subsidiary shall not have the ability to repay as it
matures.
(t) Existing Indebtedness. The Agent shall have
received evidence satisfactory to it that the proceeds of the Tranche B Loans
shall repay in full that portion of the Existing Indebtedness of the Borrower
and its Subsidiaries set forth in Part Two of Schedule 6.2,
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that all lenders of such Existing Indebtedness shall have released (or shall,
effective immediately upon receipt of such proceeds, release) each Loan Party
from any and all obligations under the Existing Indebtedness, (ii) that all
commitments of the lenders of such Existing Indebtedness to make loans or
advances to any Loan Party shall be terminated on or prior to the Closing Date
and (iii) that all Liens securing obligations of each Loan Party under the
Existing Indebtedness shall be released and terminated on or prior to the
Closing Date (or shall, effective immediately upon receipt of the proceeds of
the initial Loan in an amount sufficient to repay all amounts owing in respect
of the Existing Indebtedness, release and terminate all such Liens).
(u) Title Insurance. The Agent shall have received a
paid policy of mortgagee title insurance with respect to the Mortgaged Premises
(as defined in the Mortgages), if any, in amount satisfactory to the Lenders and
issued by a title insurance company satisfactory to the Agent and the Lenders.
(v) Proceeds from Sale of Equity. The Agent shall
have received evidence of the Borrower's receipt of not less than $7,000,000
(minus transaction costs) from the sale of the Borrower's preferred and/or
common stock, pursuant to the Securities Purchase Agreement, which shall be in
form and substance, and provide for terms, satisfactory to the Lenders in their
sole discretion.
(w) Additional Matters. The Agent shall have received
such other certificates, opinions, documents and instruments relating to the
Transactions, and such information relating to the Accounts, as may have been
reasonably requested by the Agent or any Lender, and all corporate and other
proceedings and all other related documents (including, without limitation, all
documents referred to herein and not appearing as exhibits hereto) and all legal
matters in connection with the Transactions shall be satisfactory in form and
substance to the Lenders.
Section 3.2 Conditions Precedent to All Loans. The obligation
of each Lender to make any Loan (including the initial Loans made on the Closing
Date) is subject to the satisfaction on the date such Loan is made of the
following conditions precedent:
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(a) Representations and Warranties. The
representations and warranties contained herein and in the other Loan Documents
(other than representations and warranties which expressly speak only as of a
different date) shall be true and correct in all material respects on such date
both before and after giving effect to the making of such Loans.
(b) No Default or Event of Default. No Default or
Event of Default shall have occurred and be continuing on such date either
before or after giving effect to the making of such Loans.
(c) Notice of Borrowing. The Agent shall have
received a fully executed Notice of Borrowing in respect of the Loans to be made
on such date.
(d) No Litigation. No law or regulation shall have
been adopted, no order, judgment or decree of any Governmental Authority shall
have been issued, and no litigation shall be pending or threatened, which the
Borrower or the Required Lenders shall determine is reasonably likely to have a
Material Adverse Effect.
(e) Material Adverse Change. Since the Closing Date
there shall not have occurred any event, act or condition with respect to the
consolidated assets, liabilities, operations, business or financial condition of
any Loan Party which has had, or could have, a Material Adverse Effect.
(f) Other Documentation. The Agent and the Lenders
shall have received such other certificates, opinions and other documentation as
each shall reasonably request.
Section 3.3 Conditions Precedent to Each Tranche A Funding of
Acquisitions.
(a) The obligations of the Tranche A Lenders to make
each Tranche A Loan is subject to the following conditions precedent (in
addition to those set forth in Sections 3.1 and 3.2). With respect to the
proposed Acquisition (such acquisition meeting each of the following
requirements, a "Qualified Acquisition"):
(i) Documents. Not less than three Business Days
prior to the proposed Acquisition the
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Borrower shall deliver to the Agent a Qualified Acquisition Certificate in form
and substance reasonably satisfactory to the Agent. Within thirty days of the
closing of each Acquisition the Borrower shall deliver to the Agent a complete
set of conformed copies of the Acquisition Documents in respect of such
Acquisition.
(ii) Waiting Periods. All related waiting periods
shall have been satisfied (including waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, if applicable).
(iii) Collateral Documents. The Borrower shall have
executed and delivered to the Agent UCC-1 financing statements listing the Agent
as the secured party, notices to insurers and any other documents or instruments
that the Agent may require in connection with the Acquisition.
(iv) Further Assurances. Upon the written request
of the Agent, the Borrower shall have duly executed and delivered, or cause to
be duly executed and delivered, at its own cost and expense, such further
instruments as may be necessary or proper, in the reasonable judgment of the
Agent, relating to the satisfaction of the conditions in this Section 3.3
(including, without limitation, legal opinions).
(v) Proposed Target. The Agent shall have received
satisfactory evidence that the Person with which the Borrower proposes to
affiliate is a Medical Group, Ancillary Service Facility or independent
physician association that has Qualifying Net Income (each such Person a
"Qualified Target").
(vi) Limitation on Amounts. The Borrower shall
deliver to the Agent a certificate of its chief financial officer (showing
calculations in reasonable detail) certifying that the total cash and non-cash
consideration paid for such Acquisition shall not exceed any of the following
amounts: (i) $7,500,000; (ii) when added to the sum of all cash and non-cash
consideration paid for Acquisitions in the previous 12 months, $20,000,000;
(iii)in the case of an Acquisition of an Ancillary Services Facility, five times
historical EBITDA, and for any other Acquisition, seven times the Annual
Management Fee. In addition, (A) the total cash consideration for such
Acquisition shall not exceed five
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times the Annual Management Fee and (B) the Management Services Agreement in
respect of such Acquisition shall contain no provision for voluntary termination
by either party prior to the Final Maturity Date. All non-cash consideration
paid for an Acquisition must be in the form of (i) Series B Preferred Stock,
issued in accordance with and containing the terms and provisions set forth in
the Certificate of Designation for such Series B Preferred Stock attached hereto
as Exhibit L, (ii) the Borrower's Common Stock, par value $.001 per share, or
(iii) subordinated convertible promissory notes in form and substance
satisfactory to the Lenders; provided that such promissory notes may only be
issued if no Default or Event of Default has occurred and is continuing or would
result from the issuance thereof.
(vii) Indebtedness to Pro Forma Consolidated EBITDA.
The ratio of Indebtedness to Pro Forma Consolidated EBITDA of the Borrower and
its Subsidiaries shall not exceed 4.00:1.00 after giving effect to the proposed
Acquisition, as set forth in a reasonably detailed officer's certificate
satisfactory to the Agent and delivered simultaneously with the Qualified
Acquisition Certificate.
(viii) No Default or Event of Default. No Default or
Event of Default shall have occurred and be continuing after giving effect to
the proposed Acquisition.
Section 3.4 Representation; Delivery of Documents. The
acceptance of the proceeds of each Loan shall constitute a representation and
warranty by the Borrower to each of the Lenders that all of the conditions
required to be satisfied under this Section 3 in connection with the making of
such Loan have been satisfied. All of the Notes, certificates, agreements, legal
opinions and other documents and papers referred to in this Section 3, unless
otherwise specified, shall be delivered to the Agent for the account of each of
the Lenders and, except for the Notes, in sufficient counterparts for each of
the Lenders.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement
and to make the Loans, the Borrower makes
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the following representations and warranties, which shall survive the execution
and delivery of this Agreement and the Notes and the making of the Loans:
Section 4.1 Corporate Status. Each Loan Party (i) is
identified on the organizational chart attached as Schedule 4.1; (ii) is a
corporation (or other entity as indicated thereon) duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation or organization, (iii) has the corporate (or other) power and
authority to own its property and assets and to transact the business in which
it is engaged or presently proposes to engage and (iv) except as set forth in
Part III of Schedule 4.1, has duly qualified and is authorized to do business
and is in good standing as a foreign corporation (or other entity) in every
jurisdiction in which it owns or leases real property or in which the nature of
its business requires it to be so qualified, except where the failure to be so
qualified would not result in a Material Adverse Effect.
Section 4.2 Corporate Power and Authority. Each Loan Party has
the corporate (or other) power and authority to execute, deliver and carry out
the terms and provisions of each of the Loan Documents to which it is a party
and has taken all necessary corporate (or other) action to authorize the
execution, delivery and performance by it of such Loan Documents. Each Loan
Party has duly executed and delivered each such Loan Document, and each such
Loan Document constitutes its legal, valid and binding obligation, enforceable
in accordance with its terms, except to the extent the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law).
Section 4.3 No Violation. Neither the execution, delivery or
performance by any Loan Party of the Loan Documents to which it is a party, nor
compliance by it with the terms and provisions thereof nor the consummation of
the Transactions, (i) will contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality or (ii) will conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or provisions
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of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any Lien (except pursuant to the
Security Documents) upon any of the property or assets of such Loan Party
pursuant to the terms of any indenture, mortgage, deed of trust, agreement or
other instrument to which such Loan Party is a party or by which it or any of
its property or assets is bound or to which it may be subject, or (iii) will
violate any provision of the Articles of Incorporation (or other formation
document), By-Laws or limited partnership agreement of such Loan Party.
Section 4.4 Litigation. There are no actions, suits or
proceedings pending or, to the knowledge of any Loan Party or any Affiliated
Medical Entity after due inquiry, threatened (i) with respect to any of the
Transactions or the Loan Documents or (ii) that could, individually or in the
aggregate, result in a Material Adverse Effect.
Section 4.5 Financial Statements; Financial Condition; etc.
Each of the financial statements delivered pursuant to Section 3.1(j) were
prepared in accordance with GAAP consistently applied and fairly present in all
material respects the financial condition and the results of operations of the
entities covered thereby on the dates and for the periods covered thereby,
except as disclosed in the notes thereto and, with respect to interim financial
statements, subject to normal year-end adjustments. The Loan Parties have no
material liability (contingent or otherwise) not reflected in such financial
statements or in the notes thereto.
Section 4.6 Solvency. On the Closing Date and after and
giving effect to the Transactions, each Loan Party will be Solvent.
Section 4.7 Material Adverse Change. Since December 31, 1997,
there has occurred no event, act or condition which has had, or could have, a
Material Adverse Effect.
Section 4.8 Use of Proceeds; Margin Regulations. All proceeds
of each Loan will be used by the Borrower only in accordance with the provisions
of Section 5.13. No part of the proceeds of any Loan will
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be used by any Loan Party to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock.
Neither the making of any Loan nor the use of the proceeds thereof will violate
or be inconsistent with the provisions of Regulations T, U or X of the Federal
Reserve Board.
Section 4.9 Governmental Approvals. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required on the part of any Loan Party
to authorize, or is required on the part of any Loan Party in connection with
(i) the execution, delivery and performance of any Loan Document or the
consummation of any of the Transactions or (ii) the legality, validity, binding
effect or enforceability of any Loan Document, except those that have already
been duly made or obtained and remain in full force and effect.
Section 4.10 Security Interests and Liens. The Security
Documents create, as security for the Obligations, valid and enforceable
security interests in and Liens on all of the Collateral, in favor of the Agent
for the ratable benefit of the Lenders, and subject to no other Liens other than
Liens permitted by Section 6.3. Upon the satisfaction of the conditions
precedent described in Sections 3.1(g) and 3.1(h), such security interests in
and Liens on the Collateral shall be superior to and prior to the rights of all
third parties (except as disclosed on Schedule 4.10 and except with respect to
Liens permitted pursuant to Section 6.3) to the extent such security interests
and Liens may be perfected by the actions specified in Sections 3.1(g) and
3.1(h), and no further recordings or filings are or will be required in
connection with the creation, perfection or enforcement of such security
interests and Liens, other than (i) the filing of continuation statements in
accordance with applicable law, (ii) filings with the United States Patent and
Trademark Office and the United States Copyright Office and (iii) filings
required pursuant to securities and other laws that may be applicable to the
disposition of any Collateral.
Section 4.11 Tax Returns and Payments. Each Loan Party has
filed all tax returns required to be filed by it and has paid all known taxes
and assessments
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payable by it which have become due, other than those not yet delinquent or
those that are reserved against in accordance with GAAP which are being
diligently contested in good faith by appropriate proceedings.
Section 4.12 ERISA. No Loan Party has or has had any Plans. No
accumulated funding deficiency (as defined in Section 412 of the Code or Section
302 of ERISA) or Reportable Event has occurred with respect to any Plan. There
are no Unfunded Benefit Liabilities under any Plan. Each Loan Party and each
member of its ERISA Controlled Group has complied with the requirements of
Section 515 of ERISA with respect to each Multiemployer Plan and is not in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to any Multiemployer Plan. The aggregate potential total withdrawal liability
and the aggregate potential annual withdrawal liability payments of such Loan
Party and the members of its ERISA Controlled Group as determined in accordance
with Title IV of ERISA as if each Loan Party and the members of its ERISA
Controlled Group had completely withdrawn from all Multiemployer Plans is not
greater than $50,000 and $50,000, respectively. To the best knowledge of each
Loan Party and each member of its ERISA Controlled Group, no Multiemployer Plan
is or is likely to be in reorganization (as defined in Section 4241 of ERISA or
Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA).
No material liability to the PBGC (other than required premium payments), the
Internal Revenue Service, any Plan or any trust established under Title IV of
ERISA has been, or is expected by any Loan Party or any member of its ERISA
Controlled Group to be, incurred by such Loan Party or any member of its ERISA
Controlled Group. Except as otherwise disclosed on Schedule 4.12 hereto, neither
any Loan Party nor any member of its ERISA Controlled Group has any contingent
liability with respect to any post-retirement benefit under any "welfare plan"
(as defined in Section 3(1) of ERISA), other than liability for continuation
coverage under Part 6 of Title I of ERISA. No lien under Section 412(n) of the
Code or 302(f) of ERISA or requirement to provide security under Section
401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably
expected by any Loan Party or any member of its ERISA Controlled Group to be
imposed on the assets of such Loan Party or any member of its ERISA Controlled
Group. Each Plan is in compliance in all material respects with the applicable
provisions of
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ERISA, the Code and other federal or state law. There has been no prohibited
transaction (for purposes of Section 406 of ERISA and Section 4975 of the Code)
or violation of the fiduciary responsibility rules of ERISA with respect to any
Plan.
Section 4.13 Investment Company Act; Public Utility Holding
Company Act. No Loan Party is (x) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, (y) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (z) subject to any other federal or state
law or regulation which purports to restrict or regulate its ability to borrow
money.
Section 4.14 True and Complete Disclosure. All factual
information (taken as a whole) furnished by or on behalf of any Loan Party or
Affiliated Medical Entity in writing to the Agent or any Lender on or prior to
the Closing Date, for purposes of or in connection with this Agreement, the
Transactions or any Acquisition is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any Loan Party in
writing to the Agent or any Lender will be, true and accurate in all material
respects on the date as of which such information is dated or furnished and not
incomplete by omitting to state any material fact necessary to make such
information (taken as a whole) not misleading at such time. As of the Closing
Date, there are no facts, events or conditions known to any Loan Party or
Affiliated Medical Entity which, individually or in the aggregate, have or
reasonably could be expected to have a Material Adverse Effect. The projections
and pro forma financial information included in such information are based on
good faith estimates and assumptions believed by the Persons furnishing such
projections and information to be reasonable at the time made, it being
recognized by the Lenders that such projections as to future events are not to
be viewed as facts and that any actual results during the period or periods
covered by any such projections may differ from the projected results. Except as
expressed herein, the Borrower makes no representations or warranties with
respect to such projections and pro forma financial information.
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Section 4.15 Corporate Structure; Capitalization. Schedule 4.1
hereto sets forth the number of authorized and issued shares of capital stock or
other ownership interest of each Loan Party and the registered owner(s) of each
Subsidiary of the Borrower. All of such stock and interests have been duly and
validly issued and are fully paid and non-assessable. Except as set forth on
Schedule 6.2, no Loan Party has outstanding any securities convertible into or
exchangeable for its capital stock or other ownership interests nor does any
Loan Party have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock or other ownership interest.
Section 4.16 Environmental Matters. (a) (i) Each of the Loan
Parties and its Environmental Affiliates is in compliance in all material
respects with all applicable Environmental Laws, (ii) each of the Loan Parties
and its Environmental Affiliates has all Environmental Approvals required to
operate its business as presently conducted or as reasonably anticipated to be
conducted, (iii) none of the Loan Parties nor any of their Environmental
Affiliates has received any material communication (written or oral), whether
from a Governmental Authority, citizens group, employee or otherwise, that
alleges that such Loan Party or Environmental Affiliate is not in full
compliance with all Environmental Laws, and (iv) to the Borrower's best
knowledge after due inquiry, there are no circumstances that may prevent or
interfere with such full compliance in the future.
(b) There is no Environmental Claim pending or
threatened against any Loan Party or its Environmental Affiliates.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any Material of Environmental
Concern, that could form the basis of any Environmental Claims against any Loan
Party or any of its Environmental Affiliates.
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(d) Without in any way limiting the generality of the
foregoing, (i) there are no on-site or (except for properly permitted off-site
disposal sites) off-site locations in which any Loan Party or its Environmental
Affiliate has stored, disposed or arranged for the disposal of Materials of
Environmental Concern, (ii) there are no underground storage tanks located on
property owned or leased by any Loan Party or its Environmental Affiliates,
(iii) there is no friable asbestos in any building, building component,
structure or office space owned or leased by any Loan Party or its Environmental
Affiliates, and (iv) no polychlorinated biphenyls (PCB's) are used or stored at
any property owned or leased by any Loan Party or its Environmental Affiliates.
Section 4.17 Patents, Trademarks, etc. Each Loan Party has
obtained and holds in full force and effect all patents, trademarks,
servicemarks, trade names, copyrights and other such rights, free from
burdensome restrictions, which are necessary for the operation of its business
as presently conducted. No material product, process, method, substance, part or
other material presently sold by or employed by any Loan Party in connection
with such business infringes any patent, trademark, service mark, trade name,
copyright, license or other right owned by any other Person. There is not
pending or, to the knowledge of any Loan Party, threatened any claim or
litigation against or affecting any Loan Party contesting its right to sell or
use any such product, process, method, substance, part or other material.
Section 4.18 Ownership of Property. Schedule 4.18 sets forth
all the real property owned or leased by each Loan Party and identifies the
street address, the current owner (and current record owner, if different) and
whether such property is leased or owned, and if such property is leased, the
length of the lease term. Each Loan Party has good and marketable fee simple
title to or valid leasehold interests in all of such real property and good
title to all of its personal property subject to no Lien of any kind except
Liens permitted hereby. Each Loan Party enjoys peaceful and undisturbed
possession under all of its respective leases.
Section 4.19 No Default. No Loan Party is in default under or
with respect to any agreement,
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instrument or undertaking to which it is a party or by which it or any of its
property is bound in any respect which could result in a Material Adverse
Effect. No Default or Event of Default exists.
Section 4.20 Licenses, etc. Each Loan Party and each
Affiliated Medical Entity has obtained and holds in full force and effect, all
franchises, licenses, permits, certificates, authorizations, qualifications,
accreditations, easements, rights of way and other rights, consents and
approvals which are necessary for the operation of their respective businesses
as presently conducted.
Section 4.21 Compliance With Law and Licensing Requirements;
Patient Trust Funds. Each Loan Party and each Affiliated Medical Entity is in
compliance with all material laws, rules, regulations, orders, judgments, writs
and decrees relevant to its business. All material state licenses, permits and
Medicaid/Medicare provider/billing agreements necessary to operate the
Affiliated Medical Entities' businesses have been obtained by the Affiliated
Medical Entities, are in full force and effect and are not the subject of any
revocation or termination action by the issuing agencies. Each Affiliated
Medical Entity has maintained all patient trust funds in separate accounts and
have accounted for such funds at least annually in accordance with all
applicable laws, rules and regulations.
Section 4.22 Accounts. The Agent may rely, in determining
which Accounts are Eligible Accounts, on all statements and representations made
by the Borrower with respect to any Account or Accounts. Unless otherwise
indicated in writing to the Agent, with respect to each Eligible Account:
(a) it is genuine and in all respects what it purports to be,
and has not been reduced by a judgment;
(b) it arises out of a completed, bona fide sale and delivery
of goods or rendition of services by the relevant Loan Party or Affiliated
Medical Entity in the ordinary course of its business and in accordance with the
terms and conditions of all purchase orders, contracts, or other documents
relating thereto and forming a part of the contract between the Loan Party or
Affiliated Medical Entity and the Account Debtor;
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(c) it is for an amount maturing as stated in an invoice
covering such sale or rendition of services;
(d) such Account, and the Agent's security interest therein,
is not, and will not (by voluntary act or omission of any Loan Party) be in the
future, subject to any Lien or any known offset, deduction, defense, dispute,
counterclaim or any other adverse condition, and to the best of the Borrower's
knowledge, each such Account is absolutely owing to the relevant Loan Party and
is not contingent in any respect or for any reason;
(e) to the best of the Borrower's knowledge, there are no
facts, events or occurrences which in any way impair the validity or
enforceability of any Eligible Accounts;
(f) to the best of the Borrower's knowledge, the Account
Debtor thereunder had the capacity to contract at the time any contract or other
document giving rise to the Eligible Account was executed;
(g) it has been billed or will be billed in the ordinary
course of business and forwarded to the Account Debtor for payment in accordance
with applicable laws and compliance and conformance with any requisite
procedures, requirements and regulations governing payment by such Account
Debtor with respect to such Eligible Account;
(h) the relevant Loan Party has obtained and currently has all
Medicaid and Medicare provider numbers, licenses, permits and authorizations to
the extent necessary to ensure the validity of such Eligible Accounts;
(i) the services provided and reflected by each Medical
Account were medically necessary for the patient, and the patient has received
such services;
(j) fees for services which are subject to limitations imposed
by workers' compensation regulations or by contracts for reimbursement from an
Insurer do not exceed the limitations so imposed, and each Medical Account for
which the fees are so restricted has been clearly identified as being subject to
such restriction; and
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(k) with respect to each Medical Account, all consents,
licenses, approvals or authorizations of or registrations or declarations with
any Governmental Authority required to be obtained, effected or given by an
Affiliated Medical Entity in connection with the grant of a security interest in
such Medical Account have been duly obtained, effected or given and are in full
force and effect.
Section 4.23 Year 2000. Each Loan Party has initiated a review
of its operations with a view to assessing whether its business or operations
will, in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data, be vulnerable to any
significant risk that computer hardware or software used in its business or
operations will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the case of dates or
time periods occurring prior to January 1, 2000. Based on such review, as of the
date hereof, the Borrower has no reason to believe that a Material Adverse
Effect will occur with respect to such business or operations resulting from any
such risk.
Section 4.24 Additional Representations and Warranties. The
representations and warranties set forth in the Securities Purchase Agreement
are true and correct as of the date hereof (except for those which by their
terms specifically relate to a different date).
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that until the Total
Commitment has terminated, and the Obligations are paid in full:
Section 5.1 Information Covenants. The Borrower will furnish
to each Lender:
(a) Quarterly Financial Statements. Within 45 days
after the close of each of the first three quarterly accounting periods in each
fiscal year of the Borrower, the consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such quarterly period and the related
consolidated statements of income, cash flow and retained earnings for such
quarterly period and for the elapsed portion of the fiscal year ended with
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the last day of such quarterly period, and in each case setting forth
comparative figures for the related periods in the prior fiscal year.
(b) Annual Financial Statements. Within
90 days after the close of each fiscal year of the Borrower, the consolidated
and consolidating balance sheet of the Borrower and its Subsidiaries as at the
end of such fiscal year and the related consolidated and consolidating
statements of income, cash flow and retained earnings for such fiscal year,
setting forth comparative figures for the preceding fiscal year and, with
respect to such consolidated financial statements, certified without
qualification by the Auditors, in each case together with a report stating that
in the course of its regular audit of the consolidated financial statements of
the Borrower, which audit was conducted in accordance with GAAP, the Auditors
have obtained no knowledge of any Default or Event of Default, or if in the
opinion of the Auditors such a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof.
(c) Compliance Certificates. At the time
of the delivery of the financial statements under clauses (a) and (b) above, a
certificate of the chief financial officer of the Borrower (each a "Compliance
Certificate") which certifies (x) that such financial statements fairly present
in all material respects the financial condition and the results of operations
of the Borrower and its Subsidiaries as at the dates and for the periods
indicated, subject, in the case of interim financial statements, to normal
year-end adjustments and (y) that such officer has reviewed the terms of the
Loan Documents and has made, or caused to be made under his or her supervision,
a review in reasonable detail of the business and condition of the Borrower and
its Subsidiaries during the accounting period covered by such financial
statements, and that as a result of such review such officer has concluded that
no Default or Event of Default has occurred during the period commencing at the
beginning of the accounting period covered by the financial statements
accompanied by such certificate and ending on the date of the related accounting
period or, if any Default or Event of Default has occurred, specifying the
nature and extent thereof and, if continuing, the action the Borrower proposes
to take in respect thereof. Such certificate shall set forth the
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calculations required to establish (i) whether the Borrower was in compliance
with the provisions of Section 6.1 during and as at the end of the accounting
period covered by the financial statements accompanied by such certificate, and
(ii) in the case of the financial statements delivered pursuant to clause (b)
above, the amount of Excess Cash Flow for the respective fiscal year.
(d) Borrowing Base Certificates. (i) On or before the
forty-fifth Business Day following each fiscal quarter, a borrowing base
certificate in the form of Exhibit F (each, a "Borrowing Base Certificate")
setting forth the Borrowing Base as of the last day of such quarter; provided
that nothing contained herein shall prevent the Borrower from delivering to the
Lenders a Borrowing Base Certificate more frequently than as set forth above;
and (ii) each Borrowing Base Certificate delivered to the Lenders shall be
certified by the chief financial officer of the Borrower.
(e) Receivables Information. Within 60 days after the
end of each calendar month, an accounts receivable aging summary schedule and a
payable aging schedule, each on a form reasonably acceptable to the Agent.
(f) Management Letters. Promptly after the Borrower's
receipt thereof, a copy of any "management letter" or other material
audit-related report received by the Borrower from its Auditors.
(g) Budgets. Within 60 days after the first day of
each fiscal year of the Borrower beginning with fiscal year 2000, a budget and
financial forecast of results of operations and sources and uses of cash (in
form satisfactory to the Required Lenders) prepared by the Borrower for such
fiscal year in respect of itself and its Subsidiaries, accompanied by a written
statement of the assumptions used in connection therewith, together with a
certificate of the chief financial officer of the Borrower to the effect that
such budget and financial forecast and assumptions are reasonable and represent
the Borrower's good faith estimate of its and its Subsidiaries' future financial
requirements and performance. The financial statements required to be delivered
pursuant to clauses (a), (b) and (c) above shall be accompanied by a comparison
of the actual
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financial results set forth in such financial statements to those contained in
the forecasts delivered pursuant to this clause (g) together with an explanation
of any material variations from the results anticipated in such forecasts.
(h) Notice of Default or Litigation. Promptly and in
any event within five Business Days after any Loan Party obtains knowledge
thereof, notice of (i) the occurrence of any Default or Event of Default, (ii)
any litigation or governmental proceeding pending or, to the knowledge of any
Loan Party, threatened against any Loan Party which reasonably could be expected
to have a Material Adverse Effect and (iii) any other event, act or condition
known to any Loan Party which reasonably could be expected to have a Material
Adverse Effect.
(i) ERISA.
(i) As soon as possible and in any
event within 10 days after any Loan Party or any member of its ERISA Controlled
Group knows, or has reason to know, that:
(A) any Termination Event with respect to a Plan has
occurred or will occur, or
(B) any condition exists with respect to a Plan which
presents a material risk of termination of the Plan or imposition of an
excise tax or other liability on any Loan Party or any member of its
ERISA Controlled Group, or
(C) any Loan Party or any member of its ERISA
Controlled Group has applied for a waiver of the minimum funding
standard under Section 412 of the Code or Section 302 of ERISA, or
(D) any Loan Party or any member of its ERISA
Controlled Group has engaged in a "prohibited transaction," as defined
in Section 4975 of the Code or as described in Section 406 of ERISA,
that is not exempt under Section 4975 of the Code and Section 408 of
ERISA, or
(E) the aggregate present value of the Unfunded
Benefit Liabilities under all Plans has in
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any year increased by $50,000 or to an amount in excess of $50,000, or
(F) any condition exists with respect to a
Multiemployer Plan which presents a material risk of a partial or
complete withdrawal (as described in Section 4203 or 4205 of ERISA) by
any Loan Party or any member of its ERISA Controlled Group from a
Multiemployer Plan, or
(G) any Loan Party or any member of its ERISA
Controlled Group is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan, or
(H) a Multiemployer Plan is in "reorganization" (as
defined in Section 418 of the Code or Section 4241 of ERISA) or is
"insolvent" (as defined in Section 4245 of ERISA), or
(I) the potential withdrawal liability (as determined
in accordance with Title IV of ERISA) of any Loan Party and the members
of its ERISA Controlled Group with respect to all Multiemployer Plans
has in any year increased by $50,000 or to an amount in excess of
$100,000, or
(J) there is an action brought against any Loan Party
or any member of its ERISA Controlled Group under Section 502 of ERISA
with respect to its failure to comply with Section 515 of ERISA,
a certificate of the president or chief financial officer of the relevant Loan
Party setting forth the details of each of the events described in clauses (A)
through (J) above as applicable and the action which the relevant Loan Party or
the applicable member of its ERISA Controlled Group proposes to take with
respect thereto, together with a copy of any notice or filing from the PBGC or
which may be required by the PBGC or other agency of the United States
government with respect to each of the events described in clauses (A) through
(J) above, as applicable.
(ii) As soon as possible and in any
event within two Business Days after the receipt by any Loan Party or any member
of its ERISA Controlled Group of a demand letter from the PBGC notifying such
Loan Party
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or such member of its ERISA Controlled Group of its final decision finding
liability and the date by which such liability must be paid, a copy of such
letter, together with a certificate of the president or chief financial officer
of such Loan Party setting forth the action which such Loan Party or such member
of its ERISA Controlled Group proposes to take with respect thereto.
(j) SEC Filings. Promptly upon transmission thereof,
copies of all regular and periodic financial information, proxy materials and
other information and reports, if any, which any Loan Party shall file with the
Securities and Exchange Commission or any governmental agencies substituted
therefor or which any Loan Party shall send to its stockholders.
(k) Environmental. Promptly and in any event within
five Business Days after the existence of any of the following conditions, a
certificate of the chief executive officer or chief financial officer of any
Loan Party specifying in detail the nature of such condition and such Loan
Party's or Environmental Affiliate's proposed response thereto: (i) the receipt
by such Loan Party or any of its Environmental Affiliates of any communication
(written or oral), whether from a Governmental Authority, citizens group,
employee or otherwise, that alleges that such Loan Party or Environmental
Affiliate is not in compliance in any material respect with applicable
Environmental Laws, (ii) any Loan Party or any of its Environmental Affiliates
shall obtain actual knowledge that there exists any Environmental Claim pending
or threatened against any Loan Party or such Environmental Affiliate that could
reasonably be expected to have a Material Adverse Effect, or (iii) any release,
emission, discharge or disposal of any Material of Environmental Concern that
could form the basis of any Environmental Claim against any Loan Party or any of
its Environmental Affiliates that could reasonably be expected to have a
Material Adverse Effect.
(l) Other Information. From time to time, such other
information or documents (financial or otherwise) as any Lender may reasonably
request.
Section 5.2 Books, Records, Inspections and Collateral Audits.
The Borrower shall, and shall cause each of its Subsidiaries and Affiliated
Medical Entities to, keep proper books of record and account in which
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full, true and correct entries in conformity with GAAP and all requirements of
law shall be made of all dealings and transactions in relation to its business
and activities. The Borrower shall, and shall cause each of its Subsidiaries to,
permit officers and designated representatives of any Lender to visit and
inspect any of the properties of the Borrower or any of its Subsidiaries, and
examine the books of record and account of the Borrower or any of its
Subsidiaries, and discuss the affairs, finances and accounts of the Borrower or
any of its Subsidiaries with, and be advised as to the same by, its and their
officers and independent accountants, all upon reasonable notice and at such
reasonable times as such Lender may desire. The Borrower shall, and shall cause
each of its Subsidiaries and Affiliated Medical Entities to, permit the Agent
(at the instruction of the Required Lenders) or its representatives or agents,
at the expense of the Borrower, to conduct audits to inspect, review and
evaluate the Collateral.
Section 5.3 Maintenance of Insurance. The Borrower shall, and
shall cause each of its Subsidiaries to, (a) maintain with financially sound and
reputable insurance companies insurance on itself and its properties in at least
such amounts and against at least such risks as are customarily insured against
in the same general area by companies engaged in the same or a similar business,
which insurance shall in any event not provide for materially less coverage than
the insurance in effect on the Closing Date, and (b) furnish to the Agent from
time to time, upon written request, the policies under which such insurance is
issued, certificates of insurance and such other information relating to such
insurance as the Agent may reasonably request.
Section 5.4 Taxes. (a) The Borrower shall pay or cause to be
paid, and shall cause each of its Subsidiaries to pay or cause to be paid, when
due, all taxes, charges and assessments and all other lawful claims required to
be paid by the Borrower or such Subsidiaries, except as contested in good faith
and by appropriate proceedings diligently conducted, if adequate reserves have
been established with respect thereto in accordance with GAAP.
(b) The Borrower shall not, and shall not permit any
of its Subsidiaries to, file or consent to the
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filing of any consolidated tax return with any Person (other than the Borrower
and its Subsidiaries).
Section 5.5 Corporate Franchises. The Borrower shall, and
shall cause each of its Subsidiaries and Affiliated Medical Entities to, do or
cause to be done, all things necessary to preserve and keep in full force and
effect its existence and its material patents, trademarks, servicemarks,
tradenames, copyrights, franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals.
Section 5.6 Compliance with Law. The Borrower shall, and
shall cause each of its Subsidiaries and Affiliated Medical Entities to, comply
in all material respects with all applicable laws, rules, statutes, regulations,
decrees and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, including, without limitation, ERISA
and all Environmental Laws.
Section 5.7 Performance of Obligations. The Borrower shall,
and shall cause each of its Subsidiaries to, perform all of its obligations
under the terms of each mortgage, indenture, security agreement, debt
instrument, lease, undertaking and contract by which it or any of its properties
is bound or to which it is a party.
Section 5.8 Maintenance of Properties. The Borrower shall,
and shall cause each of its Subsidiaries to, ensure that its properties used or
useful in its business are kept in good repair, working order and condition,
normal wear and tear and obsolescence excepted.
Section 5.9 Interest Rate Protection. The Borrower shall, no
later than 150 days after the Closing Date, enter into interest rate protection
agreements with counterparties and subject to terms and conditions, covering
notional principal amounts, and with counterparties, satisfactory to the Agent
and the Lenders, which agreements shall protect the Borrower
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against interest rate fluctuations in respect of 50% of the scheduled maximum
outstanding amount of the Loans.
Section 5.10 Additional Collateral. The Borrower shall, and
shall cause each Subsidiary now or hereafter existing to, grant to the Agent
security interests, mortgages and deeds of trust in such of its assets and
properties (whether now existing or hereafter acquired) as are not covered by
the Security Documents, as may be reasonably required from time to time by the
Required Lenders (collectively, the "Additional Security"). All such Additional
Security shall be granted at the Borrower's expense pursuant to documentation
reasonably satisfactory in form and substance to the Required Lenders and shall
constitute valid and enforceable perfected security interests, mortgages and
deeds of trust superior to and prior to the rights of all third persons and
subject to no other Liens (except with respect to Liens permitted pursuant to
Section 6.3). The Additional Security or instruments related thereto shall be
duly recorded or filed by the Borrower in such manner and in such places as are
required by law to establish, perfect, preserve and protect the Liens in favor
of the Agent granted pursuant to the Security Documents and all taxes, fees and
other charges payable in connection therewith shall be paid in full by the
Borrower.
Section 5.11 Subsidiary Guarantees and Security
Agreements. The Borrower shall cause each Person which becomes a Subsidiary
after the Closing Date to execute and deliver to the Agent a Guarantee and a
Security Agreement and shall cause the appropriate Loan Party to execute and
deliver to the Agent a Pledge Agreement, together with such officer's
certificates, resolutions and other assurances related thereto as the Agent
shall reasonably request within 10 days of such Person becoming a Subsidiary.
Furthermore, the Borrower shall within such 10 day period deliver to the Agent
the stock certificates or other evidence of ownership interest in such
Subsidiary, together with stock powers duly executed in blank, and execute such
other documents in connection therewith as the Agent may reasonably request.
Section 5.12 Licensure; Medicaid/ Medicare Cost
Reports. The Borrower shall cause each relevant Loan Party and Affiliated
Medical Entity to
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maintain all provider numbers and licenses necessary to ensure the validity of
Eligible Accounts, and take any steps necessary to comply with any such new or
additional requirements that may be imposed on providers of medical products and
services. If required, all Medicaid/Medicare cost reports will be properly filed
by each relevant Loan Party and Affiliated Medical Entity.
Section 5.13 Use of Proceeds. The proceeds of the
Tranche A Loans shall be used solely to finance Qualified Acquisitions. The
proceeds of the Tranche B Loans shall be used solely to refinance Existing
Indebtedness. The proceeds of the Revolving Loans made after the Closing Date
shall be used solely (i) to pay transaction costs, (ii) for the Borrower's
working capital and general corporate purposes and (iii) to acquire Ancillary
Service Facilities and to pay for management information services expenses and
legal and other professional fees relating thereto.
Section 5.14 Year 2000. Each Loan Party shall take
all action necessary to ensure that computer hardware and software used in its
business and operations will, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods prior to January 1, 2000. At the request of the Agent or
any Lender, the Borrower shall provide the Agent or such Lender, as the case may
be, with assurance reasonably acceptable to the Agent or such Lender, as the
case may be, of such Loan Party's year 2000 capability.
SECTION 6. NEGATIVE COVENANTS.
The Borrower covenants and agrees that until the Total
Commitment has terminated, and the Obligations are paid in full:
Section 6.1 Financial Covenants.
(a) Leverage Ratio. The Borrower shall not permit the
ratio of Consolidated Total Indebtedness to Pro Forma Consolidated EBITDA (the
"Leverage Ratio") to exceed, at the end of any fiscal quarter ending during any
period listed below, the ratio set forth opposite such period:
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Period Ratio
------ -----
Closing Date to and including
June 30, 2000 4.00:1.0
June 30, 2000 to and including
June 30, 2001 3.50:1.0
At any time after June 30, 2001 3.00:1.0
(b) Interest Coverage Ratio. The Borrower shall not
permit the ratio of Pro Forma Consolidated EBITDA to Consolidated Interest
Expense for any fiscal quarter ending during any period listed below, to be less
than the ratio set forth opposite such period:
Period Ratio
------ -----
Closing Date to and including
March 31, 1999 2.50:1.0
March 31, 1999 to and including
March 31, 2000 2.75:1.0
At any time after March 31, 2000 3.00:1.0
(c) Fixed Charge Coverage Ratio. The Borrower shall
not permit the ratio of Consolidated EBITDA less Capital Expenditures to Fixed
Charges to be less than 1.25:1.0 at any time.
(d) Minimum Consolidated Net Worth. The Borrower
shall not permit Consolidated Net Worth at any time to be less than the sum of
(a) $50,000,000 plus (b) 80% of cumulative Consolidated Net Income for all
fiscal quarters ending after the Closing Date (determined without making any
reduction in the amount thereof by reason of any net loss arising in any fiscal
quarter) plus (c) 100% of the net proceeds received by the Borrower or any of
its Subsidiaries through the sale of the Company's preferred and/or common stock
pursuant to the Securities Purchase Agreement on the Closing Date and the sale
of any common stock or preferred stock of the Borrower or any of its
Subsidiaries thereafter minus (d) Amounts Due From Affiliated Physicians.
(e) Maximum Funded Indebtedness to Total
Capitalization. The Borrower shall not permit the ratio of Funded Indebtedness
to Total Capitalization to exceed 0.50:1.0.
(f) Minimum Consolidated EBITDA. The Borrower shall
not permit its Consolidated EBITDA (annualized for the first three quarters
after the
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Closing Date by multiplying actual Consolidated EBITDA (i) for the first quarter
by four (4), (ii) for the first and second quarters by two (2) and (iii) for the
first, second and third quarters by four-thirds (4/3)) to be less than
$7,500,000 plus 75% of the management fees collected from Medical Groups which
become Affiliated Medical Entities after the Closing Date.
(g) For purposes of calculating compliance with the
financial covenants contained in this Section 6.1 with respect to the time
periods that include the date hereof through and including March 31, 1999, the
Nagpal Note shall not be included as "Indebtedness."
Section 6.2 Indebtedness. The Borrower shall not, and shall
not permit any of its Subsidiaries to, create, incur, assume, suffer to exist or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, other than:
(a) Indebtedness hereunder and under the other Loan
Documents;
(b) Existing Indebtedness;
(c) Indebtedness permitted under Section 6.6;
(d) Indebtedness of the Borrower of the type
described in clause (vii) of the definition of Indebtedness to the extent
required under Section 5.9;
(e) Indebtedness with respect to Capitalized Leases
and other purchase money Indebtedness the Lien supporting which is permitted
pursuant to Section 6.3(g), in each case incurred to finance Capital
Expenditures permitted under Section 6.8, not in excess of, when added to any
Indebtedness permitted under Section 6.2(i), $7,500,000 in the aggregate at any
one time outstanding; provided that any such Indebtedness shall not exceed 90%
of the lesser of the purchase price or the fair market value of the asset so
financed;
(f) Indebtedness assumed or incurred in connection
with a Qualified Acquisition;
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(g) Indebtedness of the Borrower to any its
wholly-owned Subsidiaries or any Subsidiary of the Borrower to the Borrower;
(h) any refinancing, extension, renewal or refunding
of any Existing Indebtedness not involving an increase in the principal amount
thereof or a reduction of more than 10% in the remaining weighted average life
to maturity thereof (computed in accordance with standard financial practice);
and
(i) Other Indebtedness created, incurred or assumed
after the date hereof not enumerated in clauses (a) through (h) above, provided
that the aggregate outstanding principal amount of such Indebtedness shall not
exceed, when added to any Indebtedness permitted under Section 6.2(e),
$7,500,000 at any one time.
Section 6.3 Liens. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist,
directly or indirectly, any Lien on any of its property or assets (whether
tangible or intangible and including, without limitation, any document or
instrument in respect of goods or Accounts) now owned or hereafter acquired,
other than:
(a) Liens existing on the Closing Date and set forth
on Schedule 6.3 hereto;
(b) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves are being maintained in accordance with GAAP;
(c) Statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens imposed by Law
(other than any Lien imposed by ERISA or pursuant to any Environmental Law)
created in the ordinary course of business for amounts not yet due or which are
being contested in good faith by appropriate proceedings diligently conducted
and with respect to which adequate bonds have been posted;
(d) Liens (other than any Lien imposed by ERISA or
pursuant to any Environmental Law) incurred or deposits made in the ordinary
course of business in
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connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases (solely with respect to tangible assets
located on the premises, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(e) Easements, rights-of-way, zoning and similar
restrictions and other similar charges or encumbrances not interfering with the
ordinary conduct of the business of any Loan Party and which do not detract
materially from the value of the property to which they attach or impair
materially the use thereof by any Loan Party or materially adversely affect the
security interests of the Agent or the Lenders therein;
(f) Liens granted to the Agent for the benefit of the
Lenders pursuant to the Security Documents securing the Obligations;
(g) purchase money security interests on any property
acquired or held by the Borrower or its Subsidiaries in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; provided that (i) any
such Lien attaches to such property concurrently with or within 20 days after
the acquisition thereof, (ii) such Lien attaches solely to the property so
acquired in such transaction and (iii) the principal amount of the debt secured
thereby does not exceed 90% of the lesser of the purchase price or the fair
market value of the asset so financed;
(h) Liens created pursuant to Capitalized Leases
permitted under this Agreement, provided that such Liens are only in respect of
the property or assets so leased;
(i) Liens existing on assets or property at the time
acquired in connection with a Qualified Acquisition of an Ancillary Services
Facility and not incurred as a result of, or in connection with or in
anticipation of such Qualified Acquisition; provided that (i) the principal
amount of Indebtedness secured by any such Lien immediately prior to such
Qualified Acquisition is not increased or the maturity thereof reduced, (ii)
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any such Lien is not extended to any other property and (iii) immediately after
such Qualified Acquisition no Default or Event of Default would exist;
(j) Leases or subleases of real estate granted to
others not interfering in any material respect with the business of the Borrower
or any of its Subsidiaries and any interest or title of a lessor under any lease
not in violation of this Agreement;
(k) the replacement , extension or renewal of any
Lien permitted hereunder; provided that (i) the principal amount of Indebtedness
secured by any such Lien immediately prior to such refinancing, extension,
renewal or refunding is not increased or the maturity thereof reduced, (ii) any
such Lien is not extended to any other property and (iii) immediately after such
refinancing, extension, renewal or refunding no Default or Event of Default
would exist; and
(l) Liens on partnership interests (not comprising
Collateral) in Partnership Subsidiaries securing intercompany Indebtedness
permitted under Section 6.2.
Section 6.4 Restriction on Fundamental Changes.
(a) The Borrower shall not, and shall not permit any
of its Subsidiaries to, enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its
business or convey, lease, sell, transfer or otherwise dispose of, in one
transaction or series of transactions, all or any substantial part of its
business or property, whether now or hereafter acquired, except (i) as otherwise
permitted under Section 6.5, and (ii) any wholly-owned Subsidiary of the
Borrower may merge into or convey, sell, lease or transfer all or substantially
all of its assets to, the Borrower or any other wholly-owned Subsidiary of the
Borrower.
(b) The Borrower shall not, and shall not permit any
of its Subsidiaries to, except in connection with a Qualified Acquisition, (i)
acquire by purchase or otherwise any property or assets of, or stock or other
evidence of beneficial ownership of, any Person, except purchases of
intellectual property, inventory, equipment,
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materials and supplies in the ordinary course of the Borrower's or such
Subsidiary's business, (ii) create any Subsidiary, or (iii) enter into any
partnership or joint venture.
(c) The Borrower shall not and shall not permit any
of its Subsidiaries to, amend its articles of incorporation (or other formation
document) or by-laws, in any manner reasonably likely to cause a Material
Adverse Effect.
Section 6.5 Sale of Assets. The Borrower shall not, and shall
not permit any of its Subsidiaries to, convey, lease, sell, transfer or
otherwise dispose of (or agree to do so at any future time) all or any part of
its property or assets, except (i) sales of inventory in the ordinary course of
business and (ii)other sales of equipment or assets so long as either the
proceeds of such sale are used to purchase replacement equipment as contemplated
by Section 2.14(a) or assets or are used to prepay Loans as contemplated by
Section 2.13.
Section 6.6 Contingent Obligations. The Borrower shall not,
and shall not permit any of its Subsidiaries to, create or become or be liable
with respect to any Contingent Obligation, except:
(a) pursuant to the Security Documents;
(b) Contingent Obligations which are in existence on
the Closing Date and which are set forth on Schedule 6.6; and
(c) Contingent Obligations incurred in the ordinary
course of business not to exceed $10,000,000 at any one time outstanding.
Section 6.7 Dividends. The Borrower shall not, and shall not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock), or return any capital to, its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash (other than tax payments) to its stockholders as such, or
redeem, retire, purchase or otherwise acquire, directly or indirectly, any
shares of any class of its capital stock now or hereafter outstanding (or any
options or warrants issued with respect to its capital stock), or
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set aside any funds for any of the foregoing purposes, or enter inter into any
agreements which provide for any of the foregoing (all the foregoing,
"Dividends"); except that, so long as no Default or Event of Default is
continuing or would result therefrom, (i) Dividends may be made to the Borrower
or any of its Subsidiaries by any of its wholly-owned Subsidiaries, (ii) the
Partnership Subsidiaries, through their corporate general partners, may declare
and pay Dividends consisting of 50% of Net Partnership Cash Flow, (iii) the
Borrower may pay Dividends to the holders of its Series A Preferred Stock, in
accordance with the terms of the Certificate of Designation for such Series A
Preferred Stock attached hereto as Exhibit K, (iv) the Borrower may pay
Dividends to the holders of its Series B Preferred Stock, in accordance with the
terms of the Certificate of Designation for such Series B Preferred Stock
attached hereto as Exhibit L, and (v) the Borrower may pay Dividends to the
holders of its Series C Preferred Stock, if any, in accordance with the terms of
the Certificate of Designation therefor.
Section 6.8 Capital Expenditures. The Borrower shall not make
or incur (or commit to make or incur) and shall not permit any of its
Subsidiaries to make or incur (or commit to make or incur) Capital Expenditures
in any fiscal year which exceed, in the aggregate, $6,000,000; provided that
Qualified Acquisitions shall not be treated as Capital Expenditures for purposes
of this Section 6.8; and provided further that if the maximum amount set forth
above for any period exceeds the aggregate amount of Capital Expenditures made
or incurred (or committed to be made or incurred) during such period, then the
maximum amount set forth above for the following period (but not any subsequent
periods) shall be increased by the amount of such excess.
Section 6.9 Advances, Investments and Loans. The Borrower
shall not, and shall not permit any of its Subsidiaries to, lend money or credit
or make advances to any Person, or directly or indirectly purchase or acquire
any stock, obligations or securities of, or any other interest in, or make any
capital contribution to any Person, except that the following shall be
permitted:
(a) accounts receivable owned by any Loan Party, if
created in the ordinary course of the business
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of the Borrower and its Subsidiaries and payable or dischargeable in accordance
with customary trade terms;
(b) loans and advances to the Borrower by any of its
Subsidiaries, or by the Borrower to any of its Subsidiaries, and, without
duplication, investments in wholly-owned Subsidiaries by the Borrower or any of
its Subsidiaries, in an aggregate amount not to exceed $5,000,000 outstanding at
any time;
(c) loans and advances by any Loan Party to its
employees in the ordinary course of its business (other than the Nagpal Note and
Amounts Due From Affiliated Physicians) not exceeding $100,000 in the aggregate
at any one time outstanding;
(d) advances to Affiliated Medical Entities under the
relevant Management Services Agreements;
(e) Cash Equivalents;
(f) existing investments and Contingent Obligations
described on Schedule 6.6;
(g) any endorsement of a check or other medium of
payment for deposit or collection, or any similar transaction in the normal
course of business;
(h) investments acquired by the Borrower or any of
its Subsidiaries in connection with a Qualified Acquisition or Ancillary Service
Facility;
(i) investments acquired by the Borrower or any of
its Subsidiaries (i) in exchange for any other investment held by the Borrower
or such Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other investment, or
(ii) as a result of a foreclosure by the Borrower or any of its Subsidiaries
with respect to any secured investment or other transfer of title with respect
to any secured investment in default; and
(j) investments acquired by the Borrower or any of
its Subsidiaries in connection with a sale permitted by Section 6.5.
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Section 6.10 Transactions with Affiliates. The Borrower shall
not, and shall not permit any of its Subsidiaries to, enter into any transaction
or series of related transactions, whether or not in the ordinary course of
business, with any Affiliate, other than on terms and conditions substantially
as favorable to the Borrower or such Subsidiary as would be obtainable at the
time in a comparable arm's-length transaction with a Person other than an
Affiliate.
Section 6.11 Limitation on Voluntary Payments; Management
Services Agreements. The Borrower shall not, and shall not permit any of its
Subsidiaries to, (a) make any sinking fund payment or voluntary or optional
payment or prepayment on or redemption or acquisition for value of (including,
without limitation, by way of depositing with the trustee with respect thereto
money or securities before due for the purpose of paying when due) or exchange
of any Indebtedness other than the Indebtedness hereunder and under the other
Loan Documents and the exchange of the Nagpal Note for Series B Preferred Stock,
(b) enter into any Management Services Agreement which allows termination or
rescission any earlier than one year after the Final Maturity Date or (c) amend,
modify or waive, or permit the amendment, modification or waiver of, any
provision of any Management Services Agreement if such amendment, modification
or waiver is reasonably likely to have a Material Adverse Effect.
Section 6.12 Changes in Business. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any business which is
substantially different from that conducted by the Borrower or any such
Subsidiary on the Closing Date after giving effect to the Transactions.
Section 6.13 Certain Restrictions. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any agreement (other
than the Loan Documents and the Securities Purchase Agreement as in effect on
the Closing Date) which restricts the ability of the Borrower or any of its
Subsidiaries to (a) enter into amendments, modifications or waivers of the Loan
Documents, (b) create, incur, assume, suffer to exist or otherwise become liable
with respect to any Indebtedness, or (c) pay any Dividend.
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Section 6.14 Sale and Leasebacks. Except for Capitalized Lease
Obligations constituting Indebtedness permitted under Section 6.2(e), the
Borrower shall not, and shall not permit any of its Subsidiaries to, become
liable, directly or indirectly, with respect to any lease, whether an operating
lease or a Capitalized Lease, of any property (whether real or personal or
mixed) whether now owned or hereafter acquired, (i) which the Borrower or such
Subsidiary has sold or transferred or is to sell or transfer to any other
Person, or (ii) which the Borrower or such Subsidiary intends to use for
substantially the same purposes as any other property which has been or is to be
sold or transferred by the Borrower or such Subsidiary to any other Person in
connection with such Lease.
Section 6.15 Sale of Accounts. The Borrower shall not, and
shall not permit any of its Subsidiaries or any Affiliated Medical Entity to,
sell, with or without recourse, or discount or otherwise sell for less than the
face value therefor, any of their notes or Accounts (or any portion thereof),
except for compromises made in the ordinary course of business.
SECTION 7. EVENTS OF DEFAULT
Section 7.1 Events of Default. Each of the following events,
acts, occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(a) Failure to Make Payments. The Borrower shall (i)
default in the payment when due of any principal of the Loans or (ii) default,
and such default shall continue unremedied for three (3) or more days, in the
payment when due of any interest on the Loans or in the payment when due of any
Fees or any other amounts owing hereunder.
(b) Breach of Representation or Warranty. Any
representation or warranty made by any Loan Party or Affiliated Medical Entity
herein or in any other Loan
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Document or in any certificate or statement delivered pursuant hereto or thereto
shall prove to be false or misleading in any material respect on the date as of
which made or deemed made.
(c) Breach of Covenants.
(i) Any Loan Party shall fail to perform or observe
any agreement, covenant or obligation arising under Sections 5.1(i), 5.5 (with
respect to the existence of the Borrower) or Section 6.
(ii) Any Loan Party shall fail to perform or observe
any agreement, covenant or obligation arising under this Agreement (except those
described in subsections (a), (b) and (c)(i) above) or any other Loan Document,
and such failure shall continue for 30 days (or, in the case of a breach under
any other Loan Document, such longer grace period provided under such Loan
Document) after the earlier to occur of (i) the provision of notice by the Agent
of such failure or (ii) actual knowledge by the Borrower or its Subsidiary, as
applicable, of such failure.
(d) Default Under Other Agreements. Any Loan Party
shall default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) of any amount owing in respect of
any Indebtedness (other than the Obligations) in the aggregate principal amount
of $500,000 or more (and such default shall continue after the applicable grace
and/or cure period, if any); or any Loan Party shall default in the performance
or observance of any obligation or condition with respect to any such
Indebtedness or any other event shall occur or condition exist, if the effect of
such default, event or condition is to accelerate the maturity of any such
Indebtedness or to permit (without regard to any required notice or lapse of
time) the holder or holders thereof, or any trustee or agent for such holders,
to accelerate the maturity of any such Indebtedness, or any such Indebtedness
shall become or be declared to be due and payable prior to its stated maturity
other than as a result of a regularly scheduled payment; or any Loan Party shall
default in the performance or observance of any obligation or condition with
respect to the Securities Purchase Agreement.
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(e) Bankruptcy, etc. (i) Any Loan Party shall
commence a voluntary case concerning itself under the Bankruptcy Code; or (ii)
an involuntary case is commenced against any Loan Party and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or (iii) a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of any Loan Party or any Loan Party commences any other proceedings
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to any Loan Party or there is
commenced against any Loan Party any such proceeding which remains undismissed
for a period of 30 days; or (iv) any order of relief or other order approving
any such case or proceeding is entered; or (v) any Loan Party is adjudicated
insolvent or bankrupt; or (vi) any Loan Party suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 30 days; or (vii) any Loan Party makes
a general assignment for the benefit of creditors; or (viii) any Loan Party
shall fail to pay, or shall state that it is unable to pay its debts generally
as they become due; or (ix) any Loan Party shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or (x) any
Loan Party shall by any act or failure to act consent to, approve of or
acquiesce in any of the foregoing; or (xi) any corporate action is taken by any
Loan Party for the purpose of effecting any of the foregoing.
(f) ERISA. (i) Any Termination Event shall occur, or
(ii) any Plan shall incur an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived or (iii)
any Loan Party or a member of its ERISA Controlled Group shall have engaged in a
transaction which is prohibited under Section 4975 of the Code or Section 406 of
ERISA which could result in the imposition of liability in excess of $500,000 on
any Loan Party or any member of its ERISA Controlled Group, or (iv) any Loan
Party or any member of its ERISA Controlled Group shall fail to pay when due an
amount which it shall have become liable to pay to the PBGC, any Plan or a trust
established under Title IV of ERISA, or (v) a condition
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shall exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that an ERISA Plan must be terminated or have a trustee appointed
to administer any ERISA Plan, or (vi) any Loan Party or a member of its ERISA
Controlled Group suffers a partial or complete withdrawal from a Multiemployer
Plan or is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect
to payments to a Multiemployer Plan, or (vii) a proceeding shall be instituted
against any Loan Party or any member of its ERISA Controlled Group to enforce
Section 515 of ERISA, or (viii) any other event or condition shall occur or
exist with respect to any Plan which could subject any Loan Party or any member
of its ERISA Controlled Group to any tax, penalty or other liability in excess
of $500,000.
(g) Security Documents. Any of the Security Documents
shall for any reason cease to be in full force and effect, or shall cease to
give the Agent the Liens, rights, powers and privileges purported to be created
thereby including, without limitation, a perfected first priority (except as
permitted pursuant to Section 6.3) security interest in, and Lien on, all of the
Collateral in accordance with the terms thereof.
(h) Guarantees. Any of the Guarantees shall for any
reason cease to be in full force and effect or any Guarantor shall fail to pay
any amount owing pursuant to its Guarantee when due or any Guarantor shall
disavow any of its obligations under its Guarantee.
(i) Change of Control. A Change in Control shall
occur.
(j) Judgments. One or more judgments or decrees in an
aggregate amount of $500,000 or more shall be entered by a court or courts of
competent jurisdiction against any Loan Party (other than any judgment as to
which, and only to the extent, a reputable insurance company has acknowledged
coverage of such claim in writing) and any such judgments or decrees shall not
be stayed, discharged, paid, bonded or vacated within 30 days.
(k) Environmental Matters. (i) Any Environmental
Claim shall have been asserted against any Loan Party or any Environmental
Affiliate thereof which, if determined adversely, could reasonably be expected
to
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have a Material Adverse Effect, (ii) any release, emission, discharge or
disposal of any Material of Environmental Concern shall have occurred, and such
event has formed the basis of an Environmental Claim against any Loan Party or
any Environmental Affiliate thereof which, if determined adversely, could have a
Material Adverse Effect, or (iii) any Loan Party or its Environmental Affiliate
shall have failed to obtain any Environmental Approval necessary for the
management, use, control, ownership, or operation of its business, property or
assets or any such Environmental Approval shall be revoked, terminated, or
otherwise cease to be in full force and effect, in each case, if the existence
of such condition could have a Material Adverse Effect.
(l) Management Services Agreements. In any twelve
month period, (i) 10% or more physicians shall cease to be members of Affiliated
Medical Entities bound by the relevant Management Services Agreement, or (ii)
Management Services Agreements in respect of greater than 15% of the Borrower's
aggregate revenues as of the Closing Date shall be terminated or material
defaults thereunder shall have occurred without the prior written consent of the
Required Lenders.
Section 7.2 Rights and Remedies. Upon the occurrence of any
Event of Default described in Section 7.1(e), the Commitments shall
automatically and immediately terminate and the unpaid principal amount of and
any and all accrued interest on the Loans and any and all accrued Fees and other
Obligations shall automatically become immediately due and payable, with all
additional interest from time to time accrued thereon and without presentation,
demand, or protest or other requirements of any kind (including, without
limitation, valuation and appraisement, diligence, presentment, notice of intent
to demand or accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower, and the obligation of each Lender to make any
Loan hereunder shall thereupon terminate; and upon the occurrence and during the
continuance of any other Event of Default, the Agent shall at the request, or
may with the consent, of the Required Lenders, by written notice to the
Borrower, (i) declare that the Commitments are terminated, whereupon the
Commitments and the obligation of each Lender to make any Loan hereunder shall
immediately terminate, (ii) terminate any Letter of Credit that may be
terminated in accordance with its
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terms, (iii) direct the Borrower to pay (and the Borrower agrees that upon
receipt of such notice it will pay) to the Agent at the Agent's Office an amount
of cash, to be held in the Cash Collateral Account (as defined in the Security
Agreement), equal to the Letter of Credit Liability and (iv) declare the unpaid
principal amount of and any and all accrued and unpaid interest on the Loans and
any and all accrued Fees and other Obligations to be, and the same shall
thereupon be, immediately due and payable with all additional interest from time
to time accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by
Borrower.
SECTION 8. THE AGENT
Section 8.1 Appointment. Each Lender hereby irrevocably
designates and appoints Paribas as the Agent of such Lender under this Agreement
and each other Loan Document, and each such Lender irrevocably authorizes
Paribas as the Agent for such Lender, 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 the Agent by
the terms of this Agreement and each other Loan Document, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement, the Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities on the part of the Agent
shall be read into this Agreement or otherwise exist against the Agent.
Notwithstanding anything to the contrary herein, the Issuing Lender shall act on
behalf of the Lenders with respect to the Letters of Credit (and all conditions
precedent to the issuance or extension thereof) until such time and except for
so long as the Agent may elect to act for the Issuing Lender with respect
thereto; provided, however, that the Issuing Lender shall have all of the
benefits and immunities (i) for acts taken or omissions suffered by the Issuing
Lender in connection with the Letters of Credit as fully as if the term
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"Agent" as used in this Section 8 included the Issuing Lender with respect to
such acts or omissions, and (ii) as additionally provided in this Agreement with
respect to the Issuing Lender. The provisions of this Section 8 are solely for
the benefit of the Agent and the Lenders, and the Borrower shall have no rights
as a third party beneficiary or otherwise under any of the provisions hereof. In
performing its functions and duties hereunder and under the other Loan
Documents, the Agent shall act solely as the agent of the Lenders and does not
assume nor shall be deemed to have assumed any obligation or relationship of
trust or agency with or for the Borrower or any Lender or any of their
respective successors and assigns.
Section 8.2 Delegation of Duties. The Agent may execute any
of its duties under this Agreement or the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care.
Section 8.3 Exculpatory Provisions. The Agent shall not be
(i) liable for any action lawfully taken or omitted to be taken by it (except
for its own gross negligence or willful misconduct) or any Person described in
Section 8.2 under or in connection with this Agreement or any other Loan
Document, or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by any Loan Party
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or received
under or in connection with, this Agreement or any other Loan Document or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement, or any other Loan Document or for any failure of any Loan
Party to perform its obligations hereunder or thereunder. The Agent shall not be
under any obligation to any Lender 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 any Loan Party. This Section is intended solely to govern
the relationship between the Agent, on the one hand, and the Lenders, on the
other.
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Section 8.4 Reliance by Agent. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any Note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it 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, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent. The
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless the Agent shall have received an executed Assignment and
Acceptance in respect thereof. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it 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 and the other Loan Documents in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
Section 8.5 Notice of Default. The Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
unless the Agent has received notice from a Lender or the Borrower referring to
this Agreement, describing such 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 promptly give notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as shall
be directed by the Required Lenders; provided that unless and until the Agent
shall have received such directions, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as the Agent shall deem advisable and in the best
interests of the Lenders and shall notify the Lenders of any such action taken.
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Section 8.6 Non-Reliance on Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Agent, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of the Borrower,
shall be deemed to constitute any representation or warranty by the Agent. Each
Lender represents and warrants to the Agent that it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, prospects, financial and
other conditions and creditworthiness of the Borrower and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent or
any other Lender, 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 to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, prospects, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required under the Loan Documents to be furnished to the
Lenders by the Agent, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, prospects, financial and other condition or
creditworthiness of the Borrower which may come into the possession of the Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
Section 8.7 Indemnification. The Lenders agree to indemnify
the Agent and its officers, directors, employees, representatives and agents (to
the extent not reimbursed by any Loan Party and without limiting the obligation
of the Loan Parties to do so), ratably according to their Pro Rata Shares, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (including, without limitation, the actual out of pocket fees
and disbursements of counsel for the Agent or such
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Person in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not the Agent or such Person
shall be designated a party thereto) that may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
incurred by or asserted against the Agent or such Person as a result of, or
arising out of, or in any way related to or by reason of, any of the
Transactions or the execution, delivery or performance of any Loan Document (but
excluding any such liabilities, obligations, losses, damages, penalties,
actions, suits, costs, expenses or disbursements resulting solely from the gross
negligence or willful misconduct of the Agent or such Person as finally
determined by a court of competent jurisdiction).
Section 8.8 Agent in its Individual Capacity. The Agent and
its affiliates may make loans to, accept deposits from and generally engage in
any kind of business with any Loan Party as though the Agent were not the Agent
hereunder. With respect to Loans made or renewed by it and any Note issued to
it, the Agent shall have the same rights and powers under this Agreement as any
Lender and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall include the Agent in its individual capacity.
Section 8.9 Resignation by the Agent. (a) The Agent may
resign from the performance of all of its functions and duties hereunder and/or
under the other Loan Documents by giving 15 Business Days' prior written notice
to the Borrower and the Lenders. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the Lenders shall
appoint a successor Agent hereunder or thereunder who shall be a commercial bank
or trust company.
(c) If a successor Agent shall not have been so appointed
within such 15 Business Day period, the Agent may then appoint a successor Agent
who shall serve as Agent hereunder or thereunder until such time, if any, as the
Lenders appoint a successor Agent as provided above.
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(d) If no successor Agent has been appointed pursuant to
clause (b) or (c) above by the 20th Business Day after the date such notice of
resignation was given by the Agent, the Agent's resignation shall become
effective and the Lenders shall thereafter perform all the duties of the Agent
hereunder and/or under any other Loan Document until such time, if any, as the
Lenders appoint a successor Agent as provided above.
SECTION 9. MISCELLANEOUS
Section 9.1 Payment of Expenses, Indemnity, etc. The Borrower
shall:
(a) whether or not the transactions hereby
contemplated are consummated, pay all reasonable out-of-pocket costs and
expenses of the Agent in connection with the negotiation, preparation, execution
and delivery of the Loan Documents and the documents and instruments referred to
therein, the creation, perfection or protection of the Agent's Liens in the
Collateral (including, without limitation, fees and expenses for title and lien
searches and filing and recording fees), and any amendment, waiver or consent
relating to any of the Loan Documents (including, without limitation, as to each
of the foregoing, the reasonable fees and disbursements of Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel to the Agent and any other attorneys
retained by the Agent) and of the Agent and each Lender in connection with the
preservation of rights under, and enforcement of, the Loan Documents and the
documents and instruments referred to therein or in connection with any
restructuring or rescheduling of the Obligations;
(b) pay, and hold the Agent and each of the Lenders
harmless from and against, any and all present and future stamp, excise and
other similar taxes with respect to the Loan Documents and the Transactions and
hold the Agent and each Lender harmless from and against any and all liabilities
with respect to or resulting from any delay or omission (other than to the
extent attributable to such Lender) to pay such taxes; and
(c) indemnify the Agent and each Lender, its
officers, directors, employees, representatives and agents (each an
"Indemnitee") from, and hold each of them
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harmless against, any and all losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, asserted against or incurred by any Indemnitee
as a result of, or arising out of, or in any way related to or by reason of, (i)
any of the Loan Documents or the Transactions, (ii) the grant to the Agent and
the Lenders of any Lien in any property or assets of any Loan Party or any stock
or other equity interest in any Loan Party, and (iii) the exercise by the Agent
and the Lenders of their rights and remedies (including, without limitation,
foreclosure) under any agreements creating any such Lien (but excluding, as to
any Indemnitee, any such losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements
incurred by reason of the gross negligence or willful misconduct of such
Indemnitee as finally determined by a court of competent jurisdiction). The
Borrower's obligations under this Section shall survive the termination of this
Agreement and the payment of the Obligations.
Section 9.2 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default, each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to the
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness at any
time held or owing by such Lender (including, without limitation, by branches
and agencies of such Lender wherever located) to or for the credit or the
account of the Borrower against and on account of the Obligations of the
Borrower to such Lender under this Agreement or under any of the other Loan
Documents, including, without limitation, all interests in
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Obligations purchased by such Lender pursuant to Section 9.7, and all other
claims of any nature or description arising out of or connected with this
Agreement or any other Loan Document, irrespective of whether or not such Lender
shall have made any demand hereunder and although said Obligations, liabilities
or claims, or any of them, shall be contingent or unmatured.
Section 9.3 Notices. Except as otherwise expressly provided
herein, all notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy), and shall be
deemed to have been duly given or made when delivered by hand, or five days
after being deposited in the United States mail, postage prepaid, or, in the
case of telecopy notice, when sent or, if not sent during business hours on a
Business Day, then on the next Business Day, or, in the case of a nationally
recognized overnight courier service, one Business Day after delivery to such
courier service, addressed, in the case of each party hereto, at its address
specified opposite its signature below or on the appropriate Assignment and
Acceptance, or to such other address as may be designated by any party in a
written notice to the other parties hereto.
Section 9.4 Successors and Assigns; Participation;
Assignments.
(a) Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Lenders, the Agent,
all future holders of the Notes and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender. No Lender may participate, assign or sell any of its Credit Exposure (as
defined in clause (b) below) except as provided in this Section 9.4 or as
required by operation of law, in connection with the merger, consolidation or
dissolution of any Lender.
(b) Participation. Any Lender may at any time sell to
one or more Persons (each a "Participant") participating interests in any Loan
owing to such Lender, any Note held by such Lender, any Commitment of such
Lender and or any other interest of such Lender hereunder (in respect of any
such Lender, its "Credit Exposure").
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Notwithstanding any such sale by a Lender of participating interests to a
Participant, such Lender's rights and obligations under this Agreement shall
remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement (except as expressly provided below), and the
Borrower and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. The Borrower agrees that if any Obligations are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence and during the continuance of an Event of Default, each Participant
shall be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement and any Note to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement or any Note, provided that such right of setoff
shall be subject to the obligations of such Participant to share with the
Lenders, and the Lenders agree to share with such Participant, as provided in
Section 9.7. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.18, 2.19 and 2.20. Each Lender agrees that any
agreement between such Lender and any such Participant in respect of such
participating interest shall not restrict such Lender's right to agree to any
amendment, supplement, waiver or modification to this Agreement or any other
Loan Document, except where the result of any of the foregoing would be to
extend the final maturity of any Obligation or any regularly scheduled
installment thereof or reduce the rate or extend the time of payment of interest
thereon or reduce the principal amount thereof or release all or substantially
all of the Collateral (except as expressly provided in the Loan Documents) or
release any Guarantor from its obligations under a Guarantee.
(c) Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time
assign, with the consent of the Agent, which consent shall not be unreasonably
withheld, to any other Person (each an "Assignee") all or any part of its Credit
Exposure, in a minimum amount of $5,000,000 or, if such Lender's Credit Exposure
is less than $5,000,000, such Lender's total Credit Exposure. The Borrower, the
Agent and the Lenders agree that to the
104
<PAGE>
extent of any assignment the Assignee shall be deemed to have the same rights
and benefits under the Loan Documents and the same rights of setoff and
obligation to share pursuant to Section 9.7 as it would have had if it were a
Lender hereunder; provided that the Borrower and the Agent shall be entitled to
continue to deal solely and directly with the assignor Lender in connection with
the interests so assigned to the Assignee unless and 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 Lender and the Assignee; (ii) such Lender and its Assignee
shall have delivered to the Borrower and the Agent (A) an Assignment and
Acceptance in the form of Exhibit G (an "Assignment and Acceptance") together
with delivery to the Borrower of any Note or Notes subject to such Assignment
and (B) if applicable to the Assignee, the forms required to be delivered
pursuant to Section 2.21(b); and (iii) such Lender shall have paid to the Agent,
for its own account, an assignment fee of $3,500. Immediately upon compliance
with the provisions of this Section 9.4(c), 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 Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitment of the assigning Lender pro tanto.
(d) Replacement Notes. Within 5 Business Days after
its receipt of notice by the Agent that the Agent has received an executed
Assignment and Acceptance and payment of the processing fee, the Borrower shall
execute and deliver to the Agent new Notes evidencing such Assignee's assigned
Loans and Commitment and, if the assignor Lender has retained a portion of its
Loans and Commitment, replacement Notes in the principal amount of the Loans
retained by the assignor Lender (such Notes to be in exchange for, but not in
payment of, the Notes held by such Lender).
(e) Assignments to Federal Reserve Bank.
Notwithstanding any other provision contained in this Agreement or any other
Loan Document to the contrary, any Lender may assign all or any portion of the
Loans or Notes held by it to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal
105
<PAGE>
Reserve System and any Operating Circular issued by such Federal Reserve Bank,
provided that any payment in respect of such assigned Notes or Loans made by the
Borrower to or for the account of the assigning and/or pledging Lender in
accordance with the terms of this Agreement shall satisfy the Borrower's
obligations hereunder in respect of such assigned Loans or Notes to the extent
of such payment. No such assignment shall release the assigning Lender from its
obligations hereunder.
Section 9.5 Amendments and Waivers. Neither this Agreement,
any Note, any other Loan Document to which any Loan Party is a party nor any
terms hereof or thereof may be amended, supplemented, modified or waived except
in accordance with the provisions of this Section. The Required Lenders and the
Loan Parties may, from time to time, enter into written amendments, supplements,
modifications or waivers for the purpose of adding, deleting, changing or
waiving any provisions to this Agreement, the Notes, or the other Loan Documents
to which any Loan Party is a party, provided, that no such amendment,
supplement, modification or waiver shall (a) extend either the Final Maturity
Date or any installment or required prepayment of any Obligations or reduce the
rate or extend the time of payment of interest on any Obligations, or reduce the
principal amount of any Obligations or reduce any fee payable to the Lenders
hereunder, or release all or a substantial portion of the Collateral (except as
expressly contemplated by the Loan Documents), or release any Guarantor from its
obligations under the relevant Guarantee, or change the amount of any Commitment
of any Lender, or amend, modify or waive any provision of this Section 9.5 or
the definition of Required Lenders, or consent to or permit the assignment or
transfer by any Loan Party of any of its rights and obligations under this
Agreement or any other Loan Document, in each case without the written consent
of all the Lenders, (b) amend, modify or waive any provision of Section 8 or any
other provision of any Loan Document if the effect thereof is to affect the
rights or duties of the Agent, without the written consent of the then Agent or
(c) extend the maturity of any Revolving Loan without the consent of the
Revolving Lender in respect of such Revolving Loan. Any such amendment,
supplement, modification or waiver shall apply to each of the Lenders equally
and shall be binding upon the Loan Parties, the Lenders, the Agent and all
future holders of the Notes.
106
<PAGE>
In the case of any waiver, the Loan Parties, the Lenders and the Agent shall be
restored to their former position and rights hereunder and under the outstanding
Notes, and any Default or Event of Default waived shall be deemed to be cured
and not continuing, but no such waiver shall extend to any subsequent or other
Default or Event of Default, or impair any right consequent thereon.
Section 9.6 No Waiver; Remedies Cumulative. No failure or
delay on the part of the Agent or any Lender or any holder of a Note in
exercising any right, power or privilege hereunder or under any other Loan
Document and no course of dealing between the Borrower and the Agent or any
Lender or the holder of any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Loan Document preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Agent or any Lender or the holder of any
Note would otherwise have. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Agent, the
Lenders or the holder of any Note to any other or further action in any
circumstances without notice or demand.
Section 9.7 Sharing of Payments. Each of the Lenders agrees
that if it should receive any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of setoff or banker's
lien, by counterclaim or cross action, by the enforcement of any right under the
Loan Documents, or otherwise) which is applicable to the payment of any
Obligations, of a sum which, with respect to the related sum or sums received by
other Lenders, is in a greater proportion than the total of such Obligations
then owed and due to such Lender bears to the total of such Obligations then
owed and due to all of the Lenders immediately prior to such receipt, then such
Lender receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in such Obligations owing to such
Lenders in such amount as shall result in a proportional participation by all of
the Lenders in such amount;
107
<PAGE>
provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
Section 9.8 GOVERNING LAW. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
Section 9.9 Consent to Jurisdiction. The Borrower
irrevocably
(a) submits to the jurisdiction of any New York State
or Federal court sitting in New York City and any appellate court from any
thereof in any action or proceeding arising out of or relating to any Loan
Document;
(b) agrees that all claims in respect of such action
or proceeding may be heard and determined in such New York State or in such
Federal court;
(c) waives, to the fullest extent that it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding;
(d) consents to the service of any and all process in
any such action or proceeding by the mailing of copies of such process to it at
its address pursuant to Section 9.3; and
(e) agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
Nothing in this Section 9.9 shall affect the right of the Agent or any Lender to
serve legal process in any other manner permitted by law or affect the right of
the Agent or any Lender to bring any action or proceeding against any Loan Party
or its property in the courts of other jurisdictions.
Section 9.10 Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
108
<PAGE>
original, but all of which shall together constitute one and the same
instrument.
Section 9.11 Effectiveness. This Agreement shall become
effective on the date on which all of the parties hereto shall have signed a
counterpart hereof and shall have delivered the same to the Agent which
delivery, in the case of the Lenders, may be given to the Agent by telecopy
(with the originals delivered promptly to the Agent via overnight courier
service).
Section 9.12 Headings Descriptive. The headings of the
several Sections and subsections of this Agreement are inserted for convenience
only and shall not in any way affect the meaning or construction of any
provision of this Agreement.
Section 9.13 Marshalling; Recapture. Neither the Agent nor
any Lender shall be under any obligation to marshall any assets in favor of the
Borrower or any other party or against or in payment of any or all of the
Obligations. To the extent any Lender receives any payment by or on behalf of
the Borrower, which payment or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
the Borrower or its estate, trustee, receiver, custodian or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such payment or repayment, the obligation or part thereof
which has been paid, reduced or satisfied by the amount so repaid shall be
reinstated by the amount so repaid and shall be included within the liabilities
of the Borrower to such Lender as of the date such initial payment, reduction or
satisfaction occurred.
Section 9.14 Severability. In case any provision in or
obligation under this Agreement or the Notes or the other Loan Documents shall
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
Section 9.15 Survival. All indemnities set forth herein
including, without limitation, in Sections 2.17, 2.18, 2.19, 2.20, 8.7 and 9.1
shall survive the
109
<PAGE>
execution and delivery of this Agreement and the Notes and the making and
repayment of the Loans hereunder.
Section 9.16 Domicile of Loans. Each Lender may transfer and
carry its Loans at, to or for the account of any branch office, subsidiary or
affiliate of such Lender.
Section 9.17 Limitation of Liability. No claim may be made by
the Borrower or any other Loan Party against the Agent or any Lender or the
Affiliates, directors, officers, employees, attorneys or agent of any of them
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or any other
Transactions, or any act, omission or event occurring in connection therewith;
and the Borrower hereby waives, releases and agrees not to sue upon any claim
for any such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
Section 9.18 Calculations; Computations. The financial
statements to be furnished to the Agent and the Lenders pursuant hereto shall be
made and prepared in accordance with GAAP consistently applied throughout the
periods involved and consistent with GAAP as used in the preparation of the
financial statements referred to in Section 4.5, and, except as otherwise
specifically provided herein, all computations determining compliance with
Section 6.1 hereof shall utilize GAAP.
Section 9.19 Waiver of Trial by Jury. TO THE EXTENT PERMITTED
BY APPLICABLE LAW, EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY
IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
110
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
BMJ MEDICAL MANAGEMENT,
INC., as the Borrower
By: /s/ David H. Fater
------------------------
Name:
Title:
Notice Address:
BMJ Medical Management,Inc.
4800 N. Federal Highway
Suite 101-E
Boca Raton, Florida 33431
Attention: David H. Fater,
Executive Vice President
and Chief Financial Officer
Telephone: (561) 391-1311
Telecopier: (561) 391-1389
With copies to:
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Rachel Rawson
Telephone: (216) 586-7276
Telecopier: (216) 579-0212
S-1
<PAGE>
PARIBAS, as Agent and as a
Lender
By: /s/ Clare Bailhe
-----------------------
Name:
Title: Director
By: /s/ Don L. Unruh
-----------------------
Name:
Title: Assistant Vice
President
Notice Address:
Paribas Corporation
787 Seventh Avenue
New York, NY 10019
Attention: Maureen Keating
Paribas Syndications
Group
Telephone: (212) 841-2275
Telecopier: (212) 841-2286
All notices and copies of Borrowing Base Certificates and Borrowing Notices
should be sent to:
Paribas
2029 Century Park East
Suite 3900
Los Angeles, CA 90067
Attention: Shirley Williams
Telephone: (310) 551-7360
Telecopier: (310) 553-1504
With copies to:
Skadden, Arps, Slate,
Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, CA 90071
Attention: John Mendez
Telephone: (213) 687-5000
Telecopier: (213) 687-5600
S-2
<PAGE>
FLEET CAPITAL CORPORATION,
as a Lender
By: /s/ James J. Karnowski
----------------------
Name:
Title: Vice President
Notice Address:
Fleet Capital Corporation
15260 Ventura Boulevard
Suite 400
Sherman Oaks, CA 91403
Attention: Jim Karonowski,
Account Officer
Telephone: (818) 382-4230
Telecopier: (818) 382-4293
S-3
<PAGE>
THE ING CAPITAL SENIOR
SECURED HIGH INCOME FUND,
L.P., as a Lender
By: ING Capital Advisors,
Inc.
By: /s/ Michael D. Hatley
----------------------
Name:
Title: Senior Vice
President
Notice Address:
ING Capital Advisors, Inc.
333 South Grand Avenue
Suite 4250
Los Angeles, CA 90071
Attention: Helen Rhee
Telephone: (213) 346-3983
Telecopier: (213) 346-3995
S-4
<PAGE>
SILICON VALLEY BANK, as a
Lender
By: /s/ Kittridge Chamberlain
-------------------------
Name:
Title: Senior Vice
President
Notice Address:
Silicon Valley Bank
18872 MacArthur Boulevard
Suite 100
Irvine, CA 92715
Attention: Kittridge
Chamberlain
Telephone: (714) 474-7854
Telecopier: (714) 474-7892
With copies to:
Ober, Kaler, Grimes & Shriver
1401 H Street, NW
Washington, D.C. 20005-3324
Attention: Richard Pollak
Telephone: (202) 408-8400
Telecopier: (202) 408-0640
S-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BMJ MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,606,000
<SECURITIES> 0
<RECEIVABLES> 51,823,000
<ALLOWANCES> (25,381,000)
<INVENTORY> 0
<CURRENT-ASSETS> 35,206,000
<PP&E> 13,886,000
<DEPRECIATION> 1,346,000
<TOTAL-ASSETS> 113,996,000
<CURRENT-LIABILITIES> 14,995,000
<BONDS> 0
0
5,744,000
<COMMON> 18,000
<OTHER-SE> 55,846,000
<TOTAL-LIABILITY-AND-EQUITY> 113,996,000
<SALES> 34,395,000
<TOTAL-REVENUES> 34,395,000
<CGS> 0
<TOTAL-COSTS> 16,768,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,103,000
<INCOME-PRETAX> (2,744,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 294,000
<DISCONTINUED> 0
<EXTRAORDINARY> (3,038,000)
<CHANGES> 0
<NET-INCOME> 2,744,000
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.14)
</TABLE>
