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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________TO __________
COMMISSION FILE NO. 0-11851
CHAMPION HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 59-2283872
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
515 W. GREENS ROAD, SUITE 800, HOUSTON, TEXAS 77067
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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14340 TORREY CHASE, SUITE 320, HOUSTON, TEXAS, 77014
(FORMER ADDRESS)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 583-5491
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<S> <C>
COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE
(TITLE OF CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS 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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT BASED ON THE LAST REPORTED SALES PRICE ON MARCH 25, 1996, IS
APPROXIMATELY $46,918,000.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, $0.01 PAR
VALUE, AS OF MARCH 25, 1996: 11,963,366 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE
PART III OF THIS REPORT IS INCORPORATED BY REFERENCE FROM THE COMPANY'S
DEFINITIVE PROXY STATEMENT RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS,
WHICH WILL BE FILED WITH THE COMMISSION NO LATER THAN APRIL 29, 1996.
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PART I
ITEM 1. BUSINESS
GENERAL
Champion Healthcare Corporation (the "Company," including, where appropriate,
its wholly owned and majority-owned subsidiaries and controlled partnerships),
is engaged in the ownership and management of general acute care and specialty
hospitals and related health care facilities. As of March 25, 1996, the Company
owns and operates five general acute care hospitals with a total of 722
licensed beds in Texas, Utah and Virginia, and two psychiatric hospitals with a
total of 219 licensed beds in Missouri and Louisiana. The Company also owns a
50% interest in a partnership that owns and operates two general acute care
hospitals with a total of 341 beds in North Dakota, which it accounts for under
the equity method of accounting. The Company's principal executive offices are
located at 515 W. Greens Rd., Suite 800, Houston, TX 77067, and its telephone
number is 713-583-5491.
RECAPITALIZATION
Effective December 31, 1995, the Company and its preferred shareholders entered
into the 1995 Recapitalization Agreement for the principal purpose of enhancing
the value of common stock by reducing the complexity of the Company's capital
structure and eliminating the accrual of future dividends on its outstanding
preferred stock and the resulting impact on earnings per share. As a result of
the Recapitalization Agreement, common shares outstanding at December 31, 1995,
increased from 4,262,386 to 11,868,230, and preferred shares outstanding
decreased from 10,452,370 to 2,605,714. The transactions comprising the 1995
Recapitalization Agreement are herein collectively referred to as the
"Recapitalization."
RECENT ACQUISITIONS
On April 13, 1995, the Company acquired Salt Lake Regional Medical Center
("SLRMC") from Columbia/HCA Healthcare Corporation ("Columbia") for
approximately $61,042,000, which included approximately $11,783,000 for certain
working capital components, resulting in a net purchase price of approximately
$49,259,000. SLRMC is comprised of a 200 bed tertiary care hospital and five
clinics and is located in Salt Lake City, Utah.
On March 1, 1996, the Company acquired Jordan Valley Hospital ("Jordan") from
Columbia. Jordan is a 50 bed acute care hospital located in West Jordan, Utah,
a suburb of Salt Lake City. The Company acquired Jordan in exchange for Autauga
Medical Center, an 85 bed acute care hospital, and Autauga Health Care Center, a
72 bed skilled nursing facility, both in Prattville, Alabama, plus preliminary
cash consideration paid to the seller of approximately $10,750,000. Cash
consideration included approximately $3,750,000 for certain net working capital
components, which are subject to adjustment, and reimbursement of certain
capital expenditures made previously by the seller. The transaction did not
result in a gain or loss. The Alabama facilities were acquired as part of the
Company's acquisition of AmeriHealth, Inc. on December 6, 1994.
PENDING ACQUISITIONS
The Company is actively negotiating to acquire additional health care
facilities, principally general acute care hospitals. Due to the nature of
various contingencies that are normally associated with proceeding to
consummation of an acquisition, such as satisfactory due diligence
investigations and regulatory and governing body approvals, whether or not the
Company executes either a non-binding or binding letter of intent or even a
definitive agreement is no assurance that an acquisition will occur. Whether
or not and to what extent the Company discloses the status of any pending
acquisition is dependent upon a number of factors, including the nature and
status of the contractual relationship, any unique need for confidentiality,
the nature and type of governing body approvals, the nature of and concern for
regulatory approvals, financing contingencies, specific operational and due
diligence concerns, and whether other potential purchasers are competing for
the facility. The Company is presently unable to conclude whether any
potential acquisition currently under consideration is more likely than not to
occur.
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On January 31, 1996, the Company entered into a non-binding letter of intent to
sell the 149 bed Lakeland Regional Hospital in Springfield, MO, to Columbia in
exchange for the 100 bed Poplar Springs Hospital in Petersburg, VA. Both
facilities are psychiatric hospitals. The Company anticipates receiving
additional cash consideration as a result of the sale, net of certain working
capital components and the respective facilities' long term debt. This
transaction is subject to many of the contingencies referred to above, and the
Company is presently unable to conclude whether consummation of this
transaction is more likely than not to occur.
THE HEALTH CARE INDUSTRY
Hospitals continue to represent the largest segment of total health care
expenditures. Expectations are that spending on health care in the United
States will continue to grow at a faster rate than the overall economy, and
that total health care expenditures will continue to consume an increasing
share of the Gross Domestic Product. These estimates assume that continued
cost containment measures will be more than offset by demands resulting from
current demographic trends such as the aging of the population, growth in
income, general inflation and new technology.
Over the past decade, many hospitals have closed due to cost containment
pressures, changing technology, changes in regulations and reimbursement,
changes in physician practice patterns and other factors. One result of these
changes has been a significant shift from inpatient to outpatient care.
Outpatient utilization as reflected in outpatient gross revenue, adjusted
patient days and adjusted admissions, has increased significantly industry-wide
in recent years.
During the past several years, the major third-party payors of hospital
services (Medicare, Medicaid and private health care insurance companies) have
undertaken substantial revisions in their payment methodologies and monitoring
of health care expenditures in order to contain health care costs and to reward
hospitals for efficient treatment of patients. Instead of reimbursing health
care providers for retrospectively determined actual costs, Medicare reimburses
for inpatient services based on fixed, prospectively determined payments keyed
to regional and national rates under a system of specific diagnosis related
groups ("DRGs") of services determined by a patient's principal diagnosis.
Consequently, hospitals increasingly bear the risk of not being fully
reimbursed for their actual costs. The introduction of these Medicare cost
containment incentives, combined with closer monitoring of health care
expenditures by both private health insurers and employers, has resulted in
increased contractual adjustments and policy discounts to hospitals' standard
charges for services performed, as well as significant declines in inpatient
utilization and increases in outpatient utilization. The Company believes that
as a result of these initiatives, managed care organizations such as health
maintenance organizations ("HMOs") and preferred provider organizations
("PPOs") will continue to represent an increasing segment of health care
payors. For a more complete discussion see "Reimbursement."
BUSINESS STRATEGY
The Company believes that hospitals possess inherent characteristics which, if
properly leveraged upon, can establish hospitals as the focal point for a
comprehensive health care delivery system within their individual markets,
including services such as home health care, long-term care, outpatient
ambulatory surgery centers, and satellite clinics.
Value-Driven Provider. The Company's strategy is to become the premier health
care provider in each of its markets by offering a broad array of health care
services of measurably higher quality at a lower cost than its competition.
The Company believes that a low cost provider is better able to succeed in the
current health care environment by: (i) underpricing its competition for
managed care contracts and, (ii) developing the competitive endurance to
outperform and outlast less efficient providers, thereby gaining additional
market share by either engineering a merger or consolidation with a weaker
competitor or as marginal competitors exit the marketplace.
In an industry increasingly characterized by rigorous efforts to contain health
care spending, the Company believes this strategy will reduce its vulnerability
to pricing pressures, competition, regulatory constraints and periods of market
adversity. Historically, hospitals have had significant pricing flexibility
and have been able to pass cost increases through to payors. The Company
believes that as purchasers of health care seek to reduce their spending,
public and private sector payors will increasingly gain control of pricing and
will favor fixed payment systems. This will place
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further pressure on hospital margins and may jeopardize the financial stability
and competitive vitality of less efficient providers. However, the Company
believes that hospitals with the management expertise and discipline to control
costs while improving quality will gain market share and compete more
effectively.
The Company believes that buyers of health care services are quickly becoming
more sophisticated in their purchasing decisions and will increasingly require
providers to demonstrate the value of their services in terms of the quality of
such services as compared to cost. In the Company's opinion, hospitals which
can provide payors with quantitative data regarding quality and cost
comparisons will have a competitive advantage and will be able to obtain market
share from market providers who are either unable to provide this information,
or whose quality and cost data are not equal to the Company's.
Acquisition Strategy. The Company will continue to pursue opportunities to grow
through the acquisition of, and partnerships with, hospitals in existing and
new markets that meet the Company's long-term objective of establishing each of
its hospitals as the premier, low cost provider of quality health care services
in each of its markets. In general, the Company focuses its acquisition
efforts on markets with populations ranging from 50,000 to 500,000, and
secondarily, on larger markets where the target hospital has established itself
as a preeminent provider of health care services with strong networking
potential. The Company believes that the primary source of acquisitions will
be stand- alone, not-for-profit hospitals which have attractive market share
and significant profit potential, but lack the necessary capital or management
resources to compete in the current environment. Hospitals being divested by
hospital companies for strategic, regulatory or performance reasons will be a
secondary source of acquisitions.
Developing a Quality Advantage. The Company has implemented programs designed
to prove to payors that its hospitals provide safe, high quality care. By
providing payors with quantifiable evidence of monitoring and improving
quality of care, the Company believes it can gain market share from competitors
who cannot provide such information or whose results are not equal to the
Company's.
The Company has spent three years developing a program called ChampionPride in
conjunction with an outside firm that tracks and monitors 225 separate
categories of clinical indicators which measure the incidence of adverse events
that may occur during a patient's period of treatment. These events are termed
"rework" because they can result in an extended length of stay, unplanned
returns to surgery or other occasions of service which would not otherwise have
been required as part of the patient's normal treatment regimen. Based on
research by organizations such as Harvard University, it has been estimated
that up to 10% of all patients admitted to hospitals experience some form of
adverse event such as medication errors, falls and unanticipated problems in
surgery which add unnecessarily to the cost of care. On a national basis, the
cost of rework has been estimated at between $25 and $30 billion per year.
With the increase in patients covered by fixed payment plans, such as Medicare,
Medicaid and capitation, hospitals are increasingly at risk for not being
reimbursed for the cost of rework. Consequently, by focusing on eliminating
adverse events, the Company improves the quality of care and seeks to reduce
excess cost. Further, because the ChampionPride program tracks the incidence
of rework and can quantify the level of improvement, the Company believes that
the ability to provide this data to payors, such as employers and managed care
plans, has the potential to retain existing market share and obtain new market
share for its hospitals. Additionally, the Company also believes that over a
period of time the success of its quality improvement program will
significantly reduce the Company's liability risk and may result in lower costs.
Operating Strategy. The Company's operating strategy is designed to increase
market share for its hospitals by creating value for consumers of health care
services through better delivery of these services in a more cost effective
manner than its competitors. The Company believes that when industry
consolidation activity inevitably diminishes, the successful hospital companies
will not necessarily be those which are the largest but those which can
demonstrate value to payors. Consequently, following each acquisition, the
Company seeks to establish and maintain each of its hospitals as market leaders
in delivering quantifiably higher quality of care and superior customer service
at lower prices than their market competitors.
Although the Company's management has successfully employed a number of the
operating strategies and programs at several of its hospitals, and at other
hospital management companies prior to the Company's formation in 1990, there
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can be no assurance that the Company will be able to quickly and effectively
implement such strategies and programs with respect to hospitals acquired in
the future, or that such strategies and programs, when fully implemented, will
improve the Company's financial results.
OPERATIONS
General. At December 31, 1995, the Company owned and operated five general
acute care hospitals with a total of 757 licensed beds in Alabama, Texas, Utah
and Virginia, two psychiatric hospitals with a total of 219 licensed beds in
Missouri and Louisiana and one skilled nursing facility with a total of 72
licensed beds in Alabama. The Company also owns a 50% interest in and operates
Dakota Heartland Health System ("DHHS"), a partnership comprised of two
general acute care hospitals with a total of 341 licensed beds in Fargo, North
Dakota. The Company operates DHHS pursuant to an operating agreement and
accounts for its investment in DHHS under the equity method. Accordingly,
sources of revenue, payment mix, and bed utilization and occupancy with respect
to DHHS are presented separately. DHHS began operations on December 31, 1994.
On March 1, 1996, the Company acquired Jordan Valley Hospital, a 50 bed acute
care hospital located in West Jordan, Utah in exchange for Autauga Medical
Center, an 85 bed acute care hospital, and Autauga Health Care Center, a 72 bed
skilled nursing facility, both in Prattville, Alabama, plus cash consideration
paid to the seller of $10,750,000. The Alabama facilities were acquired as
part of the Company's acquisition of AmeriHealth, Inc. on December 6, 1994.
The general acute care hospitals owned and/or operated by the Company provide a
range of medical and surgical services typically available in general acute
care hospitals. These services generally include inpatient care such as
intensive and cardiac care, diagnostic services, radiological services and
emergency services. All of the hospitals provide an extensive range of
outpatient services, including ambulatory surgery, laboratory and radiology.
The Company's psychiatric hospitals provide child, adolescent and adult
comprehensive psychiatric and chemical dependency treatment programs, with
inpatient, day hospital, outpatient and other ambulatory care. Each hospital
is managed on a day-to-day basis by its chief executive officer.
The data for the periods presented below are not strictly comparable due to the
significant impact of acquisitions and the formation of DHHS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Sources of Revenue. The Company's revenues depend on the level of inpatient
census at its hospitals, the volume of outpatient services at its hospitals and
outpatient facilities, the acuity of patients' conditions and charges for
services. The increase in gross inpatient revenue in 1995 compared to 1994 is
due primarily to the Company's acquisition of two psychiatric hospitals in the
fourth quarter of 1994, which derive a greater percentage of their gross
patient revenue from inpatient services than do acute care hospitals. The
approximate percentages of gross patient revenue for inpatient and outpatient
services for the Company's last three years and DHHS for 1995 were as follows:
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Year Ended December 31,
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Consolidated Hospitals DHHS
----------------------------------- ----
1995 1994 1993 1995
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Inpatient Services 66% 62% 58% 65%
Outpatient Services 34% 38% 42% 35%
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Payment Mix. The Company receives payment for services rendered to patients
from the Federal government under the Medicare program, state governments under
their respective Medicaid programs, PPOs, HMOs, other private insurers and
directly from patients. See "Reimbursement." The approximate percentages of
the Company's gross patient revenue from these sources for the last three years
and DHHS for 1995 were as follows:
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Year Ended December 31,
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Consolidated Hospitals DHHS
---------------------------------- ----
1995 1994 1993 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Medicare 42% 39% 39% 46%
Medicaid 19% 18% 12% 9%
All Other Payors 39% 43% 49% 45%
</TABLE>
Bed Utilization and Occupancy Rates. The following table summarizes selected
operating statistics for the hospitals owned by the Company and DHHS during the
periods indicated.
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Year Ended December 31,
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Consolidated Hospitals DHHS
---------------------------------------- --------
1995 1994(1) 1993(1) 1995
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Hospital-Licensed Beds (at year end) 976 877 359 341
Admissions 17,530 10,556 9,026 10,096
Patient Days 123,525 65,693 50,309 55,476
Outpatient Visits 189,790 95,979 81,221 126,211
Surgery Cases 10,981 9,990 9,911 9,769
Deliveries 2,112 1,262 1,233 1,449
Average Length of Stay (days):
All Beds 7.0 6.2 5.6 5.5
Medical - Surgical 4.4 4.2 4.2 4.4
Psychiatric 13.5 13.8 11.1 9.6
Occupancy Rate 38% 38% 40% 45%
</TABLE>
(1)Includes 142 licensed beds at Heartland Medical Center, which the Company
contributed to DHHS effective December 31, 1994. The Company accounts for its
investment in DHHS under the equity method. Prior to contribution, Heartland
Medical Center was wholly owned by the Company and consolidated in the
Company's Consolidated Statement of Operations.
The Company owns a 72-bed skilled nursing facility which had annual occupancy
rates of 99% for the years ended 1995, 1994 and 1993, respectively.
COMPETITION
The competition for patients among hospitals and other health care providers
has intensified in recent years as hospital occupancy rates have declined.
This decline is attributable to several factors, including cost containment
pressures, changing technology, changing governmental regulations and
third-party payor mechanisms and the related medical practice patterns. Such
factors have led to new competitive strategies by hospitals and other health
care providers. Among these strategies is an increasing emphasis on outpatient
health care delivery procedures (e.g. outpatient surgery, urgent care,
diagnostic centers and home health care) which tend to eliminate or reduce the
use of inpatient services. In addition, consolidation of hospital chains and
affiliations among hospitals have increased with the result that payors are
increasingly contracting with these entities to provide exclusive health care
services to its members within a geographic area. Such contracts, with the
resulting greater number of possible patients, often permit more competitive
pricing and other services relative to hospitals that are not a part of such
group.
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The Company competes with one or more hospitals and other alternative health
care providers in each of the markets it serves. Certain of the Company's
competitors have greater financial resources, are better equipped and offer a
broader range of services than the Company's hospitals. Additionally,
governmental and tax exempt hospitals benefit from endowments, charitable
contributions and tax exempt financing, all of which are not available to the
Company.
In the Company's opinion, one of the most significant factors in the
competitive position of a hospital is the number and quality of physicians
affiliated with that hospital since physicians still determine the majority of
hospital admissions. The Company believes that physicians refer patients to a
hospital primarily on the basis of the quality of services it renders, the
quality of the other physicians on the medical staff, the location of the
hospital and the quality of the hospital's facilities, equipment and employees.
The Company strives to maintain high ethical and professional standards and
high quality facilities, equipment, employees and services for physicians and
their patients.
The competitive position of a hospital is increasingly affected by its ability
to negotiate provider contracts with purchasers of group health care services.
Such purchasers include PPOs, HMOs, self-insured employers and government
organizations. PPOs and HMOs attempt to direct and control the use of hospital
services through "managed care" programs and to obtain discounts from
hospitals' established charges. In return, hospitals acquire access to
increased numbers of potential patients. In addition, employees and
traditional health insurers are increasingly interested in containing costs
through negotiations with hospitals for managed care programs and discounts
from established charges. In geographic areas where these organizations have
established themselves as a significant presence in their markets, the failure
of a hospital to obtain managed care provider contracts could negatively impact
that hospital's volume of patients and revenues and therefore could have an
adverse impact on the Company's results of operations and cash flow. The
Company attempts to mitigate this risk by seeking to position each of its
facilities as a low cost provider of high quality services in the market it
serves and by ensuring that its acute care facilities, when practical, offer
obstetrical services. The Company believes that both of these factors are
important in attracting managed care provider contracts.
The aforementioned trends have resulted in significant consolidation in the
health care industry over the past decade and many hospitals have closed. The
Company believes that continuing cost containment pressures will lead to a
continued increase in managed care and further consolidation in the hospital
industry.
REGULATION AND OTHER FACTORS
Health care operations are subject to federal, state and local government
regulations regarding condition and adequacy of the facility, its equipment,
personnel and standards of medical care. Health care facilities must also
comply with the licensing requirements of the federal, state and local health
agencies as well as the requirements of building codes, health codes and local
fire codes. The Company's facilities are properly licensed under appropriate
state laws and are certified under the Medicare Program. The Company believes
that its facilities are in substantial compliance with all current applicable
laws and regulations governing its health care operations. The existing laws
and regulations covering the Company's health care facilities are subject to
change and, in order to remain in compliance, the Company may be required to
effect changes in its facilities, equipment, personnel and services. Although
the Company intends to continue its licensing and qualifications, there is no
assurance that its hospitals will be able to comply in the future.
Utilization Review. Federal regulations provide that admissions to and
utilization of facilities by Medicare and Medicaid patients must be reviewed in
order to ensure efficient utilization of facilities and services. Such reviews
are performed by federally funded agencies known as Peer Review Organizations
("PROs"). Federal law requires a PRO to review the need for hospitalization
and utilization of hospital services and to set standards for patient care. A
PRO may conduct such review either prospectively or retrospectively and may,
as appropriate, deny admission of a patient or payment for services provided
to a patient. In addition to PRO reviews, the Company's own quality assurance
programs in each of its hospitals provide for utilization review and
retrospective patient care evaluation.
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Certificates of Need. The construction of new facilities, the acquisition of
existing facilities, and the addition of new beds or services may be reviewable
by state regulatory agencies under a Certificate of Need ("CON") program. The
Company operates hospitals in some states that require approval under a CON
program. Such laws generally require appropriate state agency determination of
public need and approval prior to beds or services being added, or a related
capital amount being spent. Failure to obtain necessary state approval can
result in the inability to complete an acquisition or change of ownership, the
imposition of civil or, in some cases, criminal sanctions, the inability to
receive Medicare or Medicaid reimbursement or the revocation of a facility's
license. The Company has not experienced, and does not expect to experience,
any material adverse effects from state CON requirements or from the
imposition, elimination or relaxation of such requirements. Currently, the
Company's hospitals in North Dakota, Texas, and Utah are not subject to CON
laws.
HEALTH CARE REFORM
Health care, as one of the largest industries in the United States, continues
to attract much legislative interest and public attention. Federal and state
legislators continue to consider legislation that could significantly impact
Medicare, Medicaid and other government funding of health care costs.
Initiatives currently before Congress, if enacted, would significantly reduce
payments under various government programs, including, among others, payments
to disproportionate share and teaching hospitals. A reduction in these
payments would adversely affect net revenue and operating margins at certain of
the Company's hospitals. The Company is unable to predict what legislation, if
any, will be enacted at the federal and state level in the future or what
effect such legislation might have on the Company's financial position, results
of operations, or liquidity.
REIMBURSEMENT
General. A significant portion of the Company's revenues are derived from
patients covered by government-sponsored and other contractual programs.
Payments under these programs are based on cost, a negotiated rate, or a
predetermined rate based upon the diagnosis of the patient's condition, plus,
in some programs, capital costs and/or certain other adjustments. Revenues
from such programs are presented based on established billing rates less
allowances and estimated adjustments for patients covered by such programs.
Revenues from such programs are subject to audit and final settlement.
The principal sources of the Company's contractual payments are Medicare,
Medicaid, Blue Cross and private insurance programs (including PPOs and HMOs).
All of the Company's hospitals are certified as providers of Medicare and
Medicaid and participate to varying degrees in other reimbursement programs.
Amounts received from Medicare, Medicaid, Blue Cross, HMOs and PPOs are
generally less than the hospital's established charges for the services
covered. Patients are generally not responsible for any difference between
established hospital charges and amounts paid under these programs for such
services, except to the extent of any exclusions or deductible and co-payment
features of their coverage.
Medicare - Eligibility. The Social Security Act of 1965 enacted the Medicare
program designed to provide health services to the aged. Medicare Part A
provides health insurance benefits for covered hospital and related health care
services to most persons who are 65 years old and are entitled to monthly
Social Security retirement or survivor benefits; the disabled; and persons with
end-stage renal disease. Medicare Part B provides voluntary supplemental
medical benefits covering primarily outpatient and physician care costs for
covered persons.
Medicare - Operating Cost Reimbursement. Pursuant to the Social Security
Amendments of 1983 and subsequent budget reconciliation act modifications,
Congress adopted a prospective payment system ("PPS") to cover the routine and
ancillary operating costs of most Medicare inpatient hospital services. Under
PPS, the Secretary of the Department of Health and Human Services has
established fixed payment amounts per discharge for categories of hospital
treatment, commonly known as diagnosis related groups, or DRGs. Separate DRG
rates have been established for each individual hospital participating in the
Medicare program. As a general rule under PPS, if a facility's costs of
providing care for the patient are less than the predetermined DRG rate, the
facility retains the difference. Conversely, if the facility's costs of
providing the necessary service are more than the predetermined rate, the
facility must absorb the
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loss. Because DRG rates are based upon a statistically normal distribution of
severity, patients falling outside the normal distribution are afforded
additional payments and defined as "outliers." All of the Company's general
acute care hospitals are reimbursed through the PPS system. The Company's two
psychiatric hospitals are reimbursed at the lower of their Medicare allowable
costs or their TEFRA target rate plus capital costs.
Medicare - Capital Related Cost Reimbursement. For cost reporting periods
prior to October 1, 1991, payments under the Medicare program for capital
related costs were made on a reasonable cost basis. Reasonable capital costs
generally include depreciation, rent and lease expense, capital interest,
property taxes, insurance related to the physical plant, fixed equipment and
movable equipment. Effective with the cost reporting period that began on
October 1, 1991, hospitals paid under PPS for operating costs were required to
be reimbursed for capital costs on a prospective basis. A ten year transition
period was established for the phasing-in of the capital PPS. Under the
transition period rules, hospitals are paid on a fully prospective methodology,
a hold-harmless method or at the federal standard rate, dependent upon certain
criteria. Beginning with cost reporting periods on or after October 1, 2001,
at the end of the transition period, all hospitals are to be paid at the
federal rate. Four of the Company's hospitals are paid based on the hold-
harmless method. The Company believes that the change in capital cost
reimbursement from a reasonable cost basis to a PPS basis will not have a
material impact on the Company's financial condition or results of operations.
Medicare - Outpatient Services Reimbursement. Medicare payments for certain
outpatient surgery services are based upon the lower of (i) a percentage of
hospital costs, (ii) a percentage of customary charges, or (iii) a prospective
payment rate based upon the hospital's historical costs and the rates paid by
Medicare for similar procedures performed in freestanding surgical centers.
Outpatient radiology and imaging services are paid at the lower of (i)
reasonable costs, (ii) customary charges or (iii) a blend of costs and adjusted
physician charges. The Company's level of reimbursement for outpatient
services has decreased as a result of these changes, and the Company expects
its percentage of reimbursed cost for such services to decrease further. The
extent of such decrease will be dependent upon rate changes and the volume of
such outpatient services rendered to Medicare program patients.
Medicaid. Medicaid is a federal-state medical assistance program administered
by the states that provides hospital assistance to certain individuals defined
as "medically indigent." A number of states also utilize a prospective payment
system or have established a program to negotiate payment levels at individual
hospitals for their state Medicaid programs.
Medicare and Medicaid - Common Issues. The Medicare and Medicaid programs are
subject to statutory and regulatory changes. Also, significant portions of the
programs are subject to administrative rulings, interpretations, governmental
funding restrictions and requirements for utilization and quality review. Such
matters may significantly reduce payments made under either or both programs to
the Company's hospitals. Any of these actions could have a material adverse
impact on the Company's financial condition and results of operations. Because
the requirements for certification under Medicare, Medicaid and similar
reimbursement programs are subject to change, it may be necessary for the
Company to make changes in its services, equipment, facilities and personnel to
remain qualified for such programs.
Annual cost reports required under these programs are subject to audit which
may result in adjustments to the amounts originally estimated to be due the
Company under these reimbursement programs. (Since the inception of the DRG
form of payments, however, the amount of reimbursement potentially affected by
audit has substantially decreased). Such audits are conducted or overseen by
the Health Care Finance Administration. These audits often require several
years to reach the final determination of amounts earned under the programs.
The Company believes that adequate provision has been made for any material
retroactive adjustments that might result from such audits.
The Social Security Act provides criminal penalties for individuals or entities
that knowingly and willfully offer, pay, solicit or receive remuneration in
order to induce business reimbursed under the Medicare or Medicaid programs.
The statute on its face is very broad, covering kickbacks, bribes and rebates
made directly or indirectly, overtly or covertly, in cash or in kind. In
addition, prohibited conduct includes remuneration intended to induce the
purchasing, leasing, ordering or arranging for any good, facility, service or
item paid for by Medicare or Medicaid programs. Violation of the statute can
lead to exclusion from participation in the Medicare and Medicaid
programs.
9
<PAGE> 10
Because of concerns by health care providers that many relatively innocuous, or
even beneficial, commercial arrangements are technically covered by this
statute (and are, therefore, subject to potential criminal prosecution),
Congress directed that regulations be promulgated to specify those payment
practices that will not violate the statute. The final regulations include
safe harbor criteria for leasing, purchasing and ordering arrangements. Such
arrangements do not constitute illegal remuneration so long as all of the
criteria set forth in the safe harbors are met. The fact that the specifics of
a leasing, purchasing or ordering arrangement do not squarely fall within all
of the applicable safe harbor criteria does not mean, however, that the
practice is per se illegal.
Various "anti-kickback" and "self-referral" federal and state legislative and
regulatory programs have been enacted, and others are currently under
consideration. Although the Company believes it is in compliance with each of
these programs that have been enacted, it is unable to predict the
interpretation of the existing program, the enactment of new programs or the
form in which such new programs may be enacted, and accordingly it is unable to
assess their effect on its business.
Blue Cross, Private Insurance Carriers, HMOs and PPOs. Blue Cross is a health
care financing program that provides its subscribers with hospital benefits
through numerous independent organizations that vary from state to state.
Pursuant to contracts, local Blue Cross organizations pay the Company's
hospitals directly on a basis agreed to by each hospital and Blue Cross. Other
private insurance carriers reimburse their policy holders or make direct
payments to the Company's hospitals on the basis of the particular hospital's
established charges and the coverage provided for within the insurance
policies. HMOs provide prepaid physician, hospital, and other health care
services either directly or through contracts with providers. A PPO is an
organization which arranges favorable terms and discounts for services from
health care providers on behalf of insurance companies, self-insured employers
and other third-party payors.
PROFESSIONAL LIABILITY
As is typical in the health care industry, the Company is subject to claims and
legal actions by patients and others in the ordinary course of business. The
Company maintains a program of insurance it believes is adequate to cover such
liability. In the opinion of management, the ultimate resolution of any
currently pending claims or legal actions will not have a material adverse
effect on the Company's consolidated balance sheet, results of operations or
liquidity.
ACCREDITATION AND REVIEWS
All of the Company's hospitals are accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), including the Company's
newly constructed hospital in Midland, Texas, which received its provisional
accreditation in the first quarter of 1996. JCAHO regularly conducts an
on-site review and inspection of every hospital seeking to obtain or maintain
its accreditation. Hospitals accredited by the Joint Commission are deemed to
be in compliance with the standards for participation in the Medicare program,
although Medicare can conduct its own compliance reviews.
MEDICAL STAFF AND EMPLOYEES
As of December 31, 1995, the Company had approximately 1,846 full-time
employees and 756 part-time employees at its majority owned hospitals. In
addition, approximately 739 physicians were active members of the medical
staffs of the Company's hospitals, many of whom also serve on the staffs of
competing hospitals. Approximately 78 physicians were under contract with the
Company's hospitals, primarily to staff emergency rooms and serve in support
capacities.
As of December 31, 1995, DHHS had approximately 896 full-time employees and 582
part-time employees. Approximately 170 physicians were active members of the
medical staff, many of whom also serve on the staffs of competing hospitals,
and approximately 48 physicians were under contract to staff the emergency room
and serve in support capacities.
The Company has a decentralized management structure. Each hospital is run by
its own chief executive officer and chief financial officer who are responsible
for day-to-day operations. Incentive compensation programs have been
10
<PAGE> 11
implemented to reward such managers for accomplishing established goals. The
Company employs corporate staff to provide services such as human resource
management, reimbursement, finance, technical accounting support, purchasing,
legal and tax services. Financial control is maintained through fiscal and
accounting policies which are established at the corporate level for use at the
hospitals.
The Company is subject to the federal minimum wage and hour laws and maintains
various employee benefit plans. Labor relations at the Company's facilities
have been satisfactory. Although the Company currently is not experiencing a
shortage of nursing personnel, the availability of nursing personnel
fluctuates from year to year, and the Company cannot predict the degree to
which it will be affected by the future availability and cost of nursing
personnel.
ENVIRONMENTAL MATTERS
The Company believes that its hospitals are currently in compliance in all
material respects with applicable federal, state and local statutes and
ordinances regulating the discharge of materials into the environment. Prior
to the acquisition of its existing hospitals, the Company obtains or reviews
environmental reports. The Company does not believe that it will be required
to expend any material amounts to remain in compliance with these laws and
regulations or that compliance will materially affect its capital expenditure
programs, earnings prospects or competitive position.
11
<PAGE> 12
ITEM IA. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, positions and certain other information as
of March 25, 1996, concerning the executive officers of Champion.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles R. Miller 57 Chairman of the Board, President and Chief Executive Officer
James G. VanDevender 48 Executive Vice President, Chief Financial Officer, Secretary and
Director
Ronald R. Patterson 53 Executive Vice President and Chief Operating Officer
Michael M. Brooks 47 Senior Vice President - Development
Lawrence A. Humphrey 40 Senior Vice President - Corporate Finance
W. Warren Wilkey 51 Senior Vice President - Market Operations
Marilyn R. Anderson 48 Vice President - Quality and Service Improvement
Gary L. Chandler 50 Vice President - Managed Care/Strategic Development
Arthur M. Doloresco 46 Vice President - Operations
Deborah H. Frankovich 48 Vice President and Treasurer
Kenneth D. Hawkins 46 Vice President - Development
Rapheal Luccasen, Jr. 48 Vice President - Operations
Suzanne S. Miskin 50 Vice President - Legal Services
Tod B. Mitchell 35 Vice President - Reimbursement
Robert M. Starling 36 Vice President and Controller
Steven R. Stone 45 Vice President - Administration
Ronald L. Watson 43 Vice President - Operations Finance
</TABLE>
Officers are elected by the Board of Directors and serve until their successors
are elected.
Biographical information with respect to the officers of the Company is set
forth below.
Charles R. Miller. Chairman, President and Chief Executive Officer of the
Company since its formation in February 1990. Mr. Miller has 36 years of
experience in the hospital industry. In 1981, he co-founded and served as
President and Director of Republic Health Corporation ("Republic"). In less
than three years, Republic had revenues of $540 million and was the fifth
largest publicly-held hospital management company owning 23 acute hospitals, 20
psychiatric and substance abuse facilities and managing 18 hospitals and 3
specialty units. In 1986, Republic was acquired in a leveraged buy-out for
$800 million. Mr. Miller declined to participate in the buy-out and resigned
as an officer and director of Republic in 1986. After leaving Republic, Mr.
Miller and Mr. Brooks acquired in 1987 a general acute care hospital in El
Paso, Texas and subsequently sold that facility to Columbia/HCA Healthcare
Corporation in late 1988. During 1989, Mr. Miller did limited health care
consulting and developed the business plan for founding the Company. Prior to
co-founding Republic, Mr. Miller was employed for seven years by Hospital
Affiliates International ("HAI"), a publicly held hospital ownership and
management company. Mr. Miller received a BBA in Personnel Management from
Texas Tech University in 1968 and a Masters degree in Public Health
Administration from the University of Texas in 1974.
James G. VanDevender. Executive Vice President, Chief Financial Officer,
Secretary and Director of the Company since its formation in February 1990.
Mr. VanDevender has 24 years of experience in the hospital industry, including
management positions in accounting and finance at the hospital level, and
senior executive positions in accounting, finance, acquisitions and
development, and operations at the corporate level of multi-hospital companies.
Mr. VanDevender was employed with Republic from 1981 until 1987 and was Senior
Vice President in charge of Republic's acquisition and development function and
its management contract division in 1987. Before joining Republic, Mr.
VanDevender was employed for four years by HAI. From 1987 until 1990, Mr.
VanDevender pursued private investments. He received his undergraduate degree
in Accounting from Mississippi State University in 1970.
12
<PAGE> 13
Ronald R. Patterson. Executive Vice President and Chief Operating Officer of
the Company since 1994 after joining the Company in 1992 as Senior Vice
President-Operations. Mr. Patterson has 26 years of experience in the health
care industry. His operational responsibilities have included community
hospitals, large university teaching hospitals, psychiatric hospitals, contract
management of hospitals and specialty units, and mobile diagnostic services.
Prior to joining the Company, he was a Senior Vice President with Harris
Methodist Health System, a Fort Worth, Texas not-for- profit health care system
from 1990 until 1991. From 1988 until 1990, Mr. Patterson did private
turnaround management consulting in the health care industry. From 1982 to
1988, Mr. Patterson was employed by Republic, serving initially as an
Operations Vice President and subsequently as Senior Vice President with
responsibility for a major operating division. From 1975 to 1981, Mr.
Patterson was employed in various management positions by HAI. Mr. Patterson
is a Fellow in the American College of Health Care Executives. He received his
undergraduate degree from the University of Houston in 1965 and a Masters
degree in Health Care Administration from Trinity University in 1973.
Michael M. Brooks. Senior Vice President - Development since February 1996,
and Senior Vice President - Operations Controller/Administration from January
1, 1992 to December 31, 1994. From January 1, 1995 to January 31, 1996, Mr.
Brooks served in various corporate capacities with Champion reporting directly
to Mr. VanDevender before accepting his current position. Mr. Brooks has over
20 years of experience as a financial executive. He was employed at Republic
from 1983 until 1986, serving first as Vice President and Corporate Controller.
He later served as Assistant to the President and was then promoted to Regional
Vice President with responsibility for five hospitals. Mr. Brooks left
Republic in 1986, at the time serving as Vice President - Development. Prior
to joining Republic, Mr. Brooks was Vice President and Chief Financial Officer
of Pengo Industries, then a NYSE corporation providing oil field products and
services. Before joining Pengo, he was employed for over five years by KPMG
Peat Marwick. From 1989 until 1992, Mr. Brooks did private consulting within
the health care industry and was associated with the Company in this capacity
from February 1, 1991 to December 31, 1991. During 1987 and 1988, Mr. Brooks
and Mr. Miller owned a hospital in El Paso, Texas. He received his BBA in
Accounting from the University of Texas in 1973, and is a Certified Public
Accountant.
Lawrence A. Humphrey. Senior Vice President - Corporate Finance of the Company
since February 1996. Mr. Humphrey served as Vice President of Operations -
Finance from November 1994 to January 1996. Mr. Humphrey has over 15 years of
experience in health care finance and operations. Prior to joining the Company
in September 1993, Mr. Humphrey worked for National Medical Enterprises, Inc.
for 12 years, a publicly held hospital ownership and management company; 10
years as a facility CFO with the last seven years at a 325 bed hospital. He
received a BS degree from Cornell University in 1980, a Masters degree in
Business Administration from the University of Dallas in 1991. Mr. Humphrey is
a Certified Public Accountant.
W. Warren Wilkey. Senior Vice President - Market Operations of the Company
since February 1996. From January 1995 to January 1996, Mr. Wilkey served as
Vice President - Operations. Mr. Wilkey has approximately 26 years of
experience in the health care industry, including group hospital operations,
hospital administration and ancillary services management. For the six years
prior to joining the Company, Mr. Wilkey was a Vice President and Director of
Group Operations for EPIC Healthcare Group, a publicly held hospital ownership
and management company. He received a BS degree in Management from Mississippi
State University in 1967.
Marilyn R. Anderson. Vice President - Quality and Service Improvement of the
Company since February 1996. From January 1993 to January 1996, Ms. Anderson
served as Director of Quality/Risk Management for the Company. Ms. Anderson
has approximately 18 years of experience in the health care industry. For the
five years prior to joining the Company, Ms. Anderson worked for Harris
Methodist Health System in Fort Worth, Texas, last serving as Regional Quality
Assurance Director for the System. She received an Applied Science in Nursing
degree from Texarkana College in 1978. Ms. Anderson is a Registered Nurse and
a Certified Professional in Healthcare Quality.
Gary L. Chandler. Vice President - Managed Care/Strategic Development of the
Company since June 1995. Mr. Chandler has approximately 26 years experience in
the health care industry. From June 1994 to June 1995, Mr. Chandler served as
Vice President of Austin Operations for New York Life/Sanus in Austin, Texas, a
Health Maintenance Organization based in Houston, Texas. From 1987 to 1994, he
served as the development officer for The
13
<PAGE> 14
Austin Diagnostic Clinic, a multi-specialty clinic, where he also functioned
concurrently as Chief Operating Officer of an affiliated Individual Practice
Association/Management Services Organization. Previously, he served as
Executive Vice President and Chief Operating Officer of a large HMO. In
addition to his medical group practice and managed care experience, Mr.
Chandler has worked in various positions in large hospitals, as a health care
manager in Arthur Young's consulting practice, and Chief Executive Officer of a
health planning agency. Mr. Chandler received a BS degree in 1967 and a MS
degree in 1969 with an emphasis in health planning from Florida State
University.
Arthur M. Doloresco. Vice President - Operations of the Company since January
1995. Mr. Doloresco has approximately 18 years of experience in the health
care industry. For the five year period prior to joining the Company, Mr.
Doloresco served as President and Chief Executive Officer of AmeriHealth
Systems of Virginia, Inc. a wholly owned subsidiary of AmeriHealth, Inc. and
Chief Executive Officer of hospitals owned by AmeriHealth, Inc. and Hospital
Corporation of America, now known as Columbia/HCA Healthcare Corporation. He
received a BS degree in Business from Old Dominion University in 1975 and a
Masters degree in Health Administration from the Medical College of Virginia in
1979.
Deborah H. Frankovich. Vice President and Treasurer of the Company since July
1994. Mrs. Frankovich has approximately 17 years of experience in health care
finance. She served as Vice President and Treasurer of Healthcare
International, Inc., a $400 million revenue public health care company with 26
medical/surgical, rehabilitation and psychiatric hospitals located in eight
states, from 1985 until 1989, and Vice President and Treasurer of HealthVest, a
$450 million asset public health care REIT which she co-founded, from 1986
until 1990. Prior to joining Healthcare International she worked for seven
years in the New York health care lending group of Citibank. From 1990 until
joining the Company she did independent health care financing consulting. Mrs.
Frankovich received her BA degree in Economics from Hollins College in 1969.
Kenneth D. Hawkins. Vice President - Development of the Company since December
1994. Mr. Hawkins has approximately 11 years of experience in the hospital
industry, which has included management positions in accounting and finance.
Mr. Hawkins served as Senior Vice President, Treasurer and Chief Financial
Officer for AmeriHealth, Inc. from September 1991 until December 1994 and
served as Secretary from February 1994 until December 1994. Prior to joining
AmeriHealth, Mr. Hawkins spent five years serving as Vice President and
Controller for Hallmark Healthcare, Inc., a publicly held hospital ownership
and management company. Mr. Hawkins received a BBA degree in Accounting from
James Madison University in 1977, and a Masters degree in Taxation from
Virginia Commonwealth University in 1988 and is a Certified Public Accountant.
Rapheal Luccasen, Jr. Vice President - Operations of the Company since
October 1994. Mr. Luccasen also serves as President of CHC/Psychiatric
Healthcare Corporation, a wholly-owned subsidiary of the Company. He has 26
years of experience in the health care industry which includes facility based
and multi-facility management positions. For the five most recent years prior
to joining the Company, he served as Founder, President and CEO of Psychiatric
Healthcare Corporation. Mr. Luccasen has a BS degree in Economics from
Louisiana State University, a Masters degree in Social Work from Louisiana
State University, a Masters degree in Public Health from University of Alabama
at Birmingham and a Masters degree in Business Administration from Stamford
University.
Tod B. Mitchell. Vice President of Reimbursement since February 1996. From
April 1994 to January 1996, Mr. Mitchell served as Director of Reimbursement
for the Company. Mr. Mitchell has approximately 13 years of reimbursement
experience in the health care industry. Prior to joining the Company, he
worked in various reimbursement positions for both non-profit and publicly held
health care companies. From November 1991 until April 1994, Mr. Mitchell
served as Reimbursement Coordinator for the Sisters of Charity of the Incarnate
Word, and from March 1986 until November 1991, Mr. Mitchell served as
Reimbursement Manager at Healthcare International, a publicly held hospital
ownership and management company. Prior to this, he worked for Republic Health
Corporation and Blue Cross and Blue Shield of Texas. He received his BS degree
in Business Administration from the University of Texas at Dallas in 1982 and
is a Certified Public Accountant.
Suzanne S. Miskin. Vice President - Legal Services since February 1995. Ms.
Miskin has been an attorney for more than 16 years, and has approximately 11
years experience in the area of corporate and securities law. She spent from
14
<PAGE> 15
September 1992 until February 1995 with the firm of Michener, Larimore,
Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. in the Litigation
section. She was retired from the practice of law for the period from June
1990 through September 1992, which she devoted to personal and family matters.
From April 1984 through June 1990, Ms. Miskin was with Fulbright & Jaworski,
L.L.P., in the Corporate/Securities section of its Dallas office, and from 1979
to 1984 she worked at the Securities and Exchange Commission in the Fort Worth
Regional Office. Ms. Miskin received her undergraduate degree from Wayne State
University in 1972 and her law degree from Detroit College of Law in 1979.
Robert M. Starling. Vice President and Controller of the Company since January
1995. Mr. Starling has over 14 years of experience in accounting with an
emphasis in the health care industry. From July 1994 to December 1994, he was
Director of Finance for Columbia/HCA Healthcare Corporation in Louisville,
Kentucky. From 1986 to 1994, Mr. Starling was an Audit Manager with Coopers
and Lybrand L.L.P., serving in that firm's Houston, New York and Louisville
offices. He received a BBA degree in Accounting from the University of Texas
at Austin in 1981 and is a Certified Public Accountant.
Steven R. Stone. Vice President - Administration of the Company since November
1994. Mr. Stone has over 14 years experience in the hospital industry. From
1990 to 1994, Mr. Stone was with Witt/Kieffer, the ninth largest executive
search firm in America, leading and conducting searches throughout the United
States. Witt/Kieffer specialized in health care and related industries. From
1980 to 1990, Mr. Stone was with the Harris Methodist Health System in Fort
Worth, Texas, directing the human resources activities. Mr. Stone received his
BA degree in 1973 from Texas Christian University.
Ronald L. Watson. Vice President of Operations - Finance of the Company since
February 1996. From March 1995 to January 1996, Mr. Watson served as a
Regional Controller for the Company. Mr. Watson has approximately 22 years of
accounting experience with 12 of those years in the health care industry. For
five years prior to joining the Company, Mr. Watson was a Director of
Operations - Finance for Health Management Associates, Inc., a publicly held
hospital ownership and management company. Mr. Watson has ten years of public
accounting experience. From 1985 to 1990, Mr. Watson was a Senior Audit
Manager with Arthur Young (Ernst & Young), serving that firm's health care
clients in the Atlanta office. He received his undergraduate degree in
Accounting from Columbus College in 1974. Mr. Watson is a Certified Public
Accountant.
15
<PAGE> 16
ITEM 2. PROPERTIES
The Company leases approximately 32,500 square feet for its principal executive
office space at 515 W. Greens Road, Suite 800, Houston, TX 77067 pursuant to a
lease agreement that expires in 2003.
Location of Facilities. The following table sets forth the name, location and
number of licensed beds of hospitals that the Company owns or has a partnership
interest in as of December 31, 1995. The number of licensed beds represents
the maximum number of beds permitted in the facility under its state license;
accordingly, available beds may be less than licensed beds.
<TABLE>
<CAPTION>
Licensed
State Name Type of Facility Location Beds
------------ ------------------------------ ---------------- -------------- --------
<S> <C> <C> <C> <C>
Alabama Autauga Medical Center(1) Acute Care Prattville 85
Alabama Autauga Health Care Center(1) Skilled Nursing Prattville 72
Louisiana Crossroads Regional Hospital Psychiatric Alexandria 70
Missouri Lakeland Regional Hospital Psychiatric Springfield 149
North Dakota Dakota Heartland Health System(2) Acute Care Fargo 341
Texas BayCoast Medical Center Acute Care Baytown 191
Texas Westwood Medical Center(3) Acute Care Midland 101
Virginia Metropolitan Hospital(4) Acute Care Richmond 180
Utah Salt Lake Regional Medical Center Acute Care Salt Lake City 200
</TABLE>
(1) On March 1, 1996, the Company acquired Jordan Valley Hospital, a 50 bed
general acute care hospital located in West Jordan, Utah, in exchange for
Autauga Medical Center and Autauga Health Care Center, plus preliminary
additional cash consideration paid to the seller of $10,750,000.
(2) The Company owns a 50% interest in Dakota Heartland Health System, a
partnership that owns two hospitals.
(3) This newly constructed facility replaced the 60 bed Physicians & Surgeons
Hospital in the fourth quarter of 1995.
(4) The Company owns a 88.3% general partnership interest in a limited
partnership that owns the hospital.
Some of these facilities are subject to mortgages, and substantially all of the
Company's assets are pledged as collateral for long term debt. The Company
owns or leases medical office buildings and clinics adjoining or near certain
of its hospitals. The Company believes that all of these properties are
suitable for their intended purposes.
16
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
Given the nature and kind of business in which the Company is engaged, it is
not unusual for the Company to be subject to various claims, charges or
litigation relating to professional services, contractual relations, property
ownership, or employee relations. Amounts initially claimed in such litigation
may be substantial but may not bear any reasonable relationship to the merits
of the claim or the true financial exposure of the Company. In the opinion of
management, the ultimate resolution of such pending legal proceedings will not
have a material adverse effect on the Company's consolidated balance sheet,
results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995; however, on February 12, 1996, pursuant to a special meeting
held in connection with the Recapitalization, shareholders approved amendments
to the Company's Certificate of Incorporation. Voting on this issue was as
follows:
<TABLE>
<CAPTION>
STOCK TYPE FOR AGAINST ABSTAIN
---------- --- ------- -------
<S> <C> <C> <C>
Common and Preferred
voting as a class 13,104,914 3,181 5,028
Series C Preferred 855,874 -- --
Series D Preferred 3,984,828 -- --
</TABLE>
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company acquired AmeriHealth, Inc. ("AHH") on December 6, 1994, through a
merger accounted for as a reverse acquisition and thereby became a publicly
listed company on the American Stock Exchange ("AMEX"). The price of the
common stock is regularly quoted on the American Stock Exchange Composite
Transaction Listing under the ticker symbol "CHC." Prior to the reverse merger
on December 6, 1994, the Company's common stock had no existing trading market.
The shares of AHH were previously listed on the AMEX and traded under the
symbol "AHH."
For purposes of reporting stock information, AHH is considered the predecessor
of the Company; accordingly, the following table sets forth the high and low
sales prices for the common stock of AHH through December 6, 1994, the date of
the merger, and the Company thereafter. The sales prices have been adjusted to
reflect a 5.70358 to 1 reverse stock split effective December 6, 1994.
<TABLE>
<CAPTION>
JANUARY 1, 1996, TO
MARCH 25, 1996 1995 1994
------------------- ------------------ ------------------
HIGH LOW HIGH LOW HIGH LOW
------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1st quarter $10.50 $5.31 $9.13 $7.00 $4.63 $3.21
2nd quarter 8.63 6.25 5.70 3.21
3rd quarter 7.88 6.63 6.42 3.21
4th quarter 7.13 4.75 10.00 6.42
</TABLE>
The approximate number of holders of record of the common stock at March 25,
1996, was 732, and the last reported sales price on March 25, 1996 was $9.75
share.
The declaration and payment of dividends by the Company is determined by its
Board of Directors. The Company's Certificate of Incorporation, as amended,
certain preferred stock purchase agreements, and its Senior and other debt
agreements prohibit or place limitations on the payment of cash dividends to
holders of preferred and common stock. The Company does not anticipate the
declaration or payment of dividends on common stock for the foreseeable future.
Effective December 31, 1995, the Company and its preferred shareholders entered
into the 1995 Recapitalization Agreement for the principal purpose of enhancing
the value of common stock by reducing the complexity of the Company's capital
structure and eliminating the accrual of future dividends on its outstanding
preferred stock and the resulting impact on earnings per share. As a result of
the Recapitalization, common shares outstanding increased from 4,262,386 to
11,868,230, and preferred shares outstanding decreased from 10,452,370 to
2,605,714. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of the terms of the
Recapitalization.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere in this report and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
-----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
NET REVENUE $ 167,520 $ 104,193 $ 89,832 $ 45,073 $ 24,307
Operating expenses 172,819 101,450 84,290 45,302 23,475
Equity in the earnings of DHHS 8,881 -- -- -- --
Other charges(1)(2)(3) -- 300 15,456 1,300 --
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS 3,582 2,443 (9,914) (1,529) 832
Provision for income taxes 150 200 1,009 63 326
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS 3,432 2,243 (10,923) (1,592) 506
Extraordinary items, net of tax(4) (1,118) -- (1,230) -- 200
NET INCOME (LOSS) 2,314 2,243 (12,153) (1,592) 706
(LOSS) INCOME APPLICABLE TO
COMMON STOCK (9,017) (2,467) (13,805) (2,451) 343
(LOSS) INCOME PER SHARE:
(Loss) income before
extraordinary items (1.86) (1.69) (11.21) (2.23) .12
Extraordinary items, net of tax (0.26) -- (1.10) -- .17
(LOSS) INCOME PER COMMON SHARE (2.12) (1.69) (12.31) (2.23) .29
Cash dividend on common stock -- -- -- -- --
Weighted average shares
outstanding 4,254,907 1,457,076 1,121,549 1,100,000 1,170,981
BALANCE SHEET DATA:
Cash and cash equivalents 7,583 48,424 66,686 6,204 919
Working capital 9,841 51,275 69,138 9,420 1,665
Total assets 291,260 216,553 118,947 57,574 15,444
Long-term debt and capital lease
obligations 162,447 105,284 59,761 24,977 6,804
Redeemable preferred stock(5) 46,029 76,294 56,861 21,746 3,726
Stockholders' (deficit) equity 31,869 (2,167) (16,157) (2,352) 293
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Consolidated hospitals 7 7(6) 3(6) 3(2)(6) 1
Total licensed beds(6) 976 877 359 380 170
Admissions 17,530 10,556 9,026 4,839 2,827
Average length of stay 7.0 6.2 5.6 5.7 8.4
Hospital occupancy(7) 38% 38% 40% 38% 38%
Surgery cases 10,981 9,990 9,911 5,049 2,628
Deliveries 2,112 1,262 1,233 635 250
Patient days 123,525 65,693 50,309 29,896 23,774
Outpatient visits 189,790 95,979 81,221 35,660 19,087
Outpatient revenue as a % of
gross patient revenue 34% 38% 42% 37% 28%
</TABLE>
(1) In 1994, the Company incurred approximately $300,000 in fees and other
costs related to its efforts to acquire Methodist Medical Center
("MMC") in Jacksonville, Florida. On March 6, 1995, the Company
notified MMC's management that it would cease all actions related to
this transaction; accordingly, such amounts were charged to expense in
the fourth quarter of 1994.
(2) On September 1, 1992, the Company acquired Gulf Coast Hospital, a
competing hospital located approximately 3 miles from the Company's
Baytown, Texas facility. Subsequent to the purchase, the Company
consolidated the operations of GCH onto the campus of its existing
Baytown hospital, and in June 1994, sold the former GCH property with
restrictions limiting its use to non-competitive activities without
the Company's permission. As a result of the consolidation, the
Company incurred a charge of approximately $15,456,000 against
earnings in 1993.
(3) In 1992, the Company expensed approximately $1,300,000 in fees and
other costs related to its unsuccessful attempt to acquire 12
hospitals from Humana, Inc.
(4) The Company recognized extraordinary losses of $1,118,000 and
$1,230,000 in 1995 and 1993, respectively, on early extinguishment of
debt. The extraordinary loss for 1993 was net of a tax benefit of
$634,000, and no tax benefit was allocated to the extraordinary loss
in 1995. The extraordinary gain in 1991 relates to the utilization of
net income tax benefits arising from the carryforward of operating
losses.
(5) At December 31, 1995, 1994, 1993, 1992 and 1991, the Company had
outstanding 2,605,714, 10,400,725, 9,564,611, 7,556,706 and 3,769,109
shares of preferred stock that were redeemable and convertible into
5,211,428, 9,905,306, 8,233,078, 4,217,268 and 1,017,074 shares of
common stock, respectively.
(6) Operating statistics include 142 beds at Heartland Medical Center
through December 31, 1994, which the Company contributed to DHHS in
exchange for 50% ownership of DHHS. The Company accounts for its
investment in DHHS under the equity method. DHHS began operations on
December 31, 1994.
(7) Weighted average daily census for the period divided by the licensed
beds for the period.
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<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIGNIFICANT ACQUISITIONS
The Company was formed on February 1, 1990, to acquire and operate general
acute care and specialty hospitals. At December 31, 1995, the Company owned
seven hospitals and one skilled nursing facility and owned a 50% interest in
Dakota Heartland Health System ("DHHS"), a partnership comprised of two
hospitals.
Because of the financial impact of the Company's recent acquisitions and the
formation of DHHS, it is difficult to make meaningful comparisons between the
Company's financial statements for the fiscal periods presented. Furthermore,
each additional hospital acquisition can have a significant impact on the
Company's overall financial performance. After acquiring a hospital, the
Company attempts to implement various operating efficiencies and cost cutting
strategies, including staffing adjustments. The Company may also incur
significant additional costs to expand the hospital's services and improve its
market position. The Company can give no assurance that these investments and
other activities will result in increases in net revenue or reductions in costs
at the acquired facility. Consequently, the financial performance of an
acquired hospital may adversely affect the Company's operating results in the
near-term. The Company believes this effect will be mitigated as more
hospitals are acquired.
RECAPITALIZATION
Effective December 31, 1995, the Company, pursuant to the 1995 Recapitalization
Agreement, entered into several transactions for the principal purpose of
enhancing the value of common stock by reducing the complexity of the Company's
capital structure and eliminating the accrual of future dividends on its
outstanding preferred stock and the resulting impact on earnings per share. As
a part of these transactions (i) three series of the Company's outstanding
preferred stock, pursuant to their terms, converted into common stock, (ii)
accrued dividends totaling approximately $12,614,000 on all classes of the
Company's outstanding preferred stock were paid by issuing common stock at an
agreed upon price of $7.00 per share, and (iii) the holders of the remaining
two series of outstanding preferred stock agreed to waive the future accrual of
preferential dividends. As a further part of these transactions, the Company
issued additional shares of common stock to all holders of its then outstanding
preferred stock as consideration for the actions taken and agreed to reduce the
exercise prices of one series of 680,104 warrants from $5.90 to $5.25 per share
and two series totaling 2,447,670 warrants from $9.00 to $7.00 per share until
May 13, 1996, after which the exercise prices revert to their prior amounts.
Warrant holders have the right to tender subordinated debt in lieu of cash,
where applicable. As a result of the Recapitalization, common shares
outstanding at December 31, 1995, increased from 4,262,386 to 11,868,230, and
preferred shares outstanding decreased from 10,452,370 to 2,605,714. Other
than for fractional shares, no cash consideration was paid under the terms of
the Recapitalization (See Notes to the Consolidated Financial Statements -
Note 8 "Stockholders' Equity").
EFFECT OF PROPOSED LEGISLATION
Federal and state legislators continue to consider legislation that could
significantly impact Medicare, Medicaid and other government funding of health
care costs. Initiatives currently before Congress, if enacted, would
significantly reduce payments under various government programs, including,
among others, payments to disproportionate share and teaching hospitals. A
reduction in these payments would adversely affect net revenue and operating
margins at certain of the Company's hospitals. The Company is unable to
predict what legislation, if any, will be enacted at the federal and state
level in the future or what effect such legislation might have on the Company's
financial position, results of operations, or liquidity.
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<PAGE> 22
RESULTS OF OPERATIONS
1995 Compared to 1994
The Company reported net income of $2,314,000 for the year ended December 31,
1995, compared to net income of $2,243,000 for the comparable period in 1994.
On a per share basis, after deducting non-cash preferred stock dividend
requirements and other adjustments of $11,331,000 and $4,710,000 in 1995 and
1994, respectively, the Company reported a net loss of $2.12 per common share
for 1995 compared to a net loss of $1.69 per common share for 1994. The
deduction to net income for 1995 included a dividend paid in common stock to
preferred shareholders of approximately $5,349,0000 as part of the
Recapitalization. Additionally, net income for 1995 included an extraordinary
loss of approximately $1,118,000, or $0.26 per share, on the early
extinguishment of debt. Fully diluted earnings per share was not presented for
1995 and 1994 due to the anti-dilutive effect of such calculation. On a pro
forma basis, assuming the Recapitalization had occurred on January 1, 1995,
primary and fully diluted earnings per share would have been $0.27 and $0.19,
respectively, for the year ended December 31, 1995.
Operating income for 1995 included approximately $8,881,000 attributable to the
Company's equity in the earnings of DHHS. The Company contributed Heartland
Medical Center ("Heartland") to DHHS effective December 31, 1994, and accounts
for its investment in DHHS under the equity method. Previously, the Company had
consolidated Heartland for financial reporting purposes. Operating income for
1994 included approximately $6,201,000 attributable to Heartland.
The Company's net revenue was $167,520,000 for the year ended December 31,
1995, compared to $104,193,000 for 1994, an increase of $63,327,000 or 60.8%.
The increase was due primarily to hospital acquisitions in the fourth quarter
of 1994 and the second quarter of 1995 (collectively, the "Acquisitions"), and
was offset, in part, by the contribution of Heartland to DHHS. Net revenue for
1994 included approximately $40,061,000 attributable to Heartland.
The occupancy rate of the Company's consolidated hospitals was substantially
unchanged at 38% in 1995 and 1994, due primarily to the acquisition of two
psychiatric hospitals in the fourth quarter of 1994. In general, psychiatric
hospitals derive a greater percentage of their revenue from inpatient services
than do acute care hospitals. The occupancy rate at the Company's general
acute care hospitals declined to 33% in 1995 compared to 35% in 1994, due
primarily to the Company's contribution of Heartland to DHHS effective December
31, 1994, and due to an industry wide trend of decreased inpatient utilization
at acute care hospitals. The Company expects this trend to continue as
Medicare, Medicaid, health maintenance organizations ("HMOs"), preferred
provider organizations ("PPOs") and other third party payors continue to exert
pressure on health care providers to reduce hospital stays and to provide
services, when appropriate, on a less expensive outpatient basis. Heartland
had an occupancy rate of 41% in 1994.
Gross outpatient revenue increased 45.8% from $63,387,000 in 1994 to
$92,392,000 in 1995. Outpatient revenue as a percent of gross patient service
revenue declined from 38.1% in 1994 to 33.9% in 1995, once again due to the
Company's acquisition of two psychiatric hospitals in the fourth quarter of
1994. Excluding these facilities, outpatient revenue comprised 39.5% of gross
patient revenue in 1995.
Gross patient revenue attributable to Medicare increased to 42% in 1995
compared to 39% in 1994, due to the inclusion of certain of the Company's
Acquisitions for the full twelve month period ended December 31, 1995. These
facilities generally derived a greater portion of their gross patient revenue
from the Medicare program than did the hospitals owned and consolidated by the
Company for the twelve months ended December 31, 1994. Gross revenue
attributable to Medicaid increased to 19% in 1995 compared to 18% in 1994, due
primarily to the Company's acquisition of two psychiatric hospitals in the
fourth quarter of 1994. Approximately 50% of gross patient revenue at these
facilities is attributable to the Medicaid program.
Net patient service revenue is presented in the Consolidated Statement of
Operations net of the provision for contractual allowances. Such provision was
40% in 1995 and 1994. The provision for contractual allowances as a
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<PAGE> 23
percentage of gross patient service revenue is likely to increase in the future
(i) as rate increases at the Company's hospitals exceed increases, if any, in
fixed reimbursement rates, (ii) from increased discounts on standard rates due
to pressure from third-party payors, such as health maintenance organizations,
preferred provider organizations and private insurance companies and (iii) from
increased inpatient utilization by Medicare and Medicaid patients. Payments
received under these programs are generally less than established billing
rates. The trend toward managed care may affect hospitals' ability to maintain
their current rate of net revenue growth and operating margins.
Net revenue for 1995 and 1994 included approximately $744,000 and $2,196,000 in
interest income earned on cash balances during the year.
The Company's operations are labor intensive with salaries and benefits
comprising the single largest item in operating expenses. Salaries and
benefits increased 75.9% to $72,188,000 in 1995, compared to $41,042,000 in
1994, primarily as a result of the Company's Acquisitions. As a percent of net
revenue, salary and benefits increased to 43.1% in 1995 compared to 39.4% in
1994. This trend is a result of the Company's strategy of acquiring
underperforming hospitals that often incur labor and other operating costs in
excess of what the Company believes is necessary for the efficient operation of
a facility. The Company attempts to reduce these costs over time by
implementing various operating efficiencies and cost cutting strategies.
However, the Company can give no assurance that its efforts will ultimately
result in significant cost reductions at these facilities.
The major components of other operating expenses were professional fees, taxes
(other than income), insurance, utilities and other services. Other operating
and supplies expense increased by 54.6% to $65,707,000 in 1995 compared to
$42,511,000 in 1994, once again as a result of the Company's Acquisitions. As
a percent of net revenue, other operating and supplies expense declined to
39.2% in 1995 compared to 40.8% in 1994.
Provision for bad debts was $12,016,000 in 1995, or 7.3% of net patient service
revenue, compared to $7,812,000, or 7.8% in 1994. The prior year included
approximately $700,000 in charges due to problems resulting from the
installation of an information management system at one facility. Excluding
this charge, provision for bad debts was approximately 7.1% of net patient
service revenue in 1994.
Interest expense increased from $6,375,000 in 1994 to $13,618,000 in 1995, due
principally to (i) the increase in amounts outstanding under the Company's
senior bank credit facility as a result of its acquisition of SLRMC and funding
of ongoing construction projects, (ii) the issuance of $19,133,000 and
$35,000,000 of 11% Senior Subordinated Notes on December 30, 1994 and June 12,
1995, respectively, and (iii) debt assumed and/or issued in connection with the
acquisitions of AmeriHealth, Inc. ("AHH") and Psychiatric Healthcare
Corporation ("PHC") in the fourth quarter of 1994 (See "Liquidity and Capital
Resources"). Interest expense also increased due to an increase in the
interest rate applicable to its senior bank credit facility (a weighted average
of approximately 9.3% and 7.7% for the years ended December 31, 1995 and 1994,
respectively).
Depreciation and amortization expense was $9,290,000 in 1995 compared to
$4,010,000 in 1994, an increase of $5,280,000, or 131.7%. This increase is due
primarily to the Company's Acquisitions, the completion of a hospital and
medical office building in Midland, Texas, and an ambulatory care center in
Baytown, Texas, as well as the Company's ongoing capital improvement programs
at its existing hospitals.
The Company capitalized approximately $1,462,000 and $294,000 in interest costs
associated with the construction of a hospital and other medical related
facilities at December 31, 1995 and 1994, respectively. With the completion of
a hospital and medical office building in Midland, Texas, and an ambulatory
care center in Baytown, Texas, the Company expects capitalized interest to be
minimal in 1996.
1994 Compared to 1993
The Company reported net income of $2,243,000 for the year ended December 31,
1994, compared to a net loss of $12,153,000 in 1993. On a per share basis,
after deducting non-cash preferred stock dividend requirements and other
23
<PAGE> 24
adjustments of $4,710,000 and $1,652,000 in 1994 and 1993, respectively, the
Company reported a net loss of $1.69 per common share for 1994 compared to a
net loss of $12.31 per common share for 1993.
The net loss for the year ended December 31, 1993, included an extraordinary
loss of approximately $1,230,000 (net of income tax effect of $634,000), or
$1.10 per share, from the early extinguishment of debt. The net loss for 1993
also included an asset write down of approximately $15,456,000 pursuant to the
Company's decision in December 1993 to consolidate the operations of Gulf Coast
Hospital ("GCH") onto the campus of BayCoast Medical Center ("BMC"). The
Company acquired GCH on September 1, 1992. The write down was recorded in
1993 to recognize the limited alternative uses of the GCH campus. In June
1994, the Company sold the former GCH property with restrictions prohibiting
its use to non-competing activities without the Company's consent.
The Company's net revenue was $104,193,000 for the year ended December 31,
1994, compared to $89,832,000 for 1993, an increase of $14,361,000 or 16.0%.
This increase was due primarily to the inclusion of Physicians & Surgeons
Hospital ("P&S") for a full year in 1994, compared to eight months in 1993, the
year the facility was acquired, and the Company's acquisition of PHC and AHH in
the fourth quarter of 1994. On a same hospital basis, net revenue decreased
approximately $2,550,000, or 3.2%, in 1994 due to the elimination of a
psychiatric program at BMC and a decline in outpatient surgery cases due to
capacity constraints following the consolidation of GCH's operations onto the
BMC campus in December 1993.
The average occupancy rates of the Company's hospitals declined from 40.1% in
1993 to 38.3% in 1994. This decline is consistent with the industry trend of
decreased inpatient utilization at acute care hospitals and is due primarily to
increased pressure from Medicare, Medicaid, HMOs, PPOs and other third party
payors to reduce hospital stays and to provide services, where possible, on a
less expensive outpatient basis. Gross outpatient revenue increased 6.1% from
$59,738,000 in 1993 to $63,387,000 in 1994. Outpatient revenue as a percent of
gross patient service revenue declined from 41.9% in 1993 to 38.1% in 1994,
due primarily to the Company's acquisition of PHC effective October 1, 1994.
In general, psychiatric hospitals derive a greater percentage of their gross
revenue from inpatient services than do acute care hospitals. Exclusive of
acquisitions, outpatient revenue comprised 41.3% of gross patient revenue in
1994.
Provision for contractual allowances was 40.2% of gross patient service revenue
for 1994 compared to 39.2% in 1993, which is consistent with industry trends.
Approximately 39% of gross patient revenue was attributable to Medicare in 1994
and 1993. Gross revenue attributable to Medicaid increased to 18% in 1994
compared to 12% in 1993, due primarily to the Company's acquisition of PHC
effective October 1, 1994, which derives approximately 53% of its gross patient
revenue from the Medicaid program, and due to a decline in revenue attributable
to private and other payor sources at hospitals owned by the Company for the
twelve month period ended December 31, 1994.
Salaries and benefits increased 11.8% to $41,042,000 in 1994 compared to
$36,698,000 in 1993, due primarily to the inclusion of P&S for a full year in
1994 and the Company's acquisition of PHC and AHH in the fourth quarter of
1994. As a percent of net revenue, salary and benefits decreased to 39.4% in
1994 compared to 40.9% in 1993 as a result of the Company's ongoing efforts to
improve staffing efficiencies in its acquired hospitals. For hospitals owned
for the twelve month period ended December 31, 1994, salary and benefits were
37.7% of net revenues in 1994 compared to 39.4% in 1993.
The major components of other operating expenses were professional fees, taxes
(other than income), insurance, utilities and other services. Other operating
and supplies expense increased by 19.2% to $42,511,000 in 1994 compared to
$35,674,000 in 1993. Other operating and supplies expense increased to 40.8%
of net revenue in 1994 compared to 39.7% in 1993. The increase in the
percentage of net revenue is due primarily to non-capitalizable costs
associated with the Company's acquisition activity.
Provision for bad debts was $7,812,000 in 1994, or 7.8% of net patient service
revenue, compared to $5,669,000, or 6.5% in 1993. This 37.8% increase is due
in part to the installation of a new computer system at one of the Company's
hospitals that disrupted the hospital's billing procedures and accounts
receivable detail. The hospital determined that
24
<PAGE> 25
approximately $700,000 in accounts receivable produced by the new system should
have been charged to allowance for uncollectable accounts. Excluding this
charge, provision for bad debts was approximately 7.1% of net patient service
revenue in 1994.
Depreciation and amortization expense was $4,010,000 in 1994 compared to
$3,524,000 in 1993, an increase of $486,000 or 13.8%. The increase in
depreciation and amortization expense was due primarily to the Company's
acquisitions in 1994, the Company's ongoing capital improvement programs at its
existing hospitals and the amortization of costs associated with the Company's
issuance of 11% Senior Subordinated Notes effective December 31, 1993.
Interest expense increased from $2,725,000 in 1993 to $6,375,000 in 1994,
principally due to the Company's issuance of $37,833,000 of 11% Senior
Subordinated Notes effective December 31, 1993 and its incurrence of a
$20,000,000 senior bank credit facility on November 3, 1993, as well as
interest expense associated with debt assumed and/or issued in the AHH and PHC
acquisitions (See "Liquidity and Capital Resources"). Interest expense also
increased due to an increase in the interest rate applicable to its senior bank
credit facility (a weighted average of approximately 7.7% and 6.5% at December
31, 1994 and 1993, respectively.)
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $7,583,000 at December 31, 1995.
The Company also had $51,651,000 available under its senior bank credit
facility, subject to certain limitations, which it refinanced and expanded from
$50,000,000 to $100,000,000 effective May 31, 1995.
The Company had cash flows from operations of $12,892,000 for the year ended
December 31, 1995. Cash flows from operations have not contributed
significantly to the Company's liquidity in the past, due principally to its
strategy of acquiring underperforming hospitals with the goal of improving
performance over time.
Capital expenditures vary by hospital and from year to year, depending upon the
nature of the improvements undertaken at each facility. Excluding acquisitions,
capital expenditures for the year ended December 31, 1995, were $42,822,000,
which included approximately $31,780,000 in expenditures related to the
construction of a hospital and medical office building in Midland, Texas, and
approximately $6,267,000 related to the construction of an ambulatory care
center at the Company's Baytown, Texas facility. The Baytown and Midland
facilities began operations in July and October of 1995, respectively.
The Company expended approximately $94,715,000 for principal payments on
long-term debt and capitalized lease obligations for the year ended December
31, 1995. Such payments included an $850,000 debt reduction concurrent with
the sale of a former PHC facility that was closed and held for sale at the time
of its acquisition, the defeasance of approximately $1,200,000 principal amount
of bonds outstanding at a former AHH facility, and a $31,500,000 payment on
amounts outstanding under the Company's senior bank credit facility concurrent
with the issuance of Senior Subordinated Notes on June 12, 1995. In connection
with the Company's refinancing of the senior bank credit facility on May 31,
1995, the Company paid approximately $48,000,000 outstanding under a prior
senior bank credit facility and approximately $9,533,000 principal amount of
debt held by Wilmington Savings Fund Society.
The Company anticipates that existing capital sources and internally generated
cash flows will be sufficient to fund capital expenditures, debt service and
working capital requirements through the foreseeable future. The Company
intends to acquire additional acute care and specialty facilities and is
actively pursuing several such acquisitions. However, depending upon the
individual circumstances, the Company will likely require additional debt or
equity financing as it pursues its acquisition strategy.
Acquisitions and Other Investments
On April 13, 1995, the Company acquired Salt Lake Regional Medical Center
("SLRMC") from Columbia/HCA Healthcare Corporation for approximately
$61,042,000, which included approximately $11,783,000 for certain
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<PAGE> 26
working capital components, resulting in a net purchase price of approximately
$49,259,000. The Company funded the asset purchase from available cash and
approximately $30,000,000 in borrowings under its senior bank credit facility.
SLRMC is comprised of a 200 bed tertiary care hospital and five clinics and is
located in Salt Lake City, Utah.
On December 21, 1994, a wholly owned subsidiary of the Company that owned
Heartland entered into a partnership with Dakota Hospital ("Dakota"), a
not-for-profit corporation that owned a 199 bed general acute care hospital,
also in Fargo, North Dakota. The Company and Dakota contributed their respective
hospitals debt and lien free (except for capitalized lease obligations),
including certain working capital components, and the Company contributed an
additional $20,000,000 in cash, each in exchange for 50% ownership in the
partnership. The Company will receive 55% of the net income and distributable
cash flow ("DCF") of the partnership until such time as it has recovered on a
cumulative basis an additional $10,000,000 of DCF in the form of an "excess"
distribution. Because the partners through the partnership agreement and an
operating agreement have delegated substantially all management of DHHS to the
Company, the authority of the partnership's governing board is limited. Under
the terms of the partnership agreement, the Company is obligated to advance
funds to the partnership to cover any and all operating deficits of the
partnership. Beginning July 1996, Dakota has the right to require the Company to
purchase its partnership interest free of debt or liens for a cash purchase
price equal to 5.5 times Dakota's pro rata share of earnings before
depreciation, interest, income taxes and amortization, as defined in the
partnership agreement, less Dakota's pro-rata share of the partnership's
long-term debt. DHHS had earnings before depreciation, interest, income taxes
and amortization of approximately $19,000,000 for the year ended December 31,
1995. Beginning January 1998, the purchase price for Dakota's partnership
interest shall not be less than $50,000,000. Should Dakota elect to exercise
its option, the Company would likely finance the purchase through bank or other
borrowings. As of December 31, 1995, the Company has received $825,000 in
cash distributions from DHHS.
On December 6, 1994, the Company merged with AmeriHealth, Inc., a Delaware
corporation. The merger was accounted for as a recapitalization of the Company
with the Company as the acquiror (a reverse acquisition). The common
shareholders of AHH received 1 share of Company common stock for every 5.70358
shares of common stock of AHH and a cash distribution of $0.085 per AHH common
share. Additionally, the Company assumed approximately $17,700,000 in debt,
resulting in a net purchase price of approximately $38,876,000. AHH owned and
managed two acute care hospitals with a combined total of 265 licensed beds:
Metropolitan Hospital in Richmond, Virginia with 180 beds and Autauga Medical
Center in Prattville, Alabama with 85 beds. AHH also owned a 72 bed skilled
nursing facility, Autauga Health Care Center in Prattville, Alabama.
As part of the AHH merger, the Company assumed and extended approximately
$10,000,000 principal amount of debt held by Wilmington Savings Fund Society
(the "WSFS Loan") and paid approximately $7,665,000 in cash to retire
$8,049,000 principal amount of AHH debt held by the Resolution Trust
Corporation.
On October 21, 1994, the Company acquired Psychiatric Healthcare Corporation,
which owned two free-standing psychiatric hospitals with a combined total of
219 beds in Springfield, Missouri, and Alexandria, Louisiana. The net purchase
price, including contingent consideration of $2,000,000 paid in 1995 and the
assumption of approximately $14,880,000 in long-term debt, was approximately
$24,600,000. The Company paid no cash to the PHC shareholders, instead issuing
a combination of Series D Preferred Stock and 11% Senior Subordinated Notes
with detachable warrants.
The Company acquired Physicians and Surgeons Hospital in Midland, Texas on May
1, 1993, for approximately $5,800,000 in cash and the assumption of $1,200,000
in debt. The Company replaced P&S in the fourth quarter of 1995 with the newly
constructed 101 bed Westwood Medical Center. Total construction cost for the
new facility was approximately $39,017,000.
Debt
On June 12, 1995, the Company issued $35,000,000 face amount (less a discount
of approximately $668,000) of Senior Subordinated Notes (the "Notes") maturing
on December 31, 2003. The Notes bear interest at an annual effective rate of
11.35% (11% stated rate). Interest is payable quarterly, and the stated rate
increases from 11% to 11.5% on March 31, 1996. The Notes include detachable
warrants for the purchase of 525,000 shares of common
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<PAGE> 27
stock. The Notes are subject to redemption on or after December 31, 1995, at
the Company's option at prices declining from 112.5% of principal amount at
December 31, 1995 to par at December 31, 2002. Additionally, there is a
requirement to repurchase all outstanding Notes in the event of a change in
control of the Company, at the holder's option, based on a declining redemption
premium ranging from 112.5% to 103% of principal. Proceeds from the issuance
of Notes were used to paydown approximately $31,500,000 principal amount
outstanding under the Company's revolving senior bank debt with the remainder
retained for general corporate purposes. The Notes are uncollateralized
obligations and are subordinated in right of payment to certain senior
indebtedness of the Company.
On May 31, 1995, the Company refinanced and paid a $50,000,000 senior bank
credit facility obtained in November 1993 with a $100,000,000 senior bank
credit facility (the "Revolving Loan") with Banque Paribas, as agent, AmSouth
Bank of Alabama, Bank One of Texas, N.A., CoreStates Bank, N.A., and
NationsBank of Texas, N.A. Amounts available under the Revolving Loan are
subject to certain limitations, and the total amount available under the
Revolving Loan declines to $80,000,000 on the third anniversary date. The
Revolving Loan matures no later than March 31, 1999, and bears interest at a
lender defined incremental rate plus, at the Company's option, the LIBOR or
Prime rate. The incremental rate ranges from 2.5% to 3.0% with respect to the
LIBOR rate option and from 1.0% to 1.5% with respect to the Prime rate option.
The interest rates on the Revolving Loan and prior senior bank credit facility
were 8.85% and 9.12%, respectively, at December 31, 1995 and 1994. Proceeds
from the refinancing were used to pay approximately $48,000,000 principal
amount outstanding under the Company's prior senior bank credit facility and
approximately $9,533,000 principal amount of debt held by Wilmington Savings
Fund Society ("WSFS"). The interest rate on the WSFS Loan was 11.5% and 10.5%
at May 31, 1995 (the date of payment) and December 31, 1994, respectively.
With the exception of certain assets collateralizing debt assumed in the
Company's 1994 acquisition of PHC, the Revolving Loan is collateralized by
substantially all of the Company's assets. The Company's future acquisitions
and divestitures may require, in certain circumstances, consent by lenders
under this agreement.
On December 31, 1993, the Company issued $37,833,000 of 11% Senior Subordinated
Notes with detachable warrants for the purchase of 1,134,990 shares of common
stock. On December 30, 1994, pursuant to commitments obtained from the
original purchasers of the 11% Senior Subordinated Notes issued on December 31,
1993, the Company issued an additional $19,133,000 of Notes with detachable
warrants for the purchase of 573,990 shares of common stock. No value was
allocated to the warrants at the time of issuance because the interest rate on
the Notes was considered a market rate and the exercise price was greater than
the estimated fair value of the common stock. The Notes bear interest at an
effective annual rate of 11%. All other terms of the Notes are substantially
the same as those discussed above.
The Revolving Loan, Notes and Mortgages referenced above contain restrictive
covenants which include, among others, restrictions on additional indebtedness,
the payment of dividends and other distributions, the repurchase of common
stock and related securities under certain circumstances, and the requirement
to maintain certain financial ratios. The Company was in compliance with or
has obtained permanent waivers for all loan covenants to which it was subject
as of December 31, 1995 and 1994.
Redeemable Preferred Stock
On December 31, 1993, the Company issued 1,269,144 shares of Series D Cumulative
Convertible Redeemable Preferred Stock ("Series D") for net proceeds of
approximately $22,008,000. On December 30, 1994, pursuant to commitments
obtained from the initial purchasers of Series D preferred stock, the Company
issued an additional 623,453 shares of Series D preferred stock for net proceeds
of $11,222,000. The Company also issued Series D preferred stock in connection
with the PHC acquisition. See Note 7 to the Company's consolidated financial
statements for a discussion of the rights and preferences of Series D preferred
stock.
On December 2, 1993, the Company issued 448,811 shares of Series C Cumulative
Convertible Redeemable Preferred Stock ("Series C") for net proceeds of
$8,033,000. See Note 7 to the Company's consolidated financial statements for
a discussion of the rights and preferences of Series C preferred stock.
27
<PAGE> 28
On December 2, 1993, the Company issued 289,950 shares of Series BB preferred
stock, resulting in net proceeds of $3,422,000. On December 31, 1995, all
outstanding shares of Series BB were converted into common stock as part of to
the Recapitalization.
The Company is subject to certain credit agreements that restrict its right to
pay cash dividends on its common stock and Series C and D preferred stock.
Furthermore, the Company can not pay cash dividends on its common stock without
paying dividends on its Series C and D preferred stock. Pursuant to the
Recapitalization, all accrued preferred dividends at December 31, 1995
(approximately $12,614,000), were paid by the issuance of common stock at an
agreed price of $7.00 per share, and Series C and D preferred stock do not
accrue dividends.
SUBSEQUENT EVENTS
On March 1, 1996, the Company acquired Jordan Valley Hospital ("Jordan") from
Columbia/HCA Healthcare Corporation. Jordan is a 50 bed acute care hospital
located in West Jordan, Utah, a suburb of Salt Lake City. The Company acquired
Jordan in exchange for Autauga Medical Center, an 85 bed acute care hospital,
and Autauga Health Care Center, a 72 bed skilled nursing facility, both in
Prattville, Alabama, plus preliminary cash consideration paid to the seller of
approximately $10,750,000. Cash consideration included approximately $3,750,000
for certain net working capital components, which are subject to adjustment, and
reimbursement of certain capital expenditures made previously by the seller.
The transaction did not result in a gain or loss. The Alabama facilities
were acquired as part of the Company's acquisition of AmeriHealth, Inc. on
December 6, 1994.
INFLATION
The health care industry is labor intensive. Wages and other expenses are
subject to rapid escalation, especially during periods of inflation and when
shortages occur in the marketplace. In addition, suppliers attempt to pass
along increases in their costs by charging the Company higher prices. In
general, the Company's revenue increases through price increases or changes in
reimbursement levels have not kept up with cost increases. In light of cost
containment measures imposed by government agencies, private insurance
companies and managed-care plans, the Company is likely to experience continued
pressure on operating margins in the future.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. It is anticipated that the impact of adopting this statement
will not have a material effect on the financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation expense for stock-based compensation under SFAS 123 or APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing
to account for such compensation under APB Opinion No. 25 will be required to
make pro forma disclosures of net income and earnings per share as if SFAS 123
had been applied. The Company is presently evaluating which alternative it
will adopt under SFAS 123 and has not yet quantified the potential impact on
the Company of adopting this new standard.
28
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted at the end of this Form 10-K Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "ELECTION OF DIRECTORS" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT--Compliance with Section 16(a) of the Securities and
Exchange Act of 1934" in the definitive Proxy Statement for the Company's 1996
Annual Meeting of Stockholders, incorporated herein by reference. See also
"ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT" contained in PART I of this
Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
See "EXECUTIVE COMPENSATION" in the definitive Proxy Statement for the
Company's 1996 Annual Meeting of Stockholders, incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the
definitive Proxy Statement for the Company's 1996 Annual Meeting of
Stockholders, incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the definitive Proxy
Statement for the Company's 1996 Annual Meeting of the Stockholders,
incorporated herein by reference.
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements
Champion Healthcare Corporation Consolidated Financial Statements:
Consolidated Balance Sheet - December 31, 1995 and 1994
Consolidated Statement of Operations - For the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statement of Stockholders' Equity - For the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows - For the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Dakota Heartland Health System Financial Statements:
Balance Sheet - December 31, 1995 and 1994
Statement of Income - For the Year Ended December 31, 1995
Statement of Partners' Equity - For the Year Ended December
31, 1995
Statement of Cash Flows - For the Year Ended December 31, 1995
Notes to Financial Statements
2. Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
3. Exhibits
<TABLE>
<S> <C>
3.01(a)* Restated Certificate of Incorporation dated February 12, 1996 (Incorporated by reference to the
registrant's Schedule 14A Definitive Proxy Statement dated January 22, 1996).
3.01(b)* Bylaws of Champion Healthcare Corporation (Incorporated by reference to Exhibit 4.2 of the
registrant's Form S-8 filed with the SEC on or about August 3, 1995).
4.01(a)** Agreement Pursuant to Regulation S-K 601(4)(iii) by the registrant dated March 30, 1995 to
furnish instruments defining the rights of holders of certain long-term debt.
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
4.01(b)* Series D Note and Stock Purchase Agreement dated December 31, 1993, as amended, between the
registrant and the parties listed therein (filed as Exhibit 10.5 to registrant's Form 8-K dated
December 6, 1994 and incorporated herein by reference).
4.01(c) Amended and Restated Loan Agreement dated as of May 31, 1995, among the registrant, Banque
Paribas as agent and the banks named therein.
4.01(d) Series E Note Purchase Agreement dated May 1, 1995, as amended, between the registrant and the
parties listed therein.
10.01* Amended and Restated 1988 Non-Qualified Stock Option Plan (Incorporated by reference to Exhibit
10.06 of the registrant's Form 10-K for the fiscal year ended December 31, 1992).
10.01(b)* Statement Pursuant to Rule 12b-32(b) regarding modification dated May 27, 1993 to Amended and
Restated 1988 Non-Qualified Stock Option Plan referenced as Exhibit 10.01 (Incorporated by
reference to Exhibit 10.06(b) of the registrant's Form 10-K for the fiscal year ended December
31, 1993).
10.02* Agreement and Plan of Merger between Champion Healthcare Corporation and AmeriHealth, Inc.,
dated August 17, 1994 (filed as Exhibit 10 to registrant's Form 8-K dated August 17, 1994, and
incorporated herein by reference).
10.03* Amendment No. 1 to Agreement and Plan of Merger, dated October 20, 1994 (filed as Exhibit 10.1
to registrant's Form 8-K dated December 6, 1994 and incorporated herein by reference).
10.04* Consulting Agreement dated December 6, 1994 between the Registrant and William G. White (filed
as Exhibit 10.2 to registrant's Form 8-K dated December 6, 1994 and incorporated herein by
reference).
10.05* Voting Agreement dated December 6, 1994 between the Registrant and William G. White (filed as
Exhibit 10.3 to registrant's Form 8-K dated December 6, 1994 and incorporated herein by
reference).
10.07* D Stockholders Agreement, dated December 31, 1993, among the Registrant and the Parties listed
therein, as amended (filed as Exhibit 10.6 to registrant's Form 8-K dated December 6, 1994 and
incorporated herein by reference).
10.08 Employment Agreement between Charles R. Miller and the registrant dated August 4, 1995.
10.09 Employment Agreement between James G. VanDevender and the registrant dated August 4, 1995.
10.10 Employment Agreement between Ronald R. Patterson and the registrant dated August 4, 1995.
10.11** Founders' Stock Option Agreement between Charles R. Miller and the registrant dated December
31, 1990.
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
10.12** Founders' Stock Option Agreement between James G. VanDevender and the registrant dated December
31, 1990.
10.13** Subscription Agreement dated February 10, 1990, between James G. VanDevender and the
registrant, as amended.
10.14** Employee Stock Option Plan, dated December 31, 1991, as amended.
10.15** Employee Stock Option Plan No. 2, dated May 27, 1992, as amended.
10.16** Employee Stock Option Plan No. 3, dated September 1992, as amended.
10.17** Senior Executive Stock Option Plan No. 4, dated January 5, 1994, as amended.
10.18** Director's Stock Option Plan, dated 1992.
10.19(a)** Agreement between Management Prescriptives, Inc., a company owned by David S. Spencer, and the
registrant dated April 19, 1993.
10.19(b)** Agreement between Master Services, a company owned by David S. Spencer, and the registrant
dated October 1,1994.
10.20** Preferred Stock Purchase Agreement dated as of December 31, 1990, as amended, among Charles R.
Miller, James G. VanDevender, Equus Investments II, L.P., Sprout Growth. L.P., Sprout Capital
VI, L.P., DLJ Venture Capital Fund II, L.P. and the registrant.
10.21** Note and Stock Purchase Agreement dated May 27, 1992, as amended, among the registrant and the
parties listed therein.
10.22** Series C Preferred Stock Purchase Agreement dated December 2, 1993, between the registrant and
the parties listed therein.
10.23(a)** Warrant Purchase Agreement dated December 31, 1990, between Charles R. Miller, Equus
Investments II, L.P. and the registrant, as amended.
10.23(b)** Warrant Purchase Agreement dated December 31, 1990, between Equus Investments II, L.P., Sprout
Growth, L.P. and the registrant, as amended.
10.23(c)** Agreement to Exchange and Amend Warrants dated April 29, 1993, by the registrant and holders of
warrants issued pursuant to the Note and Stock Purchase Agreement dated May 27, 1993, with
attached Form of Warrant.
10.23(d)** Form of Warrant issued pursuant to Bridge Loan Agreement dated April 29, 1993.
10.23(e)** Form of Warrant issued December 2, 1993 to Virginia Retirement System, pursuant to Fifth
Amendment to Note and Stock Purchase Agreement dated May 27, 1992.
10.23(f)** Form of Warrant issued pursuant to Series D Note and Stock Purchase Agreement, dated December
31, 1993, as amended.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10.23(g) Form of Warrant issued pursuant to Series E Note Purchase Agreement, dated May 1, 1995, as
amended.
10.24(a)** Stock Registration Agreement dated December 31, 1990, as amended, entered into by the
registrant in connection with the Stock Purchase Agreement dated December 31, 1990.
10.24(b)** Series B and Series C Stock Registration Agreement dated December 2, 1993, entered into by the
registrant in connection with the Fifth Amendment to Note and Stock Purchase Agreement dated
May 27, 1992, and the Series C Stock Purchase Agreement.
10.24(c)** Series D Stock Registration Agreement dated December 31, 1993, as amended, entered into by the
registrant in connection with the Series D Note and Stock Purchase Agreement.
10.25** Agreement and Plan of Merger dated October 21, 1994, among Psychiatric Healthcare Corporation,
CHC/Psychiatric Healthcare Corporation and the registrant.
10.26* Amended and Restated Partnership Agreement of Dakota/Champion Partnership dated December 21,
1994 (filed as Exhibit 10 to registrant's Form 8-K dated December 21, 1994 and incorporated
herein by reference).
10.27* Operating Agreement between Dakota/Champion Partnership and the Registrant, dated December 21,
1994 (filed as Exhibit 10.1 to registrant's Form 8-K dated December 21, 1994 and incorporated
herein by reference).
10.28* Asset Purchase Agreement, dated January 25, 1995, as amended, among Medical Services of Salt
Lake City, Inc., HealthTrust, Inc.-The Hospital Company, CHC - Salt Lake City, Inc. and
Champion Healthcare Corporation (filed as Exhibit 10.1 to registrant's Form 8-K dated April 13,
1995 and incorporated herein by reference).
10.29* Utah Provider Agreement, dated April 13, 1995, by and between Champion Healthcare Corporation
and HealthTrust Inc. - The Hospital Company (filed as Exhibit 10.2 to registrant's Form 8-K
dated April 13, 1995 and incorporated herein by reference).
10.30* Champion Healthcare Corporation Selected Executive Stock Option Plan No. 5 (Incorporated by
reference to Exhibit 4.12 of the registrant's Form S-8 filed with the SEC on or about August 3,
1995)
10.31* 1995 Recapitalization Agreement dated as of December 31, 1995 among the registrant and the
parties listed therein (filed as Exhibit 10.1 to registrant's Form 8-K dated December 31, 1995
and incorporated herein by reference).
10.32* Asset Exchange Agreement dated November 9, 1995, by and between Champion Healthcare Holdings,
CHC-Prattville, Inc. and CHC-Nursing Center, Inc. and West Jordan Hospital Corporation (filed
as Exhibit 10.1 to registrant's Form 8-K dated March 1, 1996 and incorporated herein by
reference).
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
10.33* AmeriHealth, Inc. 1984 Non-Qualified Plan (Incorporated by reference to Exhibit 4.11 of the
registrant's Form S-8 filed with the SEC on or about August 25, 1995).
10.34* AmeriHealth, Inc. Special Stock Option between the registrant and William G. White dated May
31, 1988 (Incorporated by reference to Exhibit 4.12 of the registrant's Form S-8 filed with the
SEC on or about August 25, 1995).
11 Statement re: computation of per share earnings
21 Subsidiaries of the registrant
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
* Incorporated by reference as indicated.
** Previously included in the registrant's Form
10-K for the year ended December 31, 1994,
filed March 31, 1995.
(b) Reports on Form 8-K:
On January 4, 1996, the Company filed one
report on Form 8-K dated December 31, 1995,
which reported under "Item 5. Other Events"
the 1995 Recapitalization Agreement between
the registrant and its preferred
shareholders.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 26, 1996 Champion Healthcare Corporation
-------------- (Registrant)
By: /s/ James G. VanDevender
--------------------------------
James G. VanDevender
Executive Vice President, Chief
Financial Officer and Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Charles R. Miller President, Chief Executive Officer, March 26, 1996
- --------------------- Chairman of the Board of Directors --------------
Charles R. Miller
/s/ James G. VanDevender Executive Vice President, Chief March 26, 1996
- ----------------------- Financial Officer, Director (Principal --------------
James G. VanDevender Financial Officer)
/s/ Robert M. Starling Vice President and Controller March 26, 1996
- ---------------------- (Principal Accounting Officer) --------------
Robert M. Starling
/s/ James A. Conroy Director March 26, 1996
- ------------------- --------------
James A. Conroy
/s/ Manuel M. Ferris Director March 26, 1996
- -------------------- --------------
Manuel M. Ferris
/s/ Janet A. Hickey
- ------------------- Director March 26, 1996
Janet A. Hickey
/s/ Nolan Lehmann Director March 26, 1996
- ----------------- --------------
Nolan Lehmann
/s/ Richard D. Sage Director March 26, 1996
- ------------------- --------------
Richard D. Sage
/s/ David S. Spencer Director March 26, 1996
- -------------------- --------------
David S. Spencer
/s/ William G. White Director March 26, 1996
- -------------------- --------------
William G. White
</TABLE>
36
<PAGE> 37
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1995
CHAMPION HEALTHCARE CORPORATION
HOUSTON, TEXAS
<PAGE> 38
CHAMPION HEALTHCARE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Champion Healthcare
Corporation and subsidiaries and financial statements of Dakota Heartland
Health System are included in Item 8:
Champion Healthcare Corporation:
<TABLE>
<S> <C>
Report of Coopers & Lybrand L.L.P. Independent Accountants .................................................................... F-3
Consolidated Balance Sheet -
December 31, 1995 and 1994 ........................................................................................... F-4
Consolidated Statement of Operations - For the Years Ended
December 31, 1995, 1994 and 1993 ..................................................................................... F-5
Consolidated Statement of Stockholders' Equity -
For the Years Ended December 31, 1995, 1994
and 1993 ........................................................................................................... F-6
Consolidated Statement of Cash Flows - For the Years Ended
December 31, 1995, 1994 and 1993 ..................................................................................... F-7
Notes to Consolidated Financial Statements .................................................................................... F-8
Dakota Heartland Health System:
Report of Coopers & Lybrand L.L.P. Independent Accountants ................................................................... F-32
Balance Sheet -
December 31, 1995 and 1994 .......................................................................................... F-33
Statement of Income -
For the year ended December 31, 1995 ................................................................................ F-34
Statement of Partners' Equity -
For the year ended December 31, 1995 ................................................................................ F-35
Statement of Cash Flows -
For the year ended December 31, 1995 ................................................................................ F-36
Notes to Financial Statements ................................................................................................ F-37
</TABLE>
The following consolidated financial statement schedules of Champion Healthcare
Corporation and subsidiaries are included in Item 14(d):
<TABLE>
<S> <C>
Report of Coopers & Lybrand L.L.P. Independent Accountants on Financial Statement Schedules ................................... S-1
Schedule I -- Condensed Financial Information of the Registrant ............................................................... S-2
Schedule II -- Valuation and Qualifying Accounts .............................................................................. S-6
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-2
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Champion Healthcare Corporation
We have audited the accompanying consolidated balance sheet of Champion
Healthcare Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Champion Healthcare
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 27, 1996
F-3
<PAGE> 40
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1995 1994
----------------------------------
(Dollars in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,583 $ 48,424
Restricted cash -- 5,000
Accounts receivable, less allowance for doubtful accounts
of $10,116 and $4,959 in 1995 and 1994, respectively 33,262 17,115
Supplies inventory 3,470 1,942
Prepaid expenses and other current assets 6,264 4,899
--------- ----------
Total current assets 50,579 77,380
Property and equipment:
Land 6,418 4,510
Buildings and improvements 115,688 48,888
Equipment 42,343 25,016
Construction in progress 4,666 8,839
--------- ----------
Total property and equipment 169,115 87,253
Less allowances for depreciation and amortization 10,733 5,340
--------- ----------
Total property and equipment, net 158,382 81,913
Investment in Dakota Heartland Health System 48,145 40,088
Goodwill, net of accumulated amortization of $1,051 and $37
in 1995 and 1994, respectively 20,933 5,947
Intangible assets, net of accumulated amortization of
$2,052 and $1,647 in 1995 and 1994, respectively 7,438 5,718
Other assets 5,783 5,507
--------- ----------
Total assets $ 291,260 $ 216,553
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,166 $ 4,221
Current portion of capital lease obligations 1,301 560
Accounts payable 13,952 10,637
Due to third parties 8,829 2,241
Accrued and other liabilities 15,490 8,446
--------- ----------
Total current liabilities 40,738 26,105
Long-term debt 159,670 102,626
Capital lease obligations 2,777 2,658
Other long-term liabilities 10,177 11,037
Commitments and contingencies (Notes 3 and 13)
Redeemable preferred stock 46,029 76,294
Common stock, $.01 par value:
Authorized - 25,000,000 shares, 11,868,230 and 4,223,975
shares issued and outstanding in 1995 and 1994,
respectively 119 42
Common stock subscribed, 80,000 and 100,000 in 1995 and 1994,
respectively 40 50
Common stock subscription receivable (40) (50)
Paid in capital 47,643 15,998
Accumulated deficit (15,893) (18,207)
--------- ----------
Total liabilities and stockholders' equity $ 291,260 $ 216,553
======== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 41
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------------------------------------------------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C>
Net patient service revenue $ 163,500 $ 99,613 $ 86,728
Other revenue 4,020 4,580 3,104
---------- ---------- ----------
Net revenue 167,520 104,193 89,832
Expenses:
Salaries and benefits 72,188 41,042 36,698
Supplies 21,113 12,744 11,641
Other operating expenses 44,594 29,767 24,033
Provision for bad debts 12,016 7,812 5,669
Interest 13,618 6,375 2,725
Depreciation and amortization 9,290 4,010 3,524
Equity in earnings of Dakota Heartland
Health System (8,881) -- --
Asset write-down -- -- 15,456
---------- ---------- ----------
Total expenses 163,938 101,750 99,746
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary items 3,582 2,443 (9,914)
Provision for income taxes 150 200 1,009
---------- ---------- ----------
Income (loss) before extraordinary
items 3,432 2,243 (10,923)
Extraordinary items:
Loss on early extinguishment of debt,
net of tax a tax benefit
of $634 for 1993 (1,118) -- (1,230)
---------- ---------- ----------
Net income (loss) $ 2,314 $ 2,243 $ (12,153)
========== ========= =========
Loss applicable to common stock $ (9,017) $ (2,467) $ (13,805)
========== ========== =========
Loss per common share:
Loss before extraordinary items $ (1.86) $ (1.69) $ (11.21)
Extraordinary items (0.26) -- (1.10)
---------- ---------- ----------
Loss per common share $ (2.12) $ (1.69) $ (12.31)
========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 42
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Additional
Common Stock Common Stock Paid-In Accumulated
Shares Amount Subscribed Receivable Capital Deficit
--------- ------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1993 1,100,000 $ 11 $ 50 $ (50) $ (2,363)
Preferred stock dividends accrued,
including accretion of issuance costs (1,652)
Exercise of bridge loan warrants 26,250
Net loss (12,153)
-------- ------- ------- ------ -------- --------
BALANCES AT DECEMBER 31, 1993 1,126,250 11 50 (50) (16,168)
Exercise of bridge loan warrants 83,044 1
Shares issued in AmeriHealth acquisition 3,014,681 30 $ 16,426
Preferred stock dividends accrued, including
accretion of issuance costs (428) (4,282)
Net income 2,243
--------- ------- ------- ------ -------- --------
BALANCES AT DECEMBER 31, 1994 4,223,975 42 50 (50) 15,998 (18,207)
Preferred stock dividends accrued, including
accretion of issuance costs (5,982)
Dividends declared pursuant to the
Recapitalization (5,349)
Issuance of warrants 668
Exercise of options/stock subscriptions 38,411 1 (10) 10 108
Shares issued pursuant to the Recapitalization,
net of issuance costs 7,605,844 76 42,200
Net income 2,314
---------- ------- ------- ------ -------- --------
BALANCES AT DECEMBER 31, 1995 11,868,230 $ 119 $ 40 $ (40) $ 47,643 $(15,893)
========== ======= ======= ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 43
CHAMPION HEALTHCARE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 2,314 $ 2,243 $ (12,153)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Extraordinary loss, net 1,118 1,230
Equity in earnings of Dakota Heartland Health
System, net of distributions (8,056)
Depreciation and amortization 9,290 4,010 3,524
Deferred income taxes -- 1,600 (1,171)
Provision for bad debts 12,016 7,812 5,669
Asset write-down 15,456
Changes in operating assets and liabilities,
excluding acquisitions:
Accounts receivable (14,864) (9,088) (6,842)
Supplies inventory 144 (264) (446)
Prepaid expenses and other current assets 2,103 (4,154) (169)
Other assets (3,210) (908) (1,654)
Accounts payable, income taxes payable and
other accrued liabilities 12,037 (1,968) 1,935
----------- --------- ---------
Net cash provided by (used in)
operating activities 12,892 (717) 5,379
----------- --------- ---------
Investing activities:
Purchase of facilities (59,810) (5,813)
Net payment for investment in partnership (2,000) (20,000)
Cash acquired in acquisitions 361 4,341
Additions to property and equipment (42,822) (12,561) (4,726)
Proceeds from sales of property and equipment 1,704
Investment in notes receivable (2,524) (757)
----------- --------- ---------
Net cash used in investing activities (105,091) (28,977) (10,539)
----------- --------- ---------
Financing activities:
Proceeds from issuance of long-term obligations 143,532 19,133 63,091
Payments related to issuance of long-term debt
obligations and other financing costs (3,927) (2,396)
Payments on long-term obligations (94,715) (2,300) (28,516)
Payments on obligations assumed
through acquisitions (10,911)
Proceeds from issuance of redeemable
preferred stock and stock warrants 793 11,223 34,345
Payments related to preferred and common stock
issuance (38) (882)
Cash restricted under collateral agreement (5,713)
Cash released under collateral agreement 5,713
----------- --------- ---------
Net cash provided by financing
activities 51,358 11,432 65,642
----------- --------- ---------
(Decrease) increase in cash
and cash equivalents (40,841) (18,262) 60,482
Cash and cash equivalents at beginning of year 48,424 66,686 6,204
----------- --------- ---------
Cash and cash equivalents at end of year $ 7,583 $ 48,424 $ 66,686
=========== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 44
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATIONAL BACKGROUND
Champion Healthcare Corporation (the "Company"), a Delaware corporation, is
engaged in the ownership and management of general acute care and specialty
hospitals and related health care facilities. At December 31, 1995, including
hospital partnerships, the Company owns and/or operates seven acute care
hospitals, two psychiatric hospitals and a skilled nursing facility. See Note
16 "Subsequent Events" for a discussion of recent acquisition activity.
Including hospital partnerships, the seven general acute care hospitals owned
and/or operated by the Company provide a range of medical and surgical services
typically available in general acute care hospitals. These services include
inpatient care such as intensive and cardiac care, diagnostic services,
radiological services and emergency services. All of the hospitals provide an
extensive range of outpatient services, including ambulatory surgery,
laboratory and radiology. The Company's two psychiatric hospitals provide
child, adolescent and adult comprehensive psychiatric and chemical dependency
treatment programs, with inpatient, day hospital, outpatient and other
ambulatory care.
Effective December 31, 1995, the Company and its preferred shareholders entered
into the 1995 Recapitalization Agreement to reduce the complexity of the
Company's capital structure and eliminate the accrual of future dividends on
its outstanding preferred stock and the resulting impact on earnings per share.
As a result of the Recapitalization Agreement, common shares outstanding
increased from 4,262,386 to 11,868,230 and preferred shares outstanding
decreased from 10,452,370 to 2,605,714. The transactions comprising the 1995
Recapitalization Agreement are herein collectively referred to as the
"Recapitalization." See Note 8 "Stockholders' Equity" for a discussion of
the terms of the Recapitalization.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, all
wholly-owned and majority-owned subsidiaries and majority-owned partnerships.
The Company uses the equity method of accounting when it has a 20% to 50%
interest in other companies and partnerships. Under the equity method, the
Company records its original investment at cost and adjusts its investment for
its undistributed share of the earnings or losses of the equity investee. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of net revenue and expenses during the period. Actual
results could differ from those estimates. The most significant areas which
require the use of management's estimates relate to the determination of
estimated third-party payor settlements, allowance for uncollectable accounts
receivable, income tax valuation allowance and reserves for professional
liability risk.
Net Patient Service Revenue
The Company's facilities have entered into agreements with third-party payors,
including US government programs and managed care health plans, under which the
Company is paid based upon established charges, cost of services provided,
predetermined rates by diagnosis, fixed per diem rates or discounts from
established charges.
F-8
<PAGE> 45
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net patient service revenues are recorded at estimated amounts due from
patients and third party payors for health care services provided, including
anticipated settlements under reimbursement agreements with third party payors.
Payments for services rendered to patients covered by the Medicare and Medicaid
programs are generally less than billed charges. Provisions for contractual
adjustments are made to reduce charges to these patients to estimated receipts
based upon each program's principle of payment/reimbursement (either
prospectively determined or retrospectively determined costs). Settlements for
retrospectively determined rates are estimated in the period the related
services are rendered and are adjusted in future periods as final settlements
are determined. In management's opinion, adequate allowance has been provided
for possible adjustments that might result from final settlements under these
programs. Allowance for contractual adjustments under these programs are
deducted from accounts receivable in the accompanying consolidated balance
sheet.
Other Revenue
Other revenue includes income from non-patient hospital activities such as
cafeteria sales and interest income, among others.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments, primarily
US government backed securities and certificates of deposit, purchased with an
original maturity of three months or less. The Company maintains its cash in
bank deposits which, at times, may exceed federally insured limits.
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") on January 1, 1995. All investments accounted for under SFAS No. 115
are classified as available-for-sale, and the implementation of this statement
had no impact on net income.
Accounts Receivable
Accounts receivable consist primarily of amounts due from the Medicare and
Medicaid programs, other government programs, managed care health plans,
commercial insurance companies and individual patients. Current earnings are
charged with an allowance for doubtful accounts based on experience and other
circumstances that may affect the ability of patients to meet their
obligations. Accounts deemed uncollectable are charged against that allowance.
Supplies Inventory
Inventory consists primarily of pharmaceuticals and supplies and is stated at
the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for new facilities
and equipment and those that substantially increase the useful life of existing
property and equipment are capitalized. Ordinary maintenance and repairs are
charged to expense when incurred. Upon disposition, the assets and related
accumulated depreciation are removed from the accounts, and the resulting gain
or loss is included in the statement of operations.
Depreciation is computed using the straight-line method at rates calculated to
amortize the cost of assets over their estimated useful lives ranging from 3 to
40 years.
F-9
<PAGE> 46
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of net assets acquired and is amortized on
a straight line basis over a period of 20 years. Intangible assets consist of
deferred financing costs, non-compete agreements and various other intangible
assets. Deferred financing costs are amortized on a straight-line basis over
the term of the applicable debt. Costs related to non-compete agreements and
other intangibles are amortized on a straight-line basis over two to five
years.
Amortization expense for 1995, 1994 and 1993 was approximately $2,724,000,
$1,000,000, and $1,209,000, of which approximately $845,000, $395,000, and
$139,000 relate to deferred financing costs.
Cumulative Convertible Redeemable Preferred Stock
Through December 31, 1995, the Company reflected accumulated unpaid and
undeclared dividends on its cumulative redeemable preferred stock as an
increase in the related issue with corresponding charges to additional paid-in
capital, to the extent available, and accumulated deficit. Pursuant to the
Recapitalization, all accrued preferred dividends at December 31, 1995
(approximately $12,614,000) were paid by the issuance of common stock at an
agreed price of $7.00 per share. Additionally, the holders of Series C and D
preferred stock have waived all dividends accruing after December 31, 1995.
See Note 8 "Stockholders' Equity" for a discussion of the terms of the
Recapitalization.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded to reflect the tax consequence
on future years of temporary differences between the tax basis of the assets
and liabilities and their financial amounts at year-end.
Loss Per Share
Loss per common and common equivalent share amounts are calculated by dividing
loss applicable to common stock by the weighted average number of common shares
outstanding during each period, as restated for the two-for-one stock split on
July 7, 1993, and assuming the exercise, when dilutive, of all stock options
and warrants having an exercise price less than the average stock market price
of the common stock using the treasury stock method. Common stock equivalents
and other potentially dilutive securities have not been considered because
their effect was antidilutive in all years. Weighted average shares
outstanding used to determine earnings per common and common equivalent share
were 4,255,000, 1,457,000, and 1,122,000 in 1995, 1994 and 1993, respectively.
Reclassifications
Certain reclassifications have been made in prior year financial statements to
conform to the 1995 presentation. These reclassifications had no effect on the
results of operations previously reported.
Recent Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS 121, which is effective for fiscal years beginning after December 15,
1995, requires that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company does not believe that the adoption of this statement
will have a material effect on its financial statements.
F-10
<PAGE> 47
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS 123 establishes new financial accounting and reporting
standards for stock-based compensation plans. Entities will be allowed to
measure compensation expense for stock-based compensation under SFAS 123 or APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing
to account for such compensation under APB Opinion No. 25 will be required to
make pro forma disclosures of net income and earnings per share as if SFAS 123
had been applied. The Company is presently evaluating which alternative it
will adopt under SFAS 123 and has not yet quantified the potential impact on
the Company of adopting this new standard.
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS
Physicians and Surgeons Hospital
The Company acquired Physicians and Surgeons Hospital in Midland, Texas on May
1, 1993 for approximately $5,800,000 in cash and the assumption of $1,200,000
in debt. The acquisition was accounted for as a purchase transaction with
operations reflected in the consolidated financial statements beginning May 1,
1993. The Company replaced P&S in the fourth quarter of 1995 with the newly
constructed 101 bed Westwood Medical Center. Total construction cost for the
new facility was approximately $39,017,000.
Psychiatric Healthcare Corporation
On October 21, 1994, the Company acquired Psychiatric Healthcare Corporation
("PHC"), a privately held corporation headquartered in Birmingham, Alabama, by
the merger of PHC with and into a wholly-owned subsidiary of the Company. PHC
owned and operated two free-standing psychiatric hospitals with a combined
total of 219 beds located in Springfield, Missouri and Alexandria, Louisiana,
and owned a third free-standing psychiatric hospital located in Sherman, Texas,
that was closed and held for sale at the date of acquisition. The net purchase
price, including contingent consideration of $2,000,000 paid in 1995 and the
assumption of long term debt, was approximately $24,600,000. The Company paid
no cash to PHC shareholders. Total consideration paid by the Company consisted
of the assumption of approximately $14,880,000 in long-term debt and the
issuance of the following securities to PHC shareholders: (i) 264,306 shares of
Series D preferred stock, (ii) $7,123,000 of 11% Senior Subordinated Notes with
213,690 detachable warrants to acquire common stock and (iii) options, which
were subsequently exercised, to acquire an additional 7,561 shares of Series D
Preferred Stock and $202,000 principal amount of 11% Senior Subordinated Notes
with 6,060 detachable warrants. The payment of contingent consideration had
been subject to the Company's receipt of up to $2,000,000 from a combination of
the sale of the Sherman, Texas facility, a recovery from a lawsuit and certain
specified Medicaid payments. All conditions for the payment of contingent
consideration were substantially met in 1995, including the sale of Sherman
Hospital for approximately $1,300,000 in March 1995. The acquisition was
accounted for as a purchase transaction with operations reflected in the
consolidated financial statements effective October 1, 1994. The Company has
completed its analysis of the assets acquired and liabilities assumed and has
allocated approximately $8,800,000 in excess purchase price to goodwill, which
is currently being amortized over a 20 year period.
AmeriHealth, Inc.
On December 6, 1994, the Company merged with AmeriHealth, Inc. ("AHH"), a
Delaware corporation, with AHH being the surviving corporation resulting from
the merger (the "Combined Company"). The merger was accounted for as a
recapitalization of the Company with the Company as the acquiror (a reverse
acquisition). Concurrent with the merger, the name of the Combined Company was
changed to Champion Healthcare Corporation, and the Combined Company adopted
the Company's certificate of incorporation provisions.
F-11
<PAGE> 48
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
Pursuant to the merger, the Combined Company: (a) paid a cash distribution of
$0.085 cents per share to all common stockholders of AHH, (b) issued one share
of its Combined Company common stock for each 5.70358 shares of the
approximately 17.2 million outstanding shares of AHH's Common Stock, (c) issued
one share of Combined Company common stock for each of the approximately 1.2
million then outstanding shares of the Company common stock, and (d) issued one
share of newly authorized Combined Company preferred stock for each of the then
outstanding shares of the Company's preferred stock. The terms of the new
voting shares of Combined Company preferred stock are identical to those of the
Company's preferred stock outstanding prior to the merger. In addition,
holders of the outstanding shares of AHH's $2.125 Increasing Rate Cumulative
Convertible Preferred Stock were canceled in exchange for cash equal to the
redemption price of such shares plus all unpaid dividends which totaled
approximately $47,000. The net purchase price, including the assumption of
approximately $17,700,000 in debt, was approximately $38,876,000. The
acquisition was accounted for as a purchase transaction with operations
reflected in the consolidated financial statements effective December 1, 1994.
The Company has completed its analysis of the assets acquired and liabilities
assumed and has allocated approximately $8,946,000 in excess purchase price to
goodwill, which is currently being amortized over a 20 year period.
Partnership with Dakota Hospital
On December 21, 1994, a wholly owned subsidiary of the Company that owned
Heartland Medical Center, a 142 bed general acute care facility in Fargo, North
Dakota, entered into a partnership with Dakota Hospital ("Dakota"), a
not-for-profit corporation that owned a 199 bed general acute care hospital
also in Fargo, North Dakota. The partnership is operated as Dakota Heartland
Health System ("DHHS"). Also on December 21, 1994, the Company entered into an
operating agreement with the partnership and Dakota to manage the combined
operations of the two hospitals. Under the terms of the partnership agreement,
the Company is obligated to advance funds to DHHS to cover any and all
operating deficits of DHHS. DHHS began operations on December 31, 1994.
The Company and Dakota contributed their respective hospitals debt and lien
free (except for capitalized lease obligations), including certain working
capital components, and the Company contributed an additional $20,000,000 in
cash, each in exchange for 50% ownership in the partnership. A $20,000,000
special distribution was made to Dakota after capitalization of the partnership
in accordance with the terms of the partnership agreement. The Company will
receive 55% of the net income and distributable cash flow ("DCF") of the
partnership until such time as it has recovered on a cumulative basis an
additional $10,000,000 of DCF in the form of an "excess" distribution. As of
December 31, 1995, the Company has received $825,000 in cash distributions from
DHHS.
The partnership is administered by a Governing Board comprised of six members
appointed by Dakota, three members appointed by the Company and three members
appointed by mutual consent of the Dakota members and the Company members.
Certain Governing Board actions require the majority approval of each of the
Company and Dakota members. Because the partners through the partnership
agreement have delegated substantially all management of the partnership to
the Company through the operating agreement, the authority of the Governing
Board is limited.
F-12
<PAGE> 49
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
Beginning July 1996, Dakota has the right to require the Company to purchase
its partnership interest free of debt or liens for a cash purchase price equal
to 5.5 times Dakota's pro rata share of earnings before depreciation, interest,
income taxes and amortization, as defined in the partnership agreement, less
Dakota's pro-rata share of the partnership's long-term debt. DHHS had earnings
before depreciation, interest, income taxes and amortization of approximately
$19,000,000 for the year ended December 31, 1995. Beginning January 1998, the
purchase price for Dakota's partnership interest shall not be less than
$50,000,000. After receipt of written notice of Dakota's intent to sell its
partnership interest, the Company would have 12 months to complete the
purchase. Should the Company not complete the purchase during this period,
Dakota has the right to, among others, (i) terminate the operating agreement
and engage an outside party to manage the hospital, (ii) replace the Company's
designees to the Governing Board and (iii) enter into a fair market value
transaction to sell substantially all of the partnership's assets.
The Company accounts for its investment in DHHS under the equity method. The
following table summarizes certain financial information of DHHS as of December
31, 1995 and 1994, and for the year ended December 31, 1995 (dollars in
thousands). DHHS began operations on December 31, 1994.
<TABLE>
<CAPTION>
Year ended
December 31, 1995
-----------------
<S> <C>
INCOME STATEMENT DATA
Net revenue $106,011
Net income 16,148
Company's equity in the earnings of DHHS 8,881
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 December 31,1994
----------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA
Current assets $ 39,008 $ 28,220
Non-current assets 55,854 44,298
Current liabilities 19,980 12,212
Non-current liabilities 57 129
Partners' equity 74,825 60,177
</TABLE>
Salt Lake Regional Medical Center
On April 13, 1995, the Company acquired Salt Lake Regional Medical Center
("SLRMC") from Columbia/HCA Healthcare Corporation ("Columbia"). SLRMC is
comprised of a 200 bed tertiary care hospital and five clinics and is located
in Salt Lake City, Utah. Total acquisition cost for SLRMC was approximately
$61,042,000, which consisted of approximately $56,816,000 in cash and
additional consideration due to Columbia of approximately $1,767,000, as well
as the assumption of approximately $2,459,000 in capital lease obligations.
Cash consideration included approximately $11,783,000 for certain working
capital components, resulting in a net purchase price of approximately
$49,259,000. The Company funded the asset purchase from available cash and
approximately $30,000,000 in borrowings under its then outstanding credit
facility. The acquisition was accounted for as a purchase transaction with
operations reflected in the consolidated financial statements beginning April
14, 1995.
F-13
<PAGE> 50
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS AND OTHER INVESTMENTS (CONTINUED)
Jordan Valley Hospital
On March 1, 1996, the Company acquired Jordan Valley Hospital ("Jordan") from
Columbia. Jordan is a 50 bed acute care hospital located in West Jordan, Utah,
a suburb of Salt Lake City. The Company acquired Jordan in exchange for
Autauga Medical Center, an 85 bed acute care hospital, and Autauga Health Care
Center, a 72 bed skilled nursing facility, both in Prattville, Alabama, plus
preliminary cash consideration paid to the seller of approximately $10,750,000,
which included approximately $3,750,000 for certain net working capital
components, subject to adjustment, and reimbursement of certain capital
expenditures made previously by the seller. The transaction did not result in
a gain or loss. The Alabama facilities were acquired as part of the Company's
acquisition of AmeriHealth, Inc. on December 6, 1994.
Pro Forma Financial Information
The following selected unaudited pro forma financial information for the years
ended December 31, 1995 and 1994 assumes that the acquisition of SLRMC occurred
on January 1, 1994. The selected unaudited pro forma financial information for
the year ended December 31, 1994, assumes that the acquisitions of AHH and PHC,
and the formation of the DHHS partnership occurred on January 1, 1994. The pro
forma financial information below does not purport to be indicative of the
results that actually would have been obtained had the operations been combined
during the periods presented, and is not intended to be a projection of future
results or trends.
<TABLE>
<CAPTION>
1995 1994
---- ----
(unaudited)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Net revenue $ 189,540 $ 195,915
============ ============
Equity in earnings of DHHS $ 8,881 $ 5,443
============ ============
Income (loss) before extraordinary item $ 3,999 $ (3,198)
============ ============
Net income (loss) $ 2,881 $ (3,198)
============ ============
Loss applicable to common stock $ (8,450) $ (8,196)
============ ============
Loss per common share before extraordinary item $ (1.72) $ (1.94)
============ ============
Loss per common share $ (1.99) $ (1.94)
============ ============
Weighted average number of common shares
outstanding 4,255 4,224
============ ============
</TABLE>
F-14
<PAGE> 51
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. ASSET WRITE-DOWN
In December 1993, the Company ceased providing medical services at Gulf Coast
Hospital ("GCH"), one of two Company-owned hospitals located in Baytown, Texas,
which it had acquired from HCA Health Services of Texas, Inc. on September 1,
1992. The Company intended to use GCH for limited administrative purposes only
until it could arrange a sale. As a result, the Company wrote down the GCH
assets by $15,456,000, which reflected the estimated fair value of the facility
under limited use less ongoing operating costs and various rental concessions
previously granted the tenants. The book value of GCH prior to the write-down
was $16,681,000. The remaining net historical cost of $1,225,000 represented
the equipment moved to the other Baytown campus. In June 1994, the Company
sold the former HCA facility to a physician group for nominal consideration.
The Company believes that assets associated with its other campus in Baytown
have not been impaired as the result of this change in operations.
NOTE 5. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consisted of the following at December 31, 1995
and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accrued salaries and wages $ 3,851 $ 1,303
Accrued vacation 2,516 1,148
Accrued interest 3,156 1,256
Other 5,967 4,739
-------- --------
Total accrued and other liabilities $ 15,490 $ 8,446
======== ========
</TABLE>
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1995 and 1994
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revolving Loan $ 47,700
Term Loan -- $ 18,500
11% Senior Subordinated Notes (face amount of $99,089, net of a
discount of $642 at December 31, 1995) 98,447 62,703
Health Care REIT, Inc. 11,120 12,770
Wilmington Savings Fund Society -- 9,766
Other notes payable 3,569 3,108
-------- --------
Total debt 160,836 106,847
Less current portion (1,166) (4,221)
-------- --------
Total long-term debt $159,670 $102,626
======== ========
</TABLE>
On June 12, 1995, the Company issued $35,000,000 face amount (less a discount
of approximately $668,000) of Senior Subordinated Notes (the "Notes") maturing
on December 31, 2003. The Notes bear interest at an annual effective rate of
11.35% (11% stated rate). Interest is payable quarterly, and the stated rate
increases from 11% to 11.5% on March 31, 1996. The Notes include detachable
warrants for the purchase of 525,000 shares of common stock. The Notes are
subject to redemption on or after December 31, 1995, at the Company's option,
at prices declining from 112.5% of principal amount at December 31, 1995, to
par at December 31, 2002. Additionally, there is a requirement to repurchase
all outstanding Notes in the event of a change in control of the Company, at
the holder's option, based on a declining redemption premium ranging from
112.5% to 103% of principal. Proceeds
F-15
<PAGE> 52
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
from the issuance of Notes were used to paydown approximately $31,500,000
principal amount outstanding under the Revolving Loan with the remainder
retained for general corporate purposes. The Notes are uncollateralized
obligations and are subordinated in right of payment to certain senior
indebtedness of the Company. Approximately $668,000 of the proceeds from the
issuance of the Notes were allocated to the warrants.
On May 31, 1995, the Company refinanced and paid a $50,000,000 term and
revolving credit facility ("old credit facility") obtained in November 1993
with a $100,000,000 revolving credit facility (the "Revolving Loan") with
Banque Paribas, as agent, AmSouth Bank of Alabama, Bank One of Texas, N.A.,
CoreStates Bank, N.A., and NationsBank of Texas, N.A. Amounts available under
the Revolving Loan are subject to certain limitations, and the total amount
available under the Revolving Loan declines to $80,000,000 on the third
anniversary date. The Revolving Loan also provides for short term letters of
credit of up to $5,000,000. The Revolving Loan matures no later than March 31,
1999, and bears interest at a lender defined incremental rate plus, at the
Company's option, the LIBOR or Prime rate. The incremental rate to be applied
is based upon the Company meeting certain operational performance targets, as
defined, and ranges from 2.5% to 3.0% with respect to the LIBOR rate option and
from 1.0% to 1.5% with respect to the Prime rate option. The interest rates on
the Revolving Loan and old credit facility were 8.85% and 9.12%, respectively,
at December 31, 1995 and 1994. The Company currently has approximately
$649,000 outstanding under letters of credit. Proceeds from the refinancing
were used to pay approximately $48,000,000 principal amount outstanding under
the Company's old credit facility and approximately $9,533,000 principal amount
of debt held by Wilmington Savings Fund Society ("WSFS"). The interest rate on
the WSFS Loan was 11.5% and 10.5% at May 31, 1995 (the date of payment) and
December 31, 1994, respectively. With the exception of certain assets
collateralizing debt assumed in the Company's 1994 acquisition of PHC, the
Revolving Loan is collateralized by substantially all of the Company's assets.
The terms of the Revolving Loan eliminated the requirement under the Company's
previous bank credit facility to maintain a cash collateral account with the
lender in the amount of $5,000,000. The Company's future acquisitions and
divestitures may require, in certain circumstances, consent by lenders under
this agreement.
In connection with the Company's refinancing and payment of its old credit
facility, the Company wrote off unamortized deferred financing costs of
$1,118,000, which had no tax effect. This amount has been recorded as an
extraordinary loss in the accompanying consolidated statement of operations.
The Company also prepaid the WSFS Loan with no material financial impact.
On December 30, 1994, pursuant to commitments obtained from the original
purchasers of the 11% Senior Subordinated Notes issued on December 31, 1993,
the Company issued an additional $19,133,000 of Notes with detachable warrants
for the purchase of 573,990 shares of common stock. No value was allocated to
the warrants at the time of issuance because the interest rate on the Notes was
considered a market rate and the exercise price was greater than the estimated
fair value of the common stock. The Notes bear interest at an effective annual
rate of 11%. All other terms of the Notes are substantially the same as those
discussed above.
In connection with the Company's acquisition of PHC, the Company issued
approximately $7,123,000 principal amount of Notes, and assumed approximately
$12,970,000 of mortgage financing on the PHC facilities, $257,000 in
capitalized leases, $159,000 in notes payable and a working capital credit
facility with a balance of approximately $1,494,000, which was repaid from
available cash of the Company and PHC. The Notes bear interest at an effective
annual rate of 11%. All other terms of the Notes are substantially the same as
those discussed above.
The mortgage notes are payable to Health Care REIT, Inc. and bear interest at
an annual rate that increases yearly from 13.44% at December 31, 1995, to 15.4%
at November 1, 2001. Thereafter, the mortgage bears interest at an annual rate
equal to the seven year US Treasuries rate plus 500 basis points.
Approximately $10,125,000 principal balance of the mortgage matures
on December 1, 2008, with principal payments on that portion commencing in
F-16
<PAGE> 53
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
December 1995, based on 25 year amortization. The remaining balance of the
mortgage requires quarterly principal payments of $200,000 through 1997. The
Company sold the Sherman, Texas facility for approximately $1,300,000 on March
22, 1995. In connection with the sale, the Company made a required principal
payment of $850,000 on the mortgage collateralized by this facility and
obtained a release of collateral from the lender. The remaining principal
balance is now collateralized by the Company's hospital in Alexandria,
Louisiana.
Other notes payable bear interest at rates ranging from 5.1% to 11.8% and are
generally collateralized by the underlying assets to which they relate.
On November 5, 1993, the Company refinanced its subsidiary term and revolving
credit loans obtained in August 1991, with a $50 million credit facility
comprised of a $20,000,000 term loan and a $30,000,000 revolving credit
facility (collectively, the "old credit facility," as referred to above). In
connection with the refinancing, a prepayment premium and unamortized deferred
financing costs of $1,230,000, net of an income tax benefit of $634,000, were
written off and recorded as an extraordinary loss.
The Company capitalized approximately $1,462,000 and $294,000 in interest costs
associated with the construction of a hospital and other medical related
facilities at December 31, 1995 and 1994, respectively. The Company had no
capitalized interest for the year ended December 31, 1993.
The Revolving Loan, Notes and Mortgages referenced above contain restrictive
covenants which include, among others, restrictions on additional indebtedness,
the payment of dividends and other distributions, the repurchase of common
stock and related securities under certain circumstances, and the requirement
to maintain certain financial ratios. The Company was in compliance with or
has obtained permanent waivers for all loan covenants to which it was subject
as of December 31, 1995 and 1994.
Maturities of debt as of December 31, 1995, were as follows (dollars in
thousands):
<TABLE>
<S> <C>
1996 $ 1,166
1997 2,514
1998 885
1999 47,785
2000 79
Thereafter 108,407
---------
$ 160,836
=========
</TABLE>
F-17
<PAGE> 54
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consisted of the following at December 31, 1995 and
1994 (See Note 8 "Stockholders' Equity" for a discussion of the effect of the
Recapitalization on the outstanding series of preferred stock):
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Series D - Cumulative convertible redeemable preferred
stock, $.01 par, 2,200,000 shares authorized; 2,156,903 and
2,105,258 shares issued and outstanding at
December 31, 1995 and 1994, respectively
($38,824 and $39,787 liquidation value in 1995
and 1994, respectively) $ 37,982 $ 38,754
Series C - Cumulative convertible redeemable preferred
stock, $.01 par, 500,000 shares authorized; 448,811 shares
issued and outstanding at December 31, 1995 and 1994
($8,079 and $8,778 liquidation value in 1995 and 1994,
respectively) 8,047 8,740
Series BB - Cumulative convertible redeemable preferred
stock, $.01 par; 1,577,547 shares issued and
outstanding at December 31, 1994 -- 21,551
Series A-1 - Cumulative convertible redeemable preferred stock,
$.01 par; 2,769,109 shares issued and outstanding at
December 31, 1994 -- 3,206
Series A - Cumulative convertible redeemable preferred stock,
$.01 par; 3,500,000 shares issued and outstanding at
December 31, 1994 -- 4,043
-------- ---------
$ 46,029 $ 76,294
======== =========
</TABLE>
SERIES D
The Series D cumulative convertible redeemable preferred stock ("Series D") is
convertible, at the holder's option, into the common stock at a price of $9.00
per share until redemption date. The conversion price is subject to adjustment
upon the sale or issuance of additional common stock, including stock rights,
options and convertible securities, for consideration less than the conversion
price in effect immediately prior to the sale or issuance in question.
Redemption of Series D shares will occur only on the redemption date of June 1,
2000, at the redemption price of $18.00 per share. If all outstanding shares
of Series D and Series C can not be redeemed at the same time, then redemption
of such shares will be prorated with preference given to Series D, as defined.
Series D shares are entitled to liquidation payments of $18.00 per share. If
the Company is unable to pay fully the Series D and Series C stockholders, then
liquidation of such shares will be prorated with preference given to Series D,
as defined. Series D will participate in any dividends declared on common
stock on an as converted basis. At December 31, 1995, the Series D shares were
convertible into 4,313,806 shares of common stock.
The Company issued 51,645 shares of Series D preferred stock to PHC
shareholders in 1995 pursuant to the exercise of options and the issuance of
contingent consideration due under the terms of the PHC purchase agreement. On
October 21, 1994, the Company issued 212,661 shares of Series D preferred stock
to PHC shareholders in connection with its acquisition of PHC. On December 30,
1994, the Company issued 623,453 shares of Series D preferred stock pursuant to
existing commitments for the original purchasers of Series D. Cash proceeds
from the December 30, 1994, issuance were $11,222,000.
F-18
<PAGE> 55
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. REDEEMABLE PREFERRED STOCK (CONTINUED)
SERIES C
The Series C cumulative convertible redeemable preferred stock ("Series C") is
convertible, at the holder's option, into common stock at a price of $9.00 per
share until the redemption date. The conversion price is adjustable upon the
same terms and conditions as Series D preferred stock. Redemption of Series C
shares will occur only on the redemption date of June 1, 2000, at the
redemption price of $18.00 per share. Series C will participate in any
dividends declared on common stock on an as converted basis. If all
outstanding shares of Series D and Series C can not be redeemed at the same
time, then redemption of such shares will be prorated with preference given to
Series D, as defined. Series C shares are entitled to liquidation payments of
$18.00 per share. If the Company is unable to pay fully the Series D and
Series C stockholders, then liquidation of such shares will be prorated with
preference given to Series D, as defined. At December 31, 1995, Series C
shares were convertible into 897,622 shares of common stock.
The Company has the right to convert all or any shares of Series D and C into
common stock upon the anticipated completion of a public offering of common
stock for net proceeds of not less than $25,000,000 at a per share offering
price of not less than $10.00 per share.
Voting Rights for Series C and D Preferred Stock. Series C and D preferred
stock have voting rights on all matters according to the number of common
shares into which each Series is convertible at the time of any shareholders'
vote. The issuance of a new class of stock or the increase of shares within an
existing class of stock that either ranks on parity with or is superior to a
given series of preferred stock as to dividends, redemption and liquidation
requires the following approvals by the then outstanding class or classes: (1)
75% of Series C voting together as a class, and (2) 75% of Series D voting as a
class. No amendment of voting powers, designations, preferences or rights and
no amendments of Articles or Bylaws that materially adversely affect the rights
of Series C and D preferred stock shall occur without the following approvals
by the then outstanding class or classes: (1) 90% of Series C voting together
as a class and (2) 90% of the Series D voting as a class. Upon the occurrence
of an event of default, the preferred stock shareholders will have the right to
enlarge the Board of Directors and elect a controlling number of directors.
Pursuant to the Recapitalization, all outstanding shares Series A, A-1, and BB
preferred stock, under their existing terms, were converted into common stock
at December 31, 1995, along with all accrued dividends as of December 31, 1995.
In total, including additional consideration for the actions taken pursuant to
the Recapitalization, the holders of Series A, A-1, and BB preferred stock
received 5,889,523 shares of common stock. See Note 8 "Stockholders' Equity"
for a discussion of the terms of the Recapitalization.
SERIES BB
The Series BB cumulative convertible redeemable preferred stock ("Series BB")
was convertible, at the holder's option, into common stock at a price of $5.90
per share until redemption date and were mandatorily redeemable on June 30,
2000, at $11.80 per share plus any accrued and unpaid dividends. Dividends had
accrued at a rate of 8% of the stated value of $11.80 per share and were
payable in cash under certain events, including, among others, a change in
control or a successful secondary public offering of the Company's common
stock.
SERIES A-1
Series A-1 cumulative convertible redeemable preferred stock ("Series A-1") was
convertible, at the holder's option, into common stock at a conversion rate of
1 share of common stock for each four shares of Series A-1 preferred stock.
Series A-1 shares were mandatorily redeemable, at the holder's option, at $1.00
per share within 90 days of receipt of written notice of a change of control or
a default event (as defined). Dividends on Series A-1 accrued at a rate of
$.08 per share per annum. Dividends were payable in common stock and/or cash
in the event of a change of control, as define, subject to the Company's
existing agreement with senior secured lenders and the
F-19
<PAGE> 56
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. REDEEMABLE PREFERRED STOCK (CONTINUED)
approval of two-thirds of all outstanding Series BB, C and D preferred stock.
The Series A-1 preferred stockholders were entitled to liquidation payments of
$1.00 per share plus all accrued but unpaid dividends, or ratable payments
among all Series A and A-1 preferred stockholders if such amounts were not
available for payment by the Company. Liquidation payments were subject to the
prior liquidation rights of the Series BB through D preferred stockholders.
SERIES A
Series A cumulative convertible redeemable preferred stock ("Series A") was
convertible, at the holder's option, into common stock at a conversion rate of
1 share of common stock for each 3.685 shares of Series A Preferred Stock.
All other rights and preferences that apply to Series A-1 preferred stock apply
to Series A preferred stock.
F-20
<PAGE> 57
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. REDEEMABLE PREFERRED STOCK (CONTINUED)
The changes in redeemable preferred stock for the years ended December 31,
1995, 1994 and 1993 were as follows (dollars in thousands, except share data):
<TABLE>
<CAPTION>
Series D Series C Series BB
Shares Amounts Shares Amounts Shares Amounts
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 1,287,597 $15,272
Exercise of stock warrants 289,950 3,422
Issuance of preferred stock -
Series C (net of $46 in issue
costs) 448,811 $ 8,033
Issuance of preferred stock -
Series D (net of $837 in
issue costs) 1,269,144 $ 22,008
Preferred dividends accrued,
including accretion of
issuance costs 56 1,301
--------- --------- ------- ------- --------- ------
BALANCE, DECEMBER 31, 1993 1,269,144 22,008 448,811 8,089 1,577,547 19,995
Issuance of preferred stock -
Series D (net of $327 in
issue costs) 836,114 14,723
Preferred dividends accrued,
including accretion of
issuance costs 2,023 651 1,556
--------- ---------- ------- ------- --------- ------
BALANCE, DECEMBER 31, 1994 2,105,258 38,754 448,811 8,740 1,577,547 21,551
Issuance of preferred stock -
Series D 51,645 930
Preferred dividends accrued,
including accretion of
issuance costs 3,222 653 1,559
Dividends declared pursuant
to the Recapitalization 3,610 751 739
Recapitalization (8,534) (2,097) (1,577,547) (23,849)
--------- --------- ------- ------- ---------- --------
BALANCE, DECEMBER 31, 1995 2,156,903 $ 37,982 448,811 $ 8,047 -- $ --
========= ========= ======= ======= ========== ========
</TABLE>
<TABLE>
<CAPTION>
Series A-1 Series A
Shares Amounts Shares Amounts
------ ------- ------ -------
<S> <C <C> <C> <C>
BALANCE, JANUARY 1, 1993 2,769,109 $ 2,876 3,500,000 $ 3,598
Exercise of stock warrants
Issuance of preferred stock -
Series C (net of $46 in issue
costs)
Issuance of preferred stock -
Series D (net of $837 in
issue costs)
Preferred dividends accrued,
including accretion of
issuance costs 128 167
---------- ------- --------- ---------
BALANCE, DECEMBER 31, 1993 2,769,109 3,004 3,500,000 3,765
Issuance of preferred stock -
Series D (net of $327 in
issue costs)
Preferred dividends accrued,
including accretion of
issuance costs 202 278
---------- ------- --------- ---------
BALANCE, DECEMBER 31, 1994 2,769,109 3,206 3,500,000 4,043
Issuance of preferred stock -
Series D
Preferred dividends accrued,
including accretion of
issuance costs 234 314
Dividends declared pursuant
to the Recapitalization 110 139
Recapitalization (2,769,109) (3,550) (3,500,000) (4,496)
---------- ------- --------- ---------
BALANCE, DECEMBER 31, 1995 -- $ -- -- $ --
========== ======= ========= =========
</TABLE>
F-21
<PAGE> 58
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
NOTE 8. STOCKHOLDERS' EQUITY
Recapitalization
Effective December 31, 1995, the Company, pursuant to the 1995 Recapitalization
Agreement, entered into several transactions to reduce the complexity of the
Company's capital structure and eliminate the accrual of future dividends on
its outstanding preferred stock and the resulting impact on earnings per share.
As a part of these transactions (i) all outstanding shares of Series A, A-1,
and BB preferred stock, pursuant to their terms, converted into 4,797,161
shares of common stock, (ii) all accrued dividends at December 31, 1995,
totaling approximately $12,614,000 on all classes of the Company's outstanding
preferred stock were paid by issuing 1,801,900 shares of common stock at an
agreed upon price of $7.00 per share, and (iii) the holders of Series C and D
preferred stock agreed to waive the future accrual of preferential dividends.
As a further part of these transactions, the Company issued an additional
1,006,783 shares of common stock to all holders of its then outstanding
preferred stock as consideration for actions taken and agreed to reduce the
exercise prices of one series of warrants totaling 680,104 from $5.90 to $5.25
per share and two series of warrants totaling 2,447,670 from $9.00 to $7.00 per
share until May 13, 1996, after which the exercise prices revert to their prior
amounts. Warrant holders have the right to tender subordinated debt in lieu of
cash, where applicable. Shareholders approved the Recapitalization and an
Amended Certificate of Incorporation at a special shareholders meeting held on
February 12, 1996. As a result of the Recapitalization, common shares
outstanding at December 31, 1995, increased from 4,262,386 to 11,868,230, and
preferred shares outstanding decreased from 10,452,370 to 2,605,714. Other
than for fractional shares, no cash consideration was paid under the terms of
the Recapitalization. On a pro forma basis, assuming the Recapitalization had
occurred on January 1, 1995, primary and fully diluted earnings per share would
have been $0.27 and $0.19, respectively, for the year ended December 31, 1995.
Under the terms of the Company's amended Certificate of Incorporation, the
Company is authorized to issue 25,000,000 shares of common stock, and 2,700,000
shares of preferred stock, divided into two series as follow: (i) 500,000
shares of Series C, and (ii) 2,200,000 shares of Series D.
Common Stock
In connection with the Company's merger with AmeriHealth, Inc. ("AHH") on
December 6, 1994, the Company issued 1 share of $0.01 par value common stock in
exchange for each share of Company common stock outstanding prior to the
consummation of the merger. The stockholders' equity accounts were
retroactively restated to reflect the issuance of $0.01 par value common stock
(See Note 3. "Acquisitions and Other Investments"). Additionally, the Company
paid a cash distribution of $0.085 per share to all AHH common stockholders.
Currently, payment of any cash dividends or other distributions or repurchases
of any capital stock of the Company are prohibited.
F-22
<PAGE> 59
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans
The Company has six nonstatutory stock option plans in which certain officers
and/or directors are eligible to participate: Employee Stock Option Plan,
dated December 31, 1991 ("Plan No. 1"), Employee Stock Option Plan No. 2, dated
May 27, 1992 ("Plan No. 2"), Employee Stock Option Plan No. 3, dated September
1992 ("Plan No. 3"), Senior Executive Stock Option Plan No. 4, dated January 5,
1994 ("Plan No. 4"), Selected Executive Stock Option Plan No. 5, dated May 25,
1995, and Directors' Stock Option Plan, dated 1992 (the "Directors' Plan")
(collectively, the "Plans"). Additionally, the Company has options issued and
outstanding to certain executive officers and key employees under other
authorized plans from which additional options are not actively being issued.
At the Company's annual stockholders meeting on May 25, 1995, the stockholders
approved the adoption of the Selected Executive Stock Option Plan No. 5, which
authorized 144,500 shares of common stock for issuance under the Plan.
As a result of the Company's merger with AmeriHealth, Inc. on December 6, 1994,
all AmeriHealth options then outstanding became fully vested. At December 31,
1994, 244,017 options granted to certain former AmeriHealth directors, officers
and key employees were outstanding and fully vested.
The Plans are presently administered by the Option and Compensation Committee
(the "Committee") of the Board of Directors. Officers, other key employees
and, under limited circumstances, members of the Board of Directors are
eligible to participate in Plan No. 1. Officers and executive personnel of the
Company are eligible to participate in Plans No. 2 through 5. The Directors'
Plan is available to members of the Board of Directors who are not members of
management or elected as representatives of the Company's preferred
stockholders pursuant to a voting agreement.
With the exception of Plan 1, options granted under the Plans can not be less
than 80% of the fair market value of common stock on the date of the grant.
Under Plan 1, the per share price can not be less than 100% of the fair market
value of the common stock on the date of grant. The Plans provide that no
stock option shall be exercisable later than 10 years and 1 day from the date
of grant.
The following table summarizes the activity under these stock option plans and
any special grants authorized by the Board of Directors:
<TABLE>
<CAPTION>
Number of Option Price Per
Shares Share
--------- ---------------
<S> <C> <C>
STOCK OPTIONS OUTSTANDING
AT JANUARY 1, 1993 690,000 $1.00 to $6.25
Granted 15,000 $5.90 to $9.00
---------
STOCK OPTIONS OUTSTANDING
AT DECEMBER 31, 1993 705,000 $1.00 to $9.00
Granted 367,566 $9.00
Grants to former AmeriHealth employees 244,017 $1.07 to $35.65
---------
STOCK OPTIONS OUTSTANDING
AT DECEMBER 31, 1994 1,316,583 $1.00 to $35.65
Granted 159,000 $9.00
Exercised (18,411) $5.35
Expired (4,943) $3.92 to $35.65
---------
STOCK OPTIONS OUTSTANDING
AT DECEMBER 31, 1995 1,452,229 $1.00 to $25.67
=========
</TABLE>
F-23
<PAGE> 60
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1995, options for the purchase of 1,044,852 common shares were
exercisable.
Shares Reserved. Shares covered by stock options that expire or otherwise
terminate unexercised become available for awards under the respective Plans.
At December 31, 1995, the Company had reserved 1,811,147 shares of common stock
for awards under its various stock option plans, of which 358,918 were
available for new grants.
Warrants
As of December 31, 1995, the Company had issued and outstanding a total of
2,858,541 warrants to purchase 3,244,412 shares of common stock at exercise
prices ranging from $0.01 per share to $9.00 per share. Such warrants expire
December 31, 1997, through December 31, 2003. Pursuant to the Recapitalization
approved by the shareholders on February 12, 1996, the exercise prices on
certain of the warrants were reduced until May 13, 1996, after which the
exercise prices revert to their prior amounts (see Recapitalization above).
NOTE 9. INCOME TAXES
The provision for income taxes consisted of the following for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Current:
Federal $ 100 $ (1,600) $ 1,310
State 50 200 236
------ --------- --------
Total current provision (benefit) 150 (1,400) 1,546
------ --------- --------
Deferred:
Federal -- 1,600 (537)
State -- -- --
------ --------- --------
Total deferred expense (benefit) -- 1,600 (537)
------ --------- --------
Provision for income taxes $ 150 $ 200 $ 1,009
====== ========= =======
</TABLE>
F-24
<PAGE> 61
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
The reconciliation of the statutory federal income tax rate to the provision
for income taxes was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Federal income tax provision (benefit) at
statutory rate of 34% $ 838 $ 831 $ (4,004)
State income taxes, net of federal benefit 33 132 156
Changes in valuation allowance (580) (849) 4,359
Extraordinary item (634)
Net operating loss for which no benefit is
recognizable 525
Other (141) 86 (27)
-------- -------- --------
Provision for income taxes 150 200 375
Amount allocated to extraordinary item -- -- 634
-------- -------- --------
Total provision for income taxes $ 150 $ 200 $ 1,009
======== ======== ========
</TABLE>
The components of the deferred tax assets and (liabilities) at December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Net operating loss carryforward $ 7,062 $ 5,894
Depreciable equipment (11,680) (12,532)
Amounts expensed for book purposes not currently
deductible for tax 2,779 4,237
Investments in partnerships (140) (800)
Tax credits 388 441
Less valuation allowance (3,281) (2,046)
---------- ---------
Net deferred tax liability (4,872) (4,806)
Less current portion (2,521) (1,671)
---------- ----------
Noncurrent portion $ (7,393) $ (6,477)
========== =========
</TABLE>
The current deferred tax asset was included in prepaid expenses and other
current assets in 1995 and 1994. The noncurrent deferred tax liability in 1995
and 1994 was included in other long-term liabilities.
At December 31, 1995, the Company had net operating losses and tax credit
carryforwards for income tax purposes of approximately $18,587,000 and
$388,000, respectively, which will expire in years 1999 through 2009. The tax
credit carryforwards consist of several business credits and alternative
minimum tax ("AMT") credits of approximately $68,000 and $320,000,
respectively.
F-25
<PAGE> 62
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
For federal income tax purposes, due to certain changes in ownership of
AmeriHealth, Inc., its net operating loss carryforward of $7,727,000 (included
in the Company's net operating loss carryforward) may be limited to
approximately $1,900,000 per year under the Internal Revenue Service Code. If
the available amount is not used to reduce taxes in any year, the unused amount
increases the allowable limit in subsequent years. These loss carryforwards
expire in years 1999 through 2008. AmeriHealth, Inc. also has General Business
Credit and AMT Credit carryforwards of approximately $68,000 and $100,000,
respectively, which may also be limited because of the change in ownership.
NOTE 10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C>
Income taxes paid $ 95 $ 878 $ 478
Interest paid 12,528 5,582 2,762
</TABLE>
NOTE 11. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution 401(k) plan for qualified employees
of the Company. For those employees of the Company electing to participate,
the Company matches certain employee contributions and may make additional
discretionary contributions.
Total expense for employer contributions to the plan for 1995, 1994 and 1993
was $319,000, $258,000 and $84,000, respectively.
NOTE 12. RELATED PARTY TRANSACTIONS
Management Prescriptives, Inc. ("MPI"), a company owned by a Director of the
Company, has provided specialized consulting services to certain of the
Company's hospitals. MPI received approximately $421,000 and $283,000 in fees
from the Company for the years ended December 31, 1995 and 1994, respectively.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating lease agreements related to
buildings and equipment. Future annual minimum lease payments under
noncancelable operating leases with initial or remaining terms of one year or
more were as follows at December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
1996 $ 2,649
1997 2,266
1998 1,842
1999 1,544
2000 1,230
Thereafter 2,379
--------
$ 11,910
========
</TABLE>
F-26
<PAGE> 63
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for 1995, 1994 and 1993 was approximately $3,530,000, $2,648,000
and $2,348,000, respectively.
Litigation. The Company is from time to time subject to claims and suits
arising in the ordinary course of operations. In the opinion of management,
the ultimate resolution of such pending legal proceedings will not have a
material effect on the Company's financial position, results of operations or
liquidity.
Professional Liability. The Company is self-insured up to $1,000,000 per
occurrence for the payment of claims arising from professional liability risks.
The Company has accrued liabilities for potential professional liability risks
based on estimates for losses limited to $1,000,000 per occurrence and
$4,000,000 in the aggregate. The Company is further insured by a commercial
insurer for claims in excess of these limits up to an additional $10,000,000
over its self-insured retention. At December 31, 1995 and 1994, the Company
had accrued approximately $3,171,000 and $2,681,000, respectively, related to
such claims. In the opinion of management, any unaccrued damages awarded will
not have a material adverse effect on the Company's financial position, results
of operations or liquidity.
F-27
<PAGE> 64
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. QUARTERLY RESULTS (UNAUDITED)
The following tables summarize the Company's quarterly financial data for the
years ended December 31, 1995 and 1994 (dollars in thousands, except per share
data).
<TABLE>
<CAPTION>
FIRST SECOND (2) THIRD FOURTH
1995(1) QUARTER QUARTER QUARTER QUARTER
- ------- --------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 28,727 $ 43,319 $ 45,789 $ 49,685
Income before extraordinary
item 177 829 791 1,635
Net income (loss) 177 (289) 791 1,635
Primary loss per common
share: (3)
Loss before extraordinary item
per common share (0.31) (0.16) (0.17) (1.22)
Loss per common share (0.31) (0.42) (0.17) (1.22)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
- ---- --------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 24,563 $ 23,403 $ 23,331 $ 32,896
Net income (loss) 1,473 757 1,028 (1,015)
Primary income (loss) per common
share (3) .21 (0.31) (0.12) (1.03)
Fully diluted income per common
share (3) .15 -- (1) -- (1) -- (1)
</TABLE>
(1) Fully diluted earnings per share for the period has not been presented
due to the antidilutive effect of such calculation.
(2) The net loss for the second quarter of 1995 included an extraordinary
loss of approximately $1,118,000 from the early extinguishment of
debt. Additionally, results for the quarter and six months ended June
30, 1995, and the nine months ended September 30, 1995, have been
restated from amounts previously reported in Form 10Q and 10Q/A to
eliminate the tax benefit associated with the extraordinary loss due
to a revision in the Company's estimate of the impact of net operating
loss carryforwards.
(3) Earnings per share is computed independently for each quarter
presented; therefore, the sum of the per share amounts does not equal
the annual per share amount due to quarterly fluctuations in weighted
average common and common equivalent shares outstanding.
F-28
<PAGE> 65
CHAMPION HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company's revenues consist primarily of amounts due from the Medicare and
Medicaid programs in addition to amounts due from insurance carriers and
individuals. The Company determines the adequacy of a patient's third-party
payor coverage upon admission. However, it generally does not require any
collateral prior to performing services. The Company maintains reserves for
contractual allowances and potential credit losses based on past experience and
management's current expectations. Medicare and Medicaid gross revenue
accounted for approximately 42% and 19% in 1995, 39% and 18% in 1994, and 39%
and 12% in 1993, respectively, of the Company's total gross revenue.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents approximates fair value due
to the short term maturities of these instruments. The carrying amounts of the
Company's fixed rate long-term borrowings at December 31, 1995 and 1994,
approximate their fair value.
The carrying value of the Company's revolving credit agreement approximates
fair value because the interest rate on such agreement is variable and based on
current market rates.
NOTE 16. SUBSEQUENT EVENTS
On January 31, 1996, the Company entered into a letter of intent to sell the
149 bed Lakeland Regional Hospital in Springfield, MO, to Columbia in exchange
for the 100 bed Poplar Springs Hospital in Petersburg, VA. Both facilities are
psychiatric hospitals. The Company anticipates receiving additional cash
consideration as a result of the sale, net of certain working capital
components and the respective facilities' long term debt. This transaction is
subject to numerous contingencies, including adequate due diligence and various
regulatory approvals; accordingly, the Company is presently unable to conclude
whether consummation of this transaction is more likely than not to occur.
F-29
<PAGE> 66
DAKOTA HEARTLAND HEALTH SYSTEM
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
F-30
<PAGE> 67
C O N T E N T S
<TABLE>
<S> <C>
Report of Independent Accountants F-32
Financial Statements:
Balance Sheet F-33
Statement of Income F-34
Statement of Partners' Equity F-35
Statement of Cash Flows F-36
Notes to Financial Statements F-37
</TABLE>
F-31
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Governing Board of
Dakota Heartland Health System:
We have audited the accompanying balance sheet of Dakota Heartland Health
System (the Partnership) as of December 31, 1995 and 1994, and the related
statements of income, partners' equity and cash flows for the year ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dakota Heartland Health System
as of December 31, 1995 and 1994, and the results of its operations, partners'
equity and cash flows for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
February 16, 1996
F-32
<PAGE> 69
Dakota Heartland Health System
BALANCE SHEET
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,062,865 $ 397,300
Patient receivables, net of allowance for uncollectible accounts of
$3,396,655 and $3,439,911 in 1995 and 1994, respectively 17,339,282 21,530,288
Due from partners 4,000,000
Supplies inventory 1,602,786 1,724,706
Prepaid expenses and other current assets 1,003,019 568,052
------------- --------------
Total current assets 39,007,952 28,220,346
Property and equipment, at cost 52,940,547 42,333,642
Other assets:
Investment in and advances to affiliates 1,835,223 1,964,073
Organizational costs, less accumulated amortization of $45,291 1,057,215
Other 20,943
------------ -------------
Total assets $ 94,861,880 $ 72,518,061
============ =============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable $ 12,380,016 $ 3,788,183
Estimated third-party payor settlements 2,008,176 3,426,079
Accrued salaries, wages and employee benefits 3,548,505 4,754,690
Other current liabilities 2,043,794 242,563
------------ --------------
Total current liabilities 19,980,491 12,211,515
Other liabilities 91,404
Minority interest 56,877 38,478
Partners' equity 74,824,512 60,176,664
------------ -------------
Total liabilities and partners' equity $ 94,861,880 $ 72,518,061
============ =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-33
<PAGE> 70
DAKOTA HEARTLAND HEALTH SYSTEM
STATEMENT OF INCOME
for the year ended December 31, 1995
<TABLE>
<S> <C>
Net patient service revenue $ 99,098,598
Other revenue 6,912,796
-------------
Net revenue 106,011,394
-------------
Expenses:
Salaries and benefits 38,796,941
Professional fees 20,446,296
Supplies 16,299,957
Depreciation and amortization 2,405,978
Repairs and maintenance 1,079,489
Utilities 1,224,450
Insurance 789,648
Rents and leases 2,003,288
Provision for uncollectible accounts 3,797,944
Property taxes 910,264
Other 2,109,291
-------------
Total expenses 89,863,546
-------------
Net income $ 16,147,848
=============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-34
<PAGE> 71
DAKOTA HEARTLAND HEALTH SYSTEM
STATEMENT OF PARTNERS' EQUITY
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Champion Dakota Total Equity
<S> <C> <C> <C>
Net assets contributed $ 16,511,768 $ 39,664,896 $ 56,176,664
Cash contribution 20,000,000 20,000,000
Working capital contributions due from partners 2,000,000 2,000,000 4,000,000
Equalization of capital accounts 1,576,564 (1,576,564)
-------------- -------------- ---------------
Initial capital 40,088,332 40,088,332 80,176,664
Special distribution (20,000,000) (20,000,000)
-------------- -------------- ---------------
Partners' equity, December 31, 1994 40,088,332 20,088,332 60,176,664
Net income 8,881,316 7,266,532 16,147,848
Partners' distributions (825,000) (675,000) (1,500,000)
-------------- -------------- ---------------
Partners' equity, December 31, 1995 $ 48,144,648 $ 26,679,864 $ 74,824,512
============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-35
<PAGE> 72
DAKOTA HEARTLAND HEALTH SYSTEM
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
for the year ended December 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 16,147,848
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,405,978
Gain on sale of property, plant and equipment (1,388)
Provision for uncollectible accounts 3,797,944
Minority interest 18,399
Changes in operating assets and liabilities:
Patient receivables, net 393,062
Supplies inventory 121,920
Prepaid expenses and other current assets (434,967)
Other assets (20,943)
Accounts payable 8,591,833
Estimated third-party payor settlements (1,417,903)
Accrued expenses (1,206,185)
Other liabilities 1,709,827
--------------
Net cash provided by operating activities 30,105,425
--------------
Cash flows from investing activities:
Purchase of property and equipment (12,967,592)
Payment for organizational costs (1,102,506)
Contribution from partners 4,000,000
Other 130,238
--------------
Net cash used in investing activities (9,939,860)
--------------
Cash flows from financing activities:
Partners' draws (1,500,000)
--------------
Net cash used in financing activities (1,500,000)
--------------
Increase in cash and cash equivalents 18,665,565
Cash and cash equivalents, beginning of year 397,300
--------------
Cash and cash equivalents, end of year $ 19,062,865
==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 15,236
Cash paid for taxes 447,207
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-36
<PAGE> 73
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND ACCOUNTING POLICIES:
On December 21, 1994, Dakota Heartland Health System, a general partnership
(the Partnership), was formed by a wholly owned subsidiary of Champion
Healthcare Corporation (Champion) that owned Heartland Medical Center, a
140-bed general acute care facility in Fargo, North Dakota, and Dakota Hospital
(Dakota), a not-for-profit corporation that owned Dakota Hospital, a 199-bed
general acute care hospital also in Fargo, North Dakota. Champion and Dakota
contributed certain assets and liabilities, excluding long-term debt except
capital leases, of their respective hospitals, and Champion contributed an
additional $20,000,000 in cash, each in exchange for 50% ownership in the
Partnership. The Partnership then made a $20,000,000 cash distribution to
Dakota. Also on December 21, 1994, Champion entered into an operating
agreement with the Partnership to manage the combined operations of the two
hospitals. Champion will receive 55% of the net income and distributable cash
flow (DCF) of the Partnership until such time as it has recovered, on a
cumulative basis, an additional $10,000,000 of DCF in the form of an "excess"
distribution (see also Note 4).
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net income during the reporting period. Actual results
could differ from those estimates. The most significant areas which require
the use of management's estimates relate to the determination of the estimated
third-party payor settlements, the allowance for uncollectible accounts
receivable and obsolete inventory.
CASH AND CASH EQUIVALENTS:
The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PATIENT RECEIVABLES:
Payments for services rendered to patients covered by third-party payor programs
are generally less than billed charges. Provisions for contractual adjustments
are made to reduce the charges to these patients to estimated receipts based
upon the third-party payor's principles of payment/reimbursement (either
prospectively determined or retrospectively determined costs).
SUPPLIES INVENTORY:
Supplies inventory is stated at the lower of cost or market, with cost
determined substantially on the first-in, first-out basis.
F-37
<PAGE> 74
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND ACCOUNTING POLICIES, CONTINUED:
PROPERTY AND EQUIPMENT:
Property and equipment acquisitions are recorded at cost at the date of
receipt. Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets, ranging from 4 to 25 years.
Maintenance and repairs are charged to expense as incurred while renewals and
betterments are capitalized. The costs and related accumulated depreciation
on asset disposals are removed from the accounts and any gain or loss is
included in income.
INCOME TAXES:
The Partnership's income is attributed to its partners for income tax
purposes. Accordingly, it has not accrued any liability for income taxes.
Entities owned by the Partnership have paid income taxes during 1995 totaling
$447,207.
RECLASSIFICATIONS:
Certain reclassifications have been made in the 1994 financial statements to
conform to the 1995 presentation.
2. NET PATIENT SERVICE REVENUE:
The Company's facilities have entered into agreements with third-party
payors, including U.S. government programs and managed care health plans,
under which the Company is paid based upon established charges, cost of
services provided, predetermined rates by diagnosis, fixed per diem rates or
discounts or discounts from established charges.
Net patient service revenues are recorded at estimated amounts due from
patients and third-party payors for health care services provided, including
anticipated settlements under reimbursement agreements with third-party
payors. Payments for services rendered to patients covered by the Medicare
and Medicaid programs are generally less than billed charges. Provisions for
contractual adjustments are made to reduce charges to these patients to
estimated receipts based upon each program's principle of
payment/reimbursement (either prospectively determined or retrospectively
determined costs). Final settlements under these programs are subject to
administrative review and audit. The Company records adjustments, if any,
resulting from such review or audits during the period in which these
adjustments become known. Allowance for contractual adjustments under these
programs are netted in accounts receivable in the accompanying Balance Sheet.
It is management's opinion that adequate allowance has been provided for
possible adjustments that might result from final settlements under these
programs.
F-38
<PAGE> 75
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. PROPERTY AND EQUIPMENT:
A summary of property and equipment as of December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land and land improvements $ 2,360,412 $ 2,387,095
Buildings and improvements 21,624,868 20,087,268
Fixed equipment 4,899,749 4,724,125
Major movable equipment 13,863,470 12,516,205
Minor movable equipment 1,003,318 1,101,633
Construction in progress 10,638,351 606,250
Property held for expansion 911,066 911,066
-------------- --------------
55,301,234 42,333,642
Less accumulated depreciation 2,360,687
-------------- --------------
$ 52,940,547 $ 42,333,642
============== ==============
</TABLE>
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES:
The Partnership owns portions of several entities. The investments in
these entities are recorded on the equity method. The investments in and
advances to affiliated companies on the accompanying balance sheet
consisted of the following:
<TABLE>
<CAPTION> INVESTMENTS AND
ADVANCES
OWNERSHIP ---------------------------
CORPORATION PERCENTAGE 1995 1994
<S> <C> <C> <C>
Orthopro, Inc. 50% $ 203,155
Country Health, Inc. 49% $ 805,632 665,629
Health Care Incinerators, Inc./Thom Linen 33% 210,701 193,235
Dakota Outpatient Center 50% 356,016 311,604
Dakota Day Surgery 50% 462,874 590,450
------------ -----------
$ 1,835,223 $ 1,964,073
============ ===========
</TABLE>
During 1995, the Partnership sold its 50% interest in Orthopro, Inc.
The Partnership has a 50% interest in Dakota Outpatient Center (DOC), a general
partnership which owns and operates a medical and office building. As a
general partner, the Partnership is contingently liable on the outstanding debt
of DOC. As of December 31, 1995, the balance of the note was $2,416,564.
F-39
<PAGE> 76
DAKOTA HEARTLAND HEALTH SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES, CONTINUED:
DOC also leases its real property to Dakota Hospital, Dakota Day Surgery
(DDS) and Dakota Clinic, Ltd. (an unrelated corporation), under noncancelable
10-year net operating leases. Future minimum annual lease payments to be
paid by the Hospital and DDS are $1,414,500 through 1998.
The Partnership also has a 50% interest in DDS, a general partnership which
provides outpatient surgical services. As a general partner, the Partnership
is contingently liable to cover any operating losses of DDS. DDS had
operating income in 1995.
5. CREDIT RISK
The Partnership's revenues consist primarily of amounts due from the Medicare
and Medicaid programs in addition to amounts due from insurance carriers and
individuals. The Partnership determines the adequacy of a patient's
third-party payor coverage upon admission. However, it generally does not
require any collateral prior to performing services. The Partnership
maintains reserves for contractual allowances and potential credit losses
based on past experience and management's current expectations. Medicare and
Medicaid gross revenue accounted for approximately 46% and 9% of the
Partnership's total gross revenue.
F-40
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Our report on the consolidated financial statements of Champion Healthcare
Corporation is included on Page F-3 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the financial
statement schedules listed on page F-2 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 27, 1996
S-1
<PAGE> 78
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1995 1994
--------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,822 $ 41,512
Restricted cash -- 5,000
Prepaid expenses and other current assets 146 2,635
----------- ------------
Total current assets 2,968 49,147
Investments in and advances to subsidiaries 240,100 117,562
Property and equipment 1,298 2,874
Less allowance for depreciation (179) (376)
----------- ------------
Property and equipment, net 1,119 2,498
Intangible assets, net of accumulated amortization of
$1,017 and $425 5,436 3,887
Other assets 5,595 9,333
----------- ------------
Total assets $ 255,218 $ 182,427
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 17,798 $ 12,151
Long-term debt 148,260 83,376
Other liabilities 11,262 12,773
Redeemable preferred stock 46,029 76,294
Common stock 119 42
Common stock subscribed 40 50
Common stock subscription receivable (40) (50)
Paid-in capital 47,643 15,998
Accumulated deficit (15,893) (18,207)
----------- ------------
Total liabilities and stockholders' equity $ 255,218 $ 182,427
=========== ============
</TABLE>
See notes to condensed financial statements
S-2
<PAGE> 79
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Equity in earnings (loss) of subsidiaries $ 24,682 $ 10,500 $ (5,544)
Interest income 775 2,196 107
---------- --------- -----------
Net revenue 25,457 12,696 (5,437)
Costs and expenses:
Salaries and benefits 4,875 1,978 1,340
Other operating and administrative expenses 4,792 2,967 1,231
Interest expense 12,258 5,508 1,906
---------- --------- -----------
Total expenses 21,925 10,453 4,477
---------- --------- -----------
Income (loss) before income taxes and
extraordinary items 3,532 2,243 (9,914)
Provision for income taxes 100 -- 1,009
---------- --------- -----------
Income (loss) before extraordinary items 3,432 2,243 (10,923)
Extraordinary items:
Loss on early extinguishment of debt, net of a tax
benefit of $634 in 1993 (1,118) -- (1,230)
---------- --------- -----------
Net income (loss) $ 2,314 $ 2,243 $ (12,153)
========== ========== ===========
</TABLE>
See notes to condensed financial statements.
S-3
<PAGE> 80
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net cash used in operating activities $ (23,375) $ (11,941) $ (6,338)
Investing activities:
Additions to property and equipment (736) (103) (207)
Net payment for investment in partnership (2,000) (20,000)
Cash acquired in acquisitions 4,341
Purchase of facilities (59,810) (5,813)
Investment in note receivable (2,494) (757)
Advances to hospitals, net (17,479) (6,791) (970)
Proceeds from the sale of assets held for sale 1,534
Other (31) -- --
----------- --------- -----------
Net cash used in investing activities (81,016) (23,310) (6,990)
Financing activities:
Proceeds from issuance of long-term obligations 143,532 19,133 62,833
Payments on long-term obligations (80,347) (1,505) (20,006)
Payments on obligations assumed through acquisitions (10,911)
Payments related to issuance of long-term debt
obligations and other financing costs (3,927) (2,396)
Proceeds from issuance of redeemable preferred stock
and stock warrants 793 11,223 34,345
Cash restricted under collateral agreement (5,713)
Cash released under collateral agreement 5,713
Other (63) -- (883)
----------- --------- -----------
Net cash provided by financing activities 65,701 12,227 73,893
----------- --------- -----------
(Decrease) increase in cash and cash equivalents (38,690) (23,024) 60,565
Cash and cash equivalents at beginning of year 41,512 64,536 3,971
----------- --------- -----------
Cash and cash equivalents at end of year $ 2,822 $ 41,512 $ 64,536
=========== ========= ===========
</TABLE>
See notes to condensed financial statements.
S-4
<PAGE> 81
CHAMPION HEALTHCARE CORPORATION
SCHEDULE I -
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed financial statements are presented in accordance
with the requirements of Regulation S-X Rule 12-04 and consequently do not
include all of the disclosures normally required by generally accepted
accounting principles. Accordingly, these financial statements should be read
in conjunction with the annual audited consolidated financial statements
included elsewhere in this document.
Certain reclassifications have been made in prior year financial statements to
conform to the 1995 presentation. These reclassifications had no effect on the
results of operations previously reported.
NOTE 2. AMOUNTS ELIMINATED IN CONSOLIDATION
The following accounts, as reflected in the attached condensed financial
statements, are fully eliminated when consolidated with the financial
statements of the Company's wholly-owned subsidiaries: Investment in
subsidiaries; Advances to subsidiaries; and Equity in earnings (loss) of
subsidiaries. In addition, the following amounts are eliminated under the
equity method of accounting for intercompany transactions between the Company
and its subsidiaries and are therefore not included in the condensed statement
of operations.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Management fee income $ 3,963 $ 2,283 $ 1,733
Interest income on intercompany
receivable 10,847 4,680 4,310
Allocation of income taxes 50 200 236
</TABLE>
S-5
<PAGE> 82
CHAMPION HEALTHCARE CORPORATION
SCHEDULE II -
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS PERIOD
----------- --------- -------- -------- ---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts,
accounts receivable $4,723 $5,669 $ 371 $7,194 (2) $3,569
====== ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts,
accounts receivable $3,569 $7,812 $2,331 $8,753 (3) $4,959
====== ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts,
accounts receivable $4,959 $12,016 $2,590 $9,449 (2) $10,116
====== ======= ====== ====== =======
</TABLE>
(1) Relates to valuation allowance established at acquired companies on
the date of acquisition.
(2) Represents accounts written off as bad debt during the period.
(3) Approximately $1,449,000 of deductions represent the allowance for bad
debt associated with accounts receivable contributed to the DHHS
partnership with the balance representing accounts written off as bad
debt during the period.
S-6
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<S> <C>
4.01(c) Amended and Restated Loan Agreement dated as of May 31, 1995, among the registrant, Banque
Paribas as agent and the banks named therein.
4.01(d) Series E Note Purchase Agreement dated May 1, 1995, as amended, between the registrant and the
parties listed therein.
10.08 Employment Agreement between Charles R. Miller and the registrant dated August 4, 1995.
10.09 Employment Agreement between James G. VanDevender and the registrant dated August 4, 1995.
10.10 Employment Agreement between Ronald R. Patterson and the registrant dated August 4, 1995.
10.23(g) Form of Warrant issued pursuant to Series E Note Purchase Agreement, dated May 1, 1995, as
amended.
11 Statement re computation of per share earnings
21 Subsidiaries of the registrant
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.01(c)
================================================================================
AMENDED AND RESTATED LOAN AGREEMENT
AMONG
CHAMPION HEALTHCARE CORPORATION,
BANQUE PARIBAS, AS AGENT
AND
THE BANKS NAMED HEREIN
Dated as of May 31, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITION OF TERMS.................................................. 1
1.1 Accounting Terms................................................... 1
ARTICLE II - THE LOANS........................................................... 38
2.1 Revolving Loan Facility ........................................ 38
2.2 Letters of Credit .............................................. 39
2.3 Determinations of EBITDA for Eligible Operating Subsidiaries ... 43
2.4 Borrowing and Related Procedures ............................... 43
2.5 Principal Payments ............................................. 45
2.6 Prepayments .................................................... 45
2.7 Interest ....................................................... 46
2.8 Fees ........................................................... 47
2.9 Eurodollar Loans: Conversion, Rollover, Etc .................... 48
2.10 Protection of Yield ............................................ 49
2.11 Manner and Application of Payment .............................. 51
2.12 Termination and Reduction of Commitments ....................... 52
2.13 Taxes .......................................................... 52
ARTICLE III - SECURITY AND GUARANTIES ........................................... 54
3.1 Security Documents .............................................. 54
3.2 De Minimis Subsidiaries ......................................... 55
3.3 New Subsidiaries; Subsequently Acquired Collateral .............. 55
3.4 Cash Collateral Account ......................................... 55
ARTICLE IV - CONDITIONS PRECEDENT .............................................. 57
4.1 Initial Advance or Letter of Credit ........................... 57
4.2 Each Acquisition Advance ...................................... 61
4.3 All Advances and Letters of Credit ............................ 61
4.4 Representation and Warranty ................................... 63
4.5 Determinations Regarding Conditions Precedent ................. 63
4.6 Waivers of Conditions Precedent ............................... 63
ARTICLE V - REPRESENTATIONS AND WARRANTIES ..................................... 63
5.1 Organization, Standing, Qualification ......................... 63
5.2 Authorization, Enforceability, etc ............................ 64
5.3 Financial Statements and Business Condition ................... 64
5.4 Filing of Tax Returns ......................................... 65
5.5 Title to Properties; Prior Liens .............................. 65
5.6 Leases ........................................................ 65
5.7 Ownership of Borrower and Subsidiaries ........................ 65
</TABLE>
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5.8 Solvency .................................................... 66
5.9 Business; Compliance ........................................ 66
5.10 Licenses, Permits, etc. ..................................... 66
5.11 Litigation, Proceedings, etc. ............................... 66
5.12 Plans ....................................................... 66
5.13 Chief Executive Office; Locations of Collateral; Trade Names. 67
5.14 Federal Reserve Regulations ................................. 67
5.15 Fiscal Year ................................................. 67
5.16 Environmental Matters ....................................... 67
5.17 Labor Disputes .............................................. 68
5.18 Subsidiaries ................................................ 68
5.19 Investment Company Act; Public Utility Holding Company Act... 68
5.20 Common Benefit............................................... 68
5.21 Burdensome Contracts; Certain Contracts with Account Debtors. 68
5.22 Intercompany Notes and Intercompany Acquisition Notes ....... 68
5.23 Health Care Proceedings ..................................... 69
5.24 Senior Debt ................................................. 69
5.25 Full Disclosure ............................................. 69
ARTICLE VI - COVENANTS ......................................................... 69
6.1 Affirmative Covenants ....................................... 69
6.2 Negative Covenants .......................................... 75
6.3 Reporting Requirements ...................................... 84
ARTICLE VII - CERTAIN RIGHTS OF AGENT AND BANKS ................................ 87
7.1 Protection of Collateral .................................... 87
7.2 Use of Equipment ............................................ 88
7.3 Collection of Receivables ................................... 88
7.4 Appointment of Agent ........................................ 88
7.5 No Liability ................................................ 89
ARTICLE VIII - EVENTS OF DEFAULT ............................................... 89
8.1 Nature of Events ............................................ 89
8.2 Concurrent Acceleration ..................................... 91
8.3 Certain Rights of Banks ..................................... 91
ARTICLE IX - THE AGENT ......................................................... 95
9.1 Appointment and Authorization; Administration; Duties ....... 95
9.2 Advances and Payments ....................................... 96
9.3 Sharing of Payments ......................................... 96
9.4 Distribution of Information ................................. 97
9.5 Notice to Banks ............................................. 97
9.6 Liability of Agent .......................................... 97
9.7 REIMBURSEMENT AND INDEMNIFICATION ........................... 98
9.8 Rights of Agent ............................................. 99
</TABLE>
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9.9 Independent Investigation and Credit Decision by Banks ...... 99
9.10 Successor Agent.............................................. 99
ARTICLE X - MISCELLANEOUS ...................................................... 100
10.1 Notices ..................................................... 100
10.2 Survival .................................................... 100
10.3 GOVERNING LAW ............................................... 101
10.4 Maximum Interest ............................................ 101
10.5 Invalid Provisions .......................................... 102
10.6 Successors and Assigns ...................................... 102
10.7 Entirety and Amendments ..................................... 106
10.8 Counterparts; Effectiveness ................................. 107
10.9 No Duty ..................................................... 107
10.10 Banks Not Fiduciaries ....................................... 107
10.11 Article 15.10(b) ........................................... 107
10.12 NO ORAL AGREEMENTS .......................................... 107
10.13 Confidentiality ............................................ 108
10.14 Construction of Indemnity and Reimbursement Obligations ..... 108
10.15 Jurisdiction, Etc. .......................................... 109
10.16 Changes in Accounting Principles ............................ 109
10.17 References to Schedule 10 ................................... 109
10.18 Renewal, Extension, Amendment and Restatement ............... 110
10.19 WAIVER OF JURY TRIAL ........................................ 110
</TABLE>
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EXHIBITS
Exhibit A - Assignment and Acceptance
Exhibit B - Borrowing Base Certificate
Exhibit C - Loan Request Certificate
Exhibit D - Form of Revolving Note
Exhibit E - Rollover Notice
Exhibit F - Corporate Certificate
Exhibit G - Legal Opinions of Counsel to Borrower and Consolidated Subsidiaries
Exhibit H - Closing Certificate
Exhibit I - Compliance Certificate
Exhibit J - L/C Request Certificate
Exhibit K-1 - Form of Intercompany Note
Exhibit K-2 - Form of Intercompany Note (lateral borrowing)
Exhibit K-3 - Form of Intercompany Acquisition Note
Exhibit L - Form of EBITDA Certificate
SCHEDULES
Schedule 1 - Identities of Banks; Pro Rata Shares of Banks
Schedule 2 - Intentionally Omitted
Schedule 3 - Guarantors
Schedule 4 - Intercompany Notes and Intercompany Acquisition Notes
Schedule 5 - Consolidated Subsidiaries; De Minimis Subsidiaries; Eligible
Intermediate Subsidiaries; Eligible Operating Subsidiaries
Schedule 6 - Permitted Indebtedness; Permitted Liens
Schedule 7 - Subordinated Debt
Schedule 8 - Prior Debt
Schedule 9 - Assets Excluded from Collateral
Schedule 10 - Article V Disclosure Schedule
</TABLE>
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AMENDED AND RESTATED LOAN AGREEMENT
This AMENDED AND RESTATED LOAN AGREEMENT is made and entered into as of
May 31, 1995, by and among CHAMPION HEALTHCARE CORPORATION, a Delaware
corporation, BANKS (as hereinafter defined), and BANQUE PARIBAS, a bank
organized under the laws of the Republic of France, as Agent for Banks.
In consideration of the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITION OF TERMS
1.1 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to the Loan Papers shall be prepared in accordance with
GAAP unless (a) the disclosure rules of the Securities and Exchange Commission
require different treatment of financial information, or (b) otherwise
specifically provided herein.
1.2 Terms Defined. Certain terms used in the Loan Papers shall
have the definitions assigned to them in this Section 1.2 or in the contexts in
which they appear. Such definitions shall be equally applicable to both the
singular and plural forms of the terms defined, and words of any gender shall
include each other gender where appropriate.
Accounts, Chattel Paper, Documents of Title, Equipment, Fixtures,
General Intangibles, Goods, Instruments and Inventory. Have the meanings
assigned to them in the UCC.
Acquisition. Means any acquisition by the Borrower or any Subsidiary of
Borrower (either directly through an Asset purchase or indirectly through the
acquisition of the outstanding Securities of the Person which owns such Assets)
whether or not such acquisition also constitutes a Permitted Acquisition.
Acquisition Advance. Means an Advance under the Revolving Loan for a
Permitted Acquisition.
Additional Intercompany Notes. Means all promissory notes issued after
the Closing Date by a Subsidiary of the Borrower to Borrower or by a Subsidiary
of Borrower to another Subsidiary of Borrower, other than Intercompany
Acquisition Notes.
Additional Subordinated Debt. Means Indebtedness of Borrower which
shall, subsequent to the Closing Date, become Indebtedness (a) which is fully
subordinated, as to right of payment, to the payment of the Obligations
(including, without limitation, all Guaranties of the Obligations or any
portion thereof by Subsidiaries of Borrower) and all Intercompany Notes
<PAGE> 7
owed by the Person which incurred such indebtedness under terms satisfactory to
Required Banks, including, at a minimum, that no payments whatsoever may be
made on such Indebtedness except for regularly-scheduled payments of interest
which may be made if no Potential Default or Event of Default exists and if the
making of such interest payments will not cause a Potential Default or Event of
Default to exist, (b) which is unsecured, (c) which matures after the Revolving
Loan Maturity Date, (d) which does not include an agreement for the payment of
any principal amount thereof on or before the Revolving Loan Maturity Date, (e)
which contains an agreement of the holders of such Indebtedness that if they
receive any payment with respect to such Indebtedness which is made in
violation of the terms of this Agreement, any other Loan Paper or any of the
subordination provisions of such Indebtedness that such payments will be held
in trust for the benefit of Banks and will be paid to Agent for the benefit of
Banks to be applied to the Obligations, (f) which permits the Obligations and
Intercompany Notes to be renewed, extended and modified without the consent of
the holders of such Indebtedness and without impairing the subordination of
such Indebtedness to payment of the Obligations and Intercompany Notes, and (g)
with respect to which Borrower has provided to the Banks such Financial
Statements and projections of financial condition for the Borrower and its
Consolidated Subsidiaries (and, if applicable, separately for each Eligible
Intermediate Subsidiary and Eligible Operating Subsidiary which shall incur
such Indebtedness) as the Agent shall have requested which demonstrate, to the
satisfaction of the Required Banks, on a current and Pro Forma basis, that no
Potential Default or Event of Default will occur at the time such Indebtedness
is incurred or at any time thereafter.
Adjusted Capital Expenditures. Means, for any period, total Capital
Expenditures minus Capital Expenditures made to consummate Acquisitions and to
complete the construction of new or expanded improvements to real property.
Advance. Means any advance or disbursement of funds under any
Facility.
Affiliate. Means, with respect to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by or under common control with such Person, (b) that directly or
indirectly, through one or more intermediaries, beneficially owns or holds ten
percent or more of any class of voting stock of such Person or (c) ten percent
or more of the voting stock of which is directly or indirectly, through one or
more intermediaries, beneficially owned or held by such Person. For purposes
of this definition "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of another Person, whether through the ownership of Securities or
otherwise.
Agent. Means Banque Paribas, as agent for Banks pursuant to this
Agreement, and its successors and assigns in such capacity.
Aggregate Commitments. Means $100,000,000, subject to reduction as
provided in Section 2.12 (which amount is the aggregate of the maximum
Commitments of all Banks).
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<PAGE> 8
Aggregate Revolving Loan Commitment. Means $100,000,000, subject to
reduction as provided in Section 2.12 (which amount is the aggregate of the
maximum Revolving Loan Commitments of all Banks).
Agreement. Means this Loan Agreement, as it may be amended, renewed,
extended, restated, replaced, substituted, supplemented or otherwise modified
from time to time.
Applicable Base Rate Percentage. Means the percentage to be added to
the Prime Rate for purposes of calculating the applicable Revolving Credit
Contract Rate which shall be determined as follows:
(a) At all times prior to the first anniversary of the
Closing Date and at all times thereafter, except during the periods
described in clauses (b) and (c) below, the Applicable Base Rate
Percentage shall be one and one-half percent (1.5%).
(b) The Applicable Base Rate Percentage shall be one and
one-fourth percent (1.25%) during any quarter of Borrower's Fiscal Year
if, not less than forty-five (45) days following the end of the
immediately preceding quarter of Borrower's Fiscal Year, the Borrower
delivered to the Agent its quarterly Financial Statements or, with
respect to the fourth quarter of Borrower's Fiscal Year, its annual
Financial Statements, accompanied by a Compliance Certificate prepared
as of the same date as the Financial Statements, which demonstrate that,
as of the last day of the immediately preceding quarter of the
Borrower's Fiscal Year, two (2) or more of the following conditions
were satisfied:
(i) the ratio of Consolidated Total Debt to
EBITDA for the Borrower and its Consolidated
Subsidiaries, determined for such quarter of
Borrower's Fiscal Year in accordance with Section
6.2(i) of this Agreement, was less than 3.25 to 1.00
but equal to or greater than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense
for the Borrower and its Consolidated Subsidiaries,
determined for such quarter of Borrower's Fiscal Year
in accordance with Section 6.2(e) of this Agreement,
was greater than 2.75 to 1.00 but equal to or less
than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to
Capital for the Borrower and its Consolidated
Subsidiaries, determined for such quarter of
Borrower's Fiscal Year in accordance with Section
6.2(h) of this Agreement, was less than .60 to 1.00
but greater than or equal to .50 to 1.00.
(c) The Applicable Base Rate Percentage shall be
one percent (1%) during any quarter of Borrower's Fiscal Year if, not
less than forty-five (45) days following the end of the immediately
preceding quarter of Borrower's Fiscal Year, the Borrower delivered to
the Agent its quarterly Financial Statements or, with respect to the
fourth quarter of Borrower's Fiscal Year, its annual Financial
Statements, accompanied by a Compliance
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<PAGE> 9
Certificate prepared as of the same date as the Financial Statements, which
demonstrate that, as of the last day of the immediately preceding quarter of
the Borrower's Fiscal Year, two (2) or more of the following conditions were
satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(i) of this Agreement, was
less than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(e) of this Agreement, was
greater than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to Capital for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(h) of this Agreement, was
less than .50 to 1.00.
Applicable Commitment Fee Percentage. Means the percentage to be used
for purposes of calculating the Commitment Fee which shall be determined as
follows:
(a) At all times prior to the first anniversary of the Closing
Date and at all times thereafter, except as otherwise provided by clauses (b)
and (c) below, the Applicable Commitment Fee Percentage shall be one-half of
one percent (.5%).
(b) The Applicable Commitment Fee Percentage shall be .4375% for
the quarter of the calendar year for which the Commitment Fee is calculated if,
not less than forty-five (45) days following the end of the immediately
preceding quarter of Borrower's Fiscal Year, the Borrower delivered to the
Agent its quarterly Financial Statements or, with respect to the fourth quarter
of Borrower's Fiscal Year, its annual Financial Statements, accompanied by a
Compliance Certificate prepared as of the same date as the Financial
Statements, which demonstrate that, as of the last day of the immediately
preceding quarter of the Borrower's Fiscal Year, two (2) or more of the
following conditions were satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(i) of this Agreement, was
less than 3.25 to 1.00 but equal to or greater than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(e) of this Agreement, was
greater than 2.75 to 1.00 but equal to or less than 3.00 to 1.00; or
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<PAGE> 10
(iii) the ratio of Consolidated Total Debt to Capital for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(h) of this Agreement, was
less than .60 to 1.00 but greater than or equal to .50 to 1.00.
(c) The Applicable Commitment Fee Percentage shall be .375% for
the quarter of the calendar year for which the Commitment Fee is calculated if,
not less than forty-five (45) days following the end of the immediately
preceding quarter of Borrower's Fiscal Year, the Borrower delivered to the
Agent its quarterly Financial Statements or, with respect to the fourth quarter
of Borrower's Fiscal Year, its annual Financial Statements, accompanied by a
Compliance Certificate prepared as of the same date as the Financial
Statements, which demonstrate that, as of the last day of the immediately
preceding quarter of the Borrower's Fiscal Year, two (2) or more of the
following conditions were satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(i) of this Agreement, was
less than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(e) of this Agreement, was
greater than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to Capital for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(h) of this Agreement, was
less than .50 to 1.00.
Applicable Eurodollar Rate Percentage. Means the percentage to be added
to the Eurodollar Rate for purposes of calculating the applicable Revolving
Credit Contract Rate which shall be determined as follows:
(a) At all times prior to the first anniversary of the Closing
Date and at all times thereafter, except during the periods described in
clauses (b) and (c) below, the Applicable Eurodollar Rate Percentage shall be
three percent (3%).
(b) The Applicable Eurodollar Rate Percentage shall be two and
three-fourths percent (2.75%) during each quarter of Borrower's Fiscal Year
if, not less than forty-five (45) days following the end of the immediately
preceding quarter of Borrower's Fiscal Year, the Borrower delivered to the
Agent its quarterly Financial Statements or, with respect to the fourth quarter
of Borrower's Fiscal Year, its annual Financial Statements, accompanied by a
Compliance Certificate prepared as of the same date as the Financial
Statements, which demonstrate that, as of the last day of the immediately
preceding
5
<PAGE> 11
quarter of Borrower's Fiscal Year, two (2) or more of the following conditions
were satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(i) of this Agreement, was
less than 3.25 to 1.00 but equal to or greater than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(e) of this Agreement, was
greater than 2.75 to 1.00 but equal to or less than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to Capital for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(h) of this Agreement, was
less than .60 to 1.00 but greater than or equal to .50 to 1.00.
(c) The Applicable Eurodollar Rate Percentage shall be two and one-half
percent (2.5%) during each quarter of Borrower's Fiscal Year if, not less than
forty-five (45) days following the end of the immediately preceding quarter of
Borrower's Fiscal Year, the Borrower delivered to the Agent its quarterly
Financial Statements or, with respect to the fourth quarter of Borrower's
Fiscal Year, its annual Financial Statements accompanied by a Compliance
Certificate prepared as of the same date as the Financial Statements, which
demonstrate that, as of the last day of the immediately preceding quarter of
Borrower's Fiscal Year, two (2) or more of the following conditions were
satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(i) of this Agreement, was
less than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(e) of this Agreement, was
greater than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to Capital for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of Borrower's
Fiscal Year in accordance with Section 6.2(h) of this Agreement, was
less than .50 to 1.00.
Applicable Letter of Credit Fee Percentage. Means the percentage to be
used for purposes of calculating the Letter of Credit Fee which shall be
determined as follows:
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<PAGE> 12
(a) At all times prior to the first anniversary of the Closing
Date and at all times thereafter, except during the periods described in
clauses (b), (c) and (d) below, the Applicable Letter of Credit Fee Percentage
shall be three percent (3.0%).
(b) The Applicable Letter of Credit Fee Percentage shall be two
and three-fourths percent (2.75%) for the quarter of the calendar year for
which the Letter of Credit Fee is calculated if, not less than forty-five (45)
days following the end of the immediately preceding quarter of Borrower's
Fiscal Year, the Borrower delivered to the Agent its quarterly Financial
Statements or, with respect to the fourth quarter of Borrower's Fiscal Year,
its annual Financial Statements, accompanied by a Compliance Certificate
prepared as of the same date as the Financial Statements which demonstrate
that, as of the last day of the immediately preceding quarter of the Borrower's
Fiscal Year, two (2) or more of the following conditions were satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the
Borrower and its Consolidated Subsidiaries, determined for
such quarter of Borrower's Fiscal Year in accordance with
Section 6.2(i) of this Agreement, was less than 3.25 to 1.00
but equal to or greater than 2.75 to 1.00; or
(ii) the ratio of EBITDA to Interest Expense for the Borrower and its
Consolidated Subsidiaries, determined for such quarter of
Borrower's Fiscal Year in accordance with Section 6.2(e) of
this Agreement, was greater than 2.75 to 1.00 but equal to or
less than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to Capital for the
Borrower and its Consolidated Subsidiaries, determined for such
quarter of Borrower's Fiscal Year in accordance with Section
6.2(h) of this Agreement, was less than .60 to 1.00 but greater
than or equal to .50 to 1.00.
(c) The Applicable Letter of Credit Fee Percentage shall be two
and one-half percent (2.5%) for the quarter of the calendar year for which the
Letter of Credit Fee is calculated if, not less than forty-five (45) days
following the end of the immediately preceding quarter of Borrower's Fiscal
Year, the Borrower delivered to the Agent its quarterly Financial Statements
or, with respect to the fourth quarter of Borrower's Fiscal Year, its annual
Financial Statements, accompanied by a Compliance Certificate prepared as of
the same date as the Financial Statements, which demonstrate that, as of the
last day of the immediately preceding quarter of the Borrower's Fiscal Year,
two (2) or more of the following conditions were satisfied:
(i) the ratio of Consolidated Total Debt to EBITDA for the Borrower
and its Consolidated Subsidiaries, determined for such quarter
of Borrower's Fiscal Year in accordance with Section 6.2(i) of
this Agreement, was less than 2.75 to 1.00; or
7
<PAGE> 13
(ii) the ratio of EBITDA to Interest Expense for the Borrower and
its Consolidated Subsidiaries, determined for such quarter of
Borrower's Fiscal Year in accordance with Section 6.2(e) of
this Agreement, was greater than 3.00 to 1.00; or
(iii) the ratio of Consolidated Total Debt to Capital for the
Borrower and its Consolidated Subsidiaries, determined for
such quarter of Borrower's Fiscal Year in accordance with
Section 6.2(h) of this Agreement, was less than .50 to 1.00.
(d) Following the occurrence of an Event of Default and during the
continuance thereof, the Applicable Letter of Credit Fee Percentage shall be
the percentage which would otherwise be determined pursuant to clause (a), (b)
or (c) above plus two percent (2%).
Asset. Means any interest of any kind in any kind of property or asset,
whether real, personal or mixed, tangible or intangible, whether owned or
acquired now or after the Closing Date, and includes, without limitation,
Securities.
Assignment and Acceptance. Means an Assignment and Acceptance now or
hereafter entered into by a Bank and an Eligible Assignee and now or hereafter
accepted by Agent, substantially in the form of Exhibit A hereto.
Bank. Means each bank and other financial institution identified on
Schedule 1 hereto and each Eligible Assignee of a Bank which becomes a Bank in
accordance with Section 10.6 of this Agreement.
Bankruptcy Code. Means Title 11 of the United States Code, as amended,
and all rules issued pursuant thereto.
Banque Paribas. Means Banque Paribas, a bank organized under the laws
of the Republic of France.
Base Financial Statements. Means the Financial Statements of Borrower
and its Consolidated Subsidiaries as of and for the Fiscal Year ended December
31, 1994 and the quarter of Borrower's Fiscal Year ended March 31, 1995.
Base Rate. Means the rate of interest per annum specified in subpart
(a) of the definition of Revolving Credit Contract Rate.
Base Rate Loan. Means any portion of any Loan which bears interest
at a rate determined by reference to the Base Rate.
Board of Governors. Means the Board of Governors of the Federal Reserve
System and each successor thereto.
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Borrower. Means Champion Healthcare Corporation, a Delaware corporation
and its successors and assigns.
Borrowing Base Certificate. Means a certificate substantially in the
form of Exhibit B hereto, appropriately completed and executed by a Financial
Officer of the Borrower and the applicable Subsidiary of Borrower.
Business Day. Means a day (other than Saturday or Sunday) on which
commercial banks are open for business in Houston, Texas, and in New York City,
New York.
Capital. Means, as of any date of determination, the Consolidated Total
Debt of Borrower and its Consolidated Subsidiaries plus the Net Worth of
Borrower and its Consolidated Subsidiaries plus minority interests in
Subsidiaries.
Capital Expenditures. Means, as of any date of determination, any
expenditure by a Person for an Asset which will be used in a year or years
subsequent to the year in which such expenditure is made and which Asset is
properly classified, in relevant Financial Statements of such Person and in
accordance with GAAP, as equipment, real property or improvements, fixed Assets
or a similar type of capitalized Asset.
Capital Lease. Means, as of the date of any determination, any lease of
an Asset which is (or should be) capitalized on a balance sheet of the lessee
in accordance with GAAP.
CERCLA. Means the Comprehensive Environmental Response, Compensation
and Liability Act (42 U.S.C. Section 9601 et seq.), as amended and in effect
from time to time, and all rules and regulations issued pursuant thereto.
Champion-Fargo. Means Champion Healthcare Corporation of North Dakota,
Inc., a North Dakota corporation, which is a wholly-owned Subsidiary of
Borrower.
Change of Control. Means, with respect to any Person which is not a
natural Person (herein referred to as the "Subject Entity"), the occurrence of
any of the following: (a) any Person or all Persons that constitute a "group"
(within the meaning of Subsection 13(d)(3) or Subsection 14(d)(2) of the
Securities Exchange Act of 1934, as amended, hereafter referred to as the
"Exchange Act") or an Affiliate thereof, other than the present "beneficial
owner" (as defined in Rule 13(d)(3) of the Exchange Act) shall acquire direct
or indirect beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 50% or more of the then outstanding Securities of the Subject
Entity which are generally entitled to vote in the election of the directors of
the Subject Entity (or have comparable authority to select the Persons who are
vested with comparable authority), (b) either of Charles R. Miller or James G.
VanDevender shall no longer serve as the senior executives of Borrower (but a
Change in Control shall not be deemed to occur if either or both of Charles R.
Miller or James G. VanDevender is no longer serving as a senior executive of
Borrower or an Eligible Intermediate Subsidiary because he has died or become
physically impaired if he has been replaced by another executive approved in
good faith by the Required Banks); or (c) in the case of Subsidiaries of
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<PAGE> 15
the Borrower, if neither the Borrower nor an Eligible Intermediate Subsidiary
has the authority to appoint or elect a majority of the directors of the
Subject Entity (or Persons who are vested with comparable authority) or do not
otherwise control the business or affairs of the Subject Entity pursuant to the
terms of a written agreement approved by the Required Banks which has not been
(and will not be) modified or amended to dilute, impair or otherwise adversely
affect such control without the prior written consent of the Required Banks.
CHC Corporate Overhead. Means all operating costs and expenses
associated with corporate functions of the Borrower and its Consolidated
Subsidiaries including salaries, benefits, supplies, utilities and similar
items but excluding depreciation, amortization and interest expense.
Clean Air Act. Means the Clean Air Act (42 U.S.C. Section 7401 et
seg.), as amended and in effect from time to time, and all rules and
regulations issued pursuant thereto.
Clean Water Act. Means the Clean Water Act (33 U.S.C. Section 1251 et
seg.), as amended and in effect from time to time, and all rules and
regulations issued pursuant thereto.
Closing Date. Means the date of this Agreement.
Code. Means the Internal Revenue Code of 1986, as amended and in effect
from time to time, and all regulations issued pursuant thereto.
Collateral. Means (a) any Asset of the Borrower or any Subsidiary of
the Borrower in the possession or control of the Agent or an agent, bailee or
trustee for the Agent or the Banks, (b) any Asset of the Borrower, any
Subsidiary of the Borrower, or any other Loan Party that is subject to a Lien
(or is purported to be subject to a Lien) to secure all or any portion of the
Obligations, (c) any amount in any Deposit Account of the Borrower or any
Subsidiary of the Borrower with the Agent or an agent, bailee or trustee for
the Agent or the Banks, and (d) in addition to the foregoing, to the extent the
same is not already described in clause (a), (b) or (c) above, all of
Borrower's and each of Borrower's Subsidiaries' Assets including, without
limitation, the Accounts, Chattel Paper, Documents of Title, Equipment,
Fixtures, General Intangibles, Goods, Instruments (including Intercompany
Acquisition Notes and Intercompany Notes), Inventory and real property
(including any interests therein) of each such Person, wherever any of the
Assets described in any of clauses (a), (b), (c) or (d) above may be located
and whether now owned or hereafter acquired, together with all replacements or
substitutions therefor, accessions thereto and all proceeds and products
thereof excepting only from such Collateral, (i) the Assets described on
Schedule 9, (ii) those Assets which are hereafter expressly agreed to in
writing by the Required Banks, and (iii) subject to the conditions specified
therein, those Assets described in Sections 3.2 and 3.3.
Commitment. Means, with respect to each Bank, such Bank's Revolving Loan
Commitment. The recital of a Commitment does not mean that any Bank is
obligated to advance such amount.
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<PAGE> 16
Commitment Fee. Means an amount payable to the Banks based on the
unused portion of the Aggregate Revolving Loan Commitment which shall be
calculated as of the last day of each March, June, September and December of
each calendar year, beginning with the first of such dates occurring after the
Closing Date, and which shall equal the amount determined by multiplying (a)
the Aggregate Revolving Loan Commitment (giving substantive effect to any
Commitment reduction which may occur during the applicable period of
determination pursuant to Section 2.12) minus the combined average daily
principal balances outstanding on the Revolving Notes during the quarter of the
calendar year then ending, times (b) the product (expressed as a decimal)
determined by multiplying the Applicable Commitment Fee Percentage by a
fraction, the numerator of which is the number of days contained in the quarter
of the calendar year ending on the date as of which such calculation is made
(excluding, in the case of the first calendar year quarter, the days occurring
prior to the Closing Date and, in the case of the quarter of the calendar year
during which the Revolving Loan Maturity Date occurs, the days following such
date), and the denominator of which is the number of days contained in the
applicable calendar year (e.g. 365 or 366).
Commitment Fee Payment Date. Means (a) each date as of which the
Commitment Fee is determined (e.g. the last day of each March, June, September
and December of each calendar year), and (b) the Revolving Loan Maturity Date
(or, if such date is not a Business Day), the first Business Day thereafter,
beginning on the first of such dates to follow the Closing Date.
Compliance Certificate. Means a certificate in the form of Exhibit I
attached to this Agreement, completed in all appropriate respects and executed
by the chief executive officer or a Financial Officer of the Borrower.
Consolidated Subsidiary. Means any Subsidiary of Borrower included (or
which should be included in accordance with GAAP), as of the applicable date of
determination, in the consolidated Financial Statements of Borrower.
Notwithstanding the foregoing, unless otherwise expressly provided in this
Agreement, the DHHS Partnership shall for all purposes of this Agreement be
deemed to be a Consolidated Subsidiary.
Consolidated Total Debt. Means all Indebtedness of Borrower and its
Consolidated Subsidiaries (other than minority interests, determined in
accordance with GAAP, which would otherwise be included within the definition
of Indebtedness, as such term is defined in this Agreement), including any
Indebtedness under any Capital Lease, the Obligations, the Subordinated Debt
and any Additional Subordinated Debt, less the amount by which the cash and
Permitted Investments of Borrower and its Consolidated Subsidiaries exceeds
$5,000,000.
Current Date. Means a date no more than forty-five (45) days prior to
(a) the Closing Date, or (b) with respect to matters occurring after the
Closing Date, the applicable reference date.
Dakota. Means Dakota Hospital, a North Dakota non-profit corporation.
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<PAGE> 17
Debtor Relief Law. Means any liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, insolvency, reorganization or similar law providing
for the relief of debtors or generally affecting the rights of creditors, as
amended and in effect from time to time.
Default Rate. Means a fluctuating per annum interest rate at all times
equal to the lesser of (a) the Maximum Lawful Rate (such interest rate to be
adjusted simultaneously with any change in the Maximum Lawful Rate) or (b) the
sum of the otherwise applicable Revolving Credit Contract Rate plus two percent
(2%) or, if no Revolving Credit Contract Rate is otherwise applicable, the
Revolving Credit Contract Rate applicable to Base Rate Loans plus two percent
(2%); provided, however, subject to all provisions of Section 10.4, if at any
time the Default Rate shall be computed on the basis of the Maximum Lawful
Rate, any subsequent reduction in the Default Rate shall not reduce such
interest rate thereafter payable below the Maximum Lawful Rate until the
aggregate amount of such interest that is accrued and payable equals the total
amount of interest that would have accrued if interest had at all times been
computed solely on the basis of the rate specified in subpart (b) above.
Except as otherwise provided in Section 2.7(d) with respect to Eurodollar
Loans, interest computed at the Default Rate shall be computed on the basis of
a year of 365 or 366 days, as the case may be, actual days elapsed, including
the first day but excluding the last day of the period for which interest is
payable.
De Minimis Subsidiary. Means a Subsidiary of the Borrower or an
Eligible Intermediate Subsidiary (the "Parent") if at all times (a) the book
value of the total Assets of such Subsidiary is less than five percent (5%) of
the book value of the total Assets of the Parent (determined on a consolidated
basis with respect to such Parent and its Subsidiaries) and such Subsidiary's
EBITDA does not exceed five percent (5%) of the EBITDA of the Parent
(determined on a consolidated basis for such Parent and all of its
Subsidiaries), and (b) the aggregate book value of the total Assets of all De
Minimis Subsidiaries of the Parent and the aggregate EBITDA for all De Minimis
Subsidiaries of the Parent at no time exceeds five percent (5%) of the book
value of the total Assets of the Parent (determined on a consolidated basis for
the Parent and all of its Subsidiaries) or five percent (5%) of the EBITDA of
the Parent (determined on a consolidated basis for the Parent and all of its
Subsidiaries).
Deposit Account. Means a demand, time, savings, passbook or like
account (including, without limitation, any account evidenced by a certificate
of deposit) whether interest bearing or not and, if interest bearing, then all
interest accrued and paid or payable thereon, now or hereafter established or
maintained from time to time by Borrower or a Subsidiary of Borrower and all
monies from time to time in any such account (including all earnings or profits
therefrom in the form of interest or otherwise) and investments made with
respect thereto and the proceeds thereof and all insurance and insurance
proceeds existing or payable with respect thereto.
DHHS Note. Means the revolving credit note in the maximum principal
amount of $25,000,000 made by DHHS Partnership payable to the order of
Champion-Fargo, pursuant to which Champion-Fargo may make revolving loans for
working capital and other capital purposes to DHHS Partnership in an amount
not to exceed $25,000,000 outstanding at any time, subject to the restrictions
contained in Section 6.2(x)
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<PAGE> 18
DHHS Operating Agreement. Means that certain Operating Agreement
dated December 21, 1994 entered into, by and among Dakota, DHHS Partnership,
Borrower and Champion-Fargo, as the same may be amended or otherwise modified
from time-to-time.
DHHS Partnership. Means a North Dakota partnership owned by
Champion-Fargo and Dakota pursuant to the DHHS Partnership Agreement.
DHHS Partnership Agreement. Means that certain Amended and Restated
Partnership Agreement of Dakota/Champion Partnership dated as of December 21,
1994 entered into by and between Dakota and Champion-Fargo, as the same may be
amended or otherwise modified from time-to-time.
EBITDA. Means, as to each Person with respect to which such
calculation is made, for the twelve (12) consecutive calendar month period
which ends on the date as of which the calculation of EBITDA is made, the sum
of (determined without duplication on a consolidated basis in accordance with
GAAP): (a) net income (or net loss) of such Person, calculated before
extraordinary items and income attributable to minority interests in Affiliates
of such Person which has not been remitted in cash to such Person; plus (b)
Interest Expense which was deducted under clause (a) for purposes of
determining net income (or net loss); plus (c) depreciation and amortization
expense; plus (d) other non-cash items to the extent the same were deducted
under clause (a) for purposes of determining net income (or net loss); minus
(e) other non-cash items to the extent the same were added to earnings under
clause (a) for purposes of determining net income; plus (f) all taxes accrued
for such period on or measured by income to the extent the same were deducted
under clause (a) for purposes of determining net income (or net loss).
Notwithstanding the foregoing, calculations of EBITDA which are made separately
for any Eligible Intermediate Subsidiary or any Eligible Operating Subsidiary
shall be determined in accordance with the above stated formula, but there
shall be deducted from any such calculation of EBITDA an amount equal to that
portion of such Person's EBITDA which is allocable to a Subsidiary of such
Person which does not constitute an Eligible Intermediate Subsidiary or an
Eligible Operating Subsidiary. Furthermore, with respect to calculations of
EBITDA which are made separately for any Subsidiary of the Borrower
(specifically including, without limitation, those calculations made with
respect to Eligible Intermediate Subsidiaries and Eligible Operating
Subsidiaries), there shall be deducted from any such calculation of EBITDA an
amount equal to the CHC Corporate Overhead multiplied by a fraction, the
numerator of which is the net operating revenue of such Subsidiary and the
denominator of which is the net operating revenue of the Borrower, determined
on a consolidated basis for the Borrower and its Consolidated Subsidiaries. As
a point of clarification, it is understood and agreed that, with respect to any
calculation of EBITDA made with respect to the Borrower and its Consolidated
Subsidiaries, neither the DHHS Partnership, Metropolitan Hospital, L.P. nor any
other Person which is hereafter classified as an Eligible Operating Subsidiary
notwithstanding the fact that it is not wholly-owned by the Borrower and/or an
Eligible Intermediate Subsidiary and/or Eligible Operating Subsidiary shall be
treated as one of the Consolidated Subsidiaries, but with respect to
calculations of EBITDA for the Borrower and its Consolidated Subsidiaries, (i)
that portion of the EBITDA of DHHS Partnership, calculated in accordance with
the foregoing criteria, which is attributable to Champion-Fargo's EBITDA
distribution percentage under the DHHS
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<PAGE> 19
Partnership Agreement; plus (ii) that portion of the EBITDA of Metropolitan
Hospital, L.P., calculated in accordance with the foregoing criteria which is
attributable to CHC of Virginia, Inc.'s EBITDA distribution percentage under
the MHLP Agreement, plus (iii) with respect to other Persons, if any, which may
hereafter be classified as Eligible Operating Subsidiaries notwithstanding the
fact that any such Person is not wholly-owned by the Borrower and/or an
Eligible Intermediate Subsidiary and/or Eligible Operating Subsidiary, that
portion of the EBITDA of such Person, calculated in accordance with the
foregoing criteria, which the Required Banks determine to be attributable to
the ownership interests of the Borrower and/or Eligible Intermediate
Subsidiaries and/or Eligible Operating Subsidiaries which are owners of such
Person, shall be added to the EBITDA calculation made for the Borrower and the
other Consolidated Subsidiaries pursuant to the formula first set forth above.
EBITDA Certificate. Means a certificate in the form of Exhibit "L" to
this Agreement completed in all respects and executed by a Financial Officer of
Borrower.
EBITDA Overadvance. Means, as of the date of the applicable
determination, the amount, if any, by which the aggregate principal amounts
then outstanding on the Revolving Notes plus the aggregate undrawn face amounts
of all Letters of Credit which are then outstanding, exceeds the product
obtained by multiplying three (3) times the sum calculated by adding the EBITDA
determined separately on a Pro Forma basis as of such date for each of the
Eligible Operating Subsidiaries.
Eligible Assignee. Means (a) any Bank or any banking Affiliate of any
such Bank, (b) a commercial bank having total Assets in excess of
$7,500,000,000, (c) an insurance company or a financial institution having
total Assets in excess of $1,000,000,000, or (d) a bank loan fund having total
Assets in excess of $250,000,000; provided, however, unless Required Banks
shall otherwise agree in writing, no commercial bank referred to in clause (b)
preceding that is organized under the laws of a country other than the U.S.
shall be an Eligible Assignee unless it acts, for purposes of this Agreement,
through a branch or agency of such bank located in the U.S.
Eligible Intermediate Subsidiary. Means each Subsidiary of the Borrower
which is identified as an Eligible Intermediate Subsidiary on Schedule 5
attached hereto and made a part hereof and each Subsidiary of the Borrower
which is designated in writing as an Eligible Intermediate Subsidiary by the
Required Banks subsequent to the Closing Date; provided, however, no Subsidiary
of Borrower shall be an Eligible Intermediate Subsidiary (and if such
Subsidiary previously qualified as an Eligible Intermediate Subsidiary, such
qualification shall immediately and automatically cease) if, at any time: (a)
such Person incurs or otherwise becomes liable for any Indebtedness other than
Permitted Indebtedness; or (b) the total Indebtedness of such Person which is
allocable to Capital Leases exceeds ten percent (10%) of the book value of such
Person's total Assets; or (c) except as permitted by Section 3.3 or otherwise
excluded from the definition of the term "Collateral" as set forth in this
Agreement, any of the Assets of such Person are not (or cease to be) subject to
a valid and fully perfected Lien which secures the Obligations, or any of its
Assets is or becomes subject to another Lien (except Permitted Liens), or the
Lien upon such Asset which secures the Obligations ceases to
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<PAGE> 20
be prior to all other Liens except those Permitted Liens, if any, which are
stipulated on Schedule 6 to be prior Liens and those Liens, if any, which are
agreed to by the Required Banks in writing subsequent to the Closing Date; (d)
such Person is not bound by a full and unconditional Guaranty of the
Obligations; or (e) such Person ceases to be a wholly-owned Subsidiary of the
Borrower or another Eligible Intermediate Subsidiary.
Eligible Operating Subsidiary. Means each Subsidiary of the Borrower
which owns and operates a Hospital, Health Care Facility or Health Care Service
Business and which is identified as an Eligible Operating Subsidiary on
Schedule 5 attached hereto and made a part hereof and each Subsidiary of the
Borrower which is designated in writing as an Eligible Operating Subsidiary by
the Required Banks subsequent to the Closing Date; provided, however, no
Subsidiary of Borrower shall be an Eligible Operating Subsidiary (and if such
Subsidiary previously qualified as an Eligible Operating Subsidiary, such
qualification shall immediately and automatically cease) if, at any time: (a)
such Person incurs or otherwise becomes liable for any Indebtedness other than
Permitted Indebtedness; or (b) the total Indebtedness of such Person which is
allocable to Capital Leases exceeds ten percent (10%) of the book value of such
Person's total Assets; or (c) except as permitted by Section 3.3 or otherwise
excluded from the definition of the term "Collateral" as set forth in this
Agreement, any of the Assets of such Person are not (or cease to be) subject to
a valid and fully perfected Lien which secures the Obligations, or any of its
Assets is or becomes subject to another Lien (except Permitted Liens), or the
Lien upon such Asset which secures the Obligations ceases to be prior to all
other Liens except those Permitted Liens, if any, which are stipulated on
Schedule 6 to be prior Liens and those Liens, if any, which are agreed to by
the Required Banks in writing subsequent to the Closing Date; or (d) such
Person is not bound by a full and unconditional Guaranty of the Obligations; or
(e) such Person ceases to be a wholly-owned Subsidiary of the Borrower or an
Eligible Intermediate Subsidiary or another Eligible Operating Subsidiary; or
(f) such Person ceases to own or operate a Hospital, Health Care Facility or
Health Care Service Business, or (f) such Person owns or operates any business
other than a Hospital, Health Care Facility or Health Care Service Business.
Notwithstanding the requirements set forth in above clause (e), Metropolitan
Hospital, L.P. shall be deemed to be an Eligible Operating Subsidiary so long
as CHC of Virginia, Inc. remains the sole general partner with full right,
power and authority to manage the business and affairs of such limited
partnership in accordance with the MHLP Agreement, the limited partners
comprising such limited partnership are active members of the medical staff of
the Hospital owned by such partnership or are, otherwise, permitted to be
limited partners pursuant to the terms of the MHLP Agreement, and CHC of
Virginia, Inc. is the owner and holder, at all times, of at least eighty-two
percent (82%) of the total partnership interests. Furthermore, notwithstanding
the requirements set forth above in this clause (e), DHHS Partnership shall be
deemed to be an Eligible Operating Subsidiary so long as Champion-Fargo remains
the managing general partner with full right, power and authority to manage and
control the business and affairs of such limited partnership in accordance with
the DHHS Partnership Agreement (which has not been and will not be amended or
otherwise modified without the prior written consent of the Required Banks),
Champion-Fargo is the owner and holder, at all times, of at least 50% of the
total partnership interests and Champion-Fargo manages and controls the
business and affairs of the hospitals owned by the DHHS Partnership pursuant to
the DHHS Operating Agreement. Furthermore, notwithstanding the requirements
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<PAGE> 21
set forth in this clause (c) above, CHC-Salt Lake City, Inc. shall be deemed to
be an Eligible Operating Subsidiary notwithstanding the fact that fee simple
title to the real property owned by it which is subject to the Ground Lease
described on Schedule 6 is encumbered by the Deed of Trust and Security
Agreement and the Assignment of Rents and Leases granted in favor of United
of Omaha Life Insurance Company which are more fully described on Schedule 6.
Eligible Receivables. Means, at the applicable time of determination,
an amount expressed in U.S. Dollars equal to the amount owing (taking into
account discounts and contractual allowances given or to be given on such
amounts) on all Receivables associated with services which have already been
performed, which have been booked and which have been billed, or are pending
billing, with respect to which the Person to whom such Receivables are payable
is not entitled to Medicare or Medicaid reimbursement for services provided
which are subject to a perfected, first-priority Lien securing an Intercompany
Note executed by the Person who is the owner and holder of such Receivables;
provided, however, Eligible Receivables shall not include any Receivables which
remain unpaid for more than 120 days after the Invoice Date or any Receivables
owing from Affiliates of the payee or any Receivables which Agent has
determined, in its sole credit judgment, to be ineligible based upon such
credit considerations as the Agent may reasonably deem appropriate. For
purposes of this definition, the term "Invoice Date" means the date (not more
than 120 days after the date on which the services were actually provided which
gave rise to the applicable Receivable) on which the invoice is first sent to
the patient (or other responsible party or payor) for the services provided.
Environmental Laws. Means all federal, state and local laws, rules,
regulations, ordinances, codes, permits, orders or decrees relating or
pertaining to the public health and safety or the environment or otherwise
governing the generation, use, handling, collection, treatment, storage,
transportation, recovery, re-cycling, removal, discharge or disposal of
Hazardous Materials (including, without limitation, RCRA, CERCLA, the Clean
Water Act, the Clean Air Act, TSCA, EPCRKA and OSHA) from time to time in
effect, as the same may be amended, supplemented or otherwise modified from
time to time.
EPCRKA. Means the Emergency Planning and Community Right to Know Act (15
U.S.C. Section 2601 et seq.), as amended, and all rules and regulations
issued pursuant thereto.
ERISA. Means the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time, and any successor act or code and all
rules and regulations issued pursuant thereto.
Eurodollar Advance Failure. Has the meaning set forth in the definition
of the term Eurodollar Consequential Loss.
Eurodollar Business Day. Means a Business Day on which dealings in U.S.
Dollars are carried out in the London interbank market.
Eurodollar Consequential Loss. Means such amount or amounts as shall in the
reasonable judgment of any Bank to be the amount which will compensate such
Bank for any
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<PAGE> 22
loss, cost or expense incurred by such Bank as a result of any of the
following, whether voluntary or involuntary: (a) any payment or prepayment of
any portion of any Eurodollar Loan on a date other than the last day of the
Interest Period applicable thereto (a "Eurodollar Prepayment"); (b) the
conversion of any Eurodollar Loan to a Base Rate Loan on a date other than the
last day of the Interest Period applicable thereto (a "Eurodollar Conversion");
(c) the rescission of a Rollover Notice or the failure of any Eurodollar Loan,
or portion thereof, to continue as a Eurodollar Loan for a successive Interest
Period pursuant to a Rollover Notice or the failure of any Base Rate Loan, or
portion thereof, to be converted to a Eurodollar Loan pursuant to a Rollover
Notice (a "Eurodollar Rescission"); (d) after Borrower's request that a
Eurodollar Loan be made pursuant to this Agreement, the failure of all or any
portion of such Eurodollar Loan to be made (a "Eurodollar Advance Failure");
or (e) if, notwithstanding provisions to the contrary that are set forth in
this Agreement, the Interest Period applicable to any Eurodollar Loan would,
but for clause (iii) of the definition of the term Interest Period, extend
beyond the Maturity Date. Compensation owing to a Bank as a result of any such
loss, cost or expense resulting from a Eurodollar Prepayment, Eurodollar
Conversion, Eurodollar Rescission or Eurodollar Advance Failure, if and to the
extent applicable, shall include, without limitation, an amount equal to the
sum of (i) the amount of the interest which, but for such event, such Bank
would have earned for the remainder of the applicable Interest Period, reduced,
if such Bank does, in the ordinary course of its business, redeploy the amount
so affected for any portion of such Interest Period, by the interest earned by
such Bank as a result of such redeployment, plus (ii) any expense or penalty
incurred by such Bank.
Eurodollar Conversion. Has the meaning set forth in the definition of
the term "Eurodollar Consequential Loss."
Eurodollar Loan. Means any Loan which bears interest at a rate
determined by reference to the Eurodollar Rate.
Eurodollar Prepayment. Has the meaning set forth in the definition of
the term "Eurodollar Consequential Loss."
Eurodollar Rate. Means, with respect to each Eurodollar Loan for each
Interest Period, a rate per annum equal to (a) the Interbank Offered Rate
applicable to such Eurodollar Loan and Interest Period, divided by (b) 1.00
minus the Eurodollar Reserve Requirement. The Eurodollar Rate shall be
adjusted automatically as of the effective date of any change in the Eurodollar
Reserve Requirement.
Eurodollar Rescission. Has the meaning set forth in the definition of
the term "Eurodollar Consequential Loss."
Eurodollar Reserve Requirement. Means, as of the date of any
determination, that percentage (expressed as a decimal fraction) which is in
effect on such day, as prescribed by the Board of Governors, for determining
the maximum reserve requirements (including, without limitation, basic,
supplemental, marginal and emergency reserves) applicable to "Eurocurrency
liabilities" as defined (as of such date) in Regulation D or under any other
then applicable
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<PAGE> 23
similar or successor regulation which prescribes reserve requirements
applicable to Eurocurrency liabilities or Eurocurrency fundings. Each
determination by Agent of the Eurodollar Reserve Requirement shall be
conclusive in the absence of manifest error.
Event of Default. Has the meaning provided in Section 8.1 of this
Agreement.
Exhibit. Means, unless specifically indicated otherwise, the exhibits
attached to this Agreement.
Facility. Means the Revolving Loan Facility.
Federal Funds Rate. Means a fluctuating per annum interest rate at all
times equal to the lesser of (a) the Maximum Lawful Rate (such interest rate to
be adjusted simultaneously with any change in the Maximum Lawful Rate), or (b)
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on overnight Federal Funds
transactions with members of the Federal Reserve System arranged by Federal
Funds brokers on the applicable determination date, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day, provided
that (i) if the date for which such rate is to be determined is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate charged to the Reference Banks on the applicable determination
date on such transactions; provided, however, subject to all provisions of
Section 10.4, if at any time the Federal Funds Rate shall be computed on the
basis of the Maximum Lawful Rate, any subsequent reduction in the Federal Funds
Rate shall not reduce such interest rate thereafter payable below the Maximum
Lawful Rate until the aggregate amount of such interest accrued and payable
equals the total amount of interest that would have accrued if such interest
had at all times been computed solely on the basis of clause (b) above.
Interest computed at the Federal Funds Rate shall be computed on the basis of a
year of 365 or 366 days, as the case may be, actual days elapsed, including the
first day but excluding the last day of the period for which interest is
payable.
Financial Officer. Means, with respect to any Person which is not a
natural Person, the chief financial officer, treasurer or controller of such
Person.
Financial Statements. Means all balance sheets, earnings statements,
statements of operations, statements of stockholder's equity, statements of
cash flow and other financial data (whether of the Borrower, any Subsidiary of
Borrower, any other Loan Party or any other Person) which have been or may
hereafter be furnished to the Agent or any Bank in connection with this
Agreement or the transactions contemplated hereby. All Financial Statements
shall be prepared in comparative form with respect to each corresponding period
of the preceding Fiscal Year in accordance with GAAP and shall include any
notes comprising a part thereof.
Fiscal Year. Means, with respect to any Person, the applicable
twelve-month period designated by such Person as its Fiscal Year.
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<PAGE> 24
Fixed Charges. Means, for the applicable period of determination, an
amount equal to the sum of (a) scheduled principal payments made on
Indebtedness of Borrower and its Consolidated Subsidiaries, plus (b) Interest
Expense of the Borrower and its Consolidated Subsidiaries.
Fixed Charge Coverage Ratio. Means, for the applicable period of
determination, the ratio of (a) EBITDA minus Adjusted Capital Expenditures, to
(b) Fixed Charges, all determined on a consolidated basis for the Borrower and
its Consolidated Subsidiaries based on the immediately preceding consecutive
twelve month period.
GAAP. Means generally accepted accounting principles, applied on a
consistent basis (which, in the case of the Borrower and its Consolidated
Subsidiaries, means that the same shall be consistent with Borrower's and its
Consolidated Subsidiaries most recent audited Financial Statements existing as
of the Closing Date), as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants or in
statements of the Financial Accounting Standards Board or the Securities and
Exchange Commission which are applicable in the circumstances as of the date of
such Financial Statements, and the requisite that such principles be applied on
a consistent basis means that the accounting principles in a current period are
comparable in all material respects to those applied in a preceding period,
with any exceptions thereto noted.
Good faith and good faith. Have the same meaning as the term "Good
faith" is defined in Section 1.201(19) of the UCC.
Governmental Requirements. Means any and all laws, ordinances, rules
and regulations of any Tribunal applicable to this Agreement, any other Loan
Paper or the transactions contemplated hereby or thereby or to the Borrower,
any Subsidiary of the Borrower, any other Loan Party or any of their Assets,
businesses or operations.
Group Member. Means Borrower and each other Person which is a member of
a "controlled group" which includes the Borrower or is under common control
with the Borrower within the meaning of Sections 414(b) and (c) of the Code.
Guarantors. Means each and every Person (other than the Borrower) who
may now or hereafter be or become obligated or liable for the payment or
performance of all or any portion of the Obligations including, without
limitation, the Persons identified as Guarantors on Schedule 3 attached hereto
and made a part hereof for all purposes.
Guaranty. Means, with respect to any Person, any contract, agreement,
understanding or undertaking of such Person pursuant to which such Person
guarantees, or in effect guarantees, or agrees to become obligated or liable
for the payment of any Indebtedness of any other Person (the "primary obligor")
or performance of any other obligation of a primary obligor in any manner,
whether directly or indirectly, including without limitation, agreements (a) to
purchase any such Indebtedness or any Asset constituting security therefor, (b)
to advance or supply funds for the purchase or payment of any such
Indebtedness, or to maintain net worth
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or working capital or other balance sheet or financial conditions, or otherwise
to advance or make funds available for the purchase or payment of any such
Indebtedness, (c) to purchase an Asset or service primarily for the purpose of
assuring the holder of any such Indebtedness of the ability of the primary
obligor to pay or perform the Indebtedness, or (d) to otherwise assure the
holder of any such Indebtedness against loss with respect to such Indebtedness
or any other obligations of a primary obligor; provided, however, that such
term shall not include the endorsement of negotiable Instruments or Documents
of Title for deposit or collection in the ordinary course of business.
Hazardous Materials. Means (a) any "hazardous waste" as defined in
RCRA, (b) any "hazardous substance" as defined in CERCLA, (c) any "toxic
pollutants" as defined in the Clean Water Act, (d) any "hazardous air
pollutants" as defined in the Clean Air Act, (e) asbestos, (f) polychlorinated
biphenyls, (g) underground storage tanks, whether empty, filled or partially
filled with any substance, (h) any substance the presence of which on the
property in question is prohibited by any Environmental Law, and (i) any other
substance which under any Environmental Law requires special handling or
notification of or reporting to any Federal, State or local governmental entity
or other Tribunal in its generation, use, collection, treatment, storage,
transportation, recovery, removal, discharge or disposal.
Health Care Facility. Means a business (other than a Hospital or a
Health Care Service Business) and the Assets used or otherwise related to such
business which provides health care services to individuals which are ancillary
to the services provided by the Hospitals and Health Care Facilities, including
by way of example, but without limiting the generality of the foregoing,
surgery centers, rehabilitation hospitals, sub-acute care hospitals, nursing
homes, psychiatric hospitals, and medical clinics.
Health Care Service Business. Means a business (other than a Hospital
or Health Care Facility) and the Assets used or otherwise related to such
business which provides goods or services to Hospitals or Health Care
Facilities or which provides health care services to individuals which are
ancillary to the services provided by a Hospital or Health Care Facility
including by way of example, but without limiting the generality of the
foregoing: home health care businesses; hospices; centers for wellness and
disease prevention; laboratories; information, data processing and automation
service businesses; purchasing, warehousing and distribution businesses;
personnel placement businesses; occupational and on-the-job training and
testing businesses; physical therapy businesses; and management, training,
education, employment and other similar businesses.
Hospital. Means and, for purposes of this Agreement, shall be limited
to, hospitals which provide general acute-care or general tertiary-care to
individuals who are ill or injured. The term shall include the
businesses and operations of the Hospital, all facilities and other Assets used
or intended to be used in connection with the Hospital and all businesses and
operations (including the Assets used or otherwise related to such businesses
and operations) which are ancillary to the businesses and operations of the
Hospital, including ancillary Health Care Service Businesses, if such
businesses and the Hospital are owned and operated by the same Person or
Persons and/or Affiliates of such Person or Persons.
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Indebtedness. Means, with respect to any Person, any and all
indebtedness, liabilities, and obligations of such Person, including, without
limitation and without duplication, (a) all obligations of such Person for
borrowed money and all obligations of such Person evidenced by bonds, notes,
debentures or similar instruments, (b) all "liabilities" which would be
reflected on a balance sheet of such Person prepared in accordance with GAAP,
(c) all indebtedness, liabilities and obligations of such Person with respect
to any Guaranty, (d) all obligations of such Person with respect to any Capital
Lease (but excluding obligations of such Person with respect to any operating
lease), (e) all obligations of such Person with respect to any banker's
acceptance or surety bonds or as an account party with respect to any letter of
credit, (f) all indebtedness, liabilities, and obligations secured by a Lien on
any Asset of such Person to the extent of the value of such Asset, and (g) all
deferred payment obligations, however characterized, incurred in connection
with the acquisition by such Person of any Asset including, without limitation,
Securities and deferred payment obligations relating to non-compete and/or
consulting agreements; but excluding, (i) trade accounts payable by such Person
arising in the ordinary course of business that are not more than 90 days past
due, and (ii) with respect to Borrower, accrued but unpaid dividends on any
series of preferred stock of Borrower to the extent that Borrower is required
to defer payment of such dividends by the provisions of the Loan Papers.
Notwithstanding the foregoing, the contingent obligations of the Borrower and
Champion-Fargo under Section 3.03(g) of the DHHS Partnership Agreement shall
not be deemed to constitute Indebtedness of the Borrower until such time as the
obligations are no longer contingent or until such time as Dakota gives the
Borrower or Champion-Fargo notice that it is exercising its rights under
Section 3.03(g) of the DHHS Partnership Agreement.
Interbank Offered Rate. Means, with respect to each Interest Period,
the rate of interest per annum determined by Agent to be the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the rates per annum at
which deposits in immediately available freely transferable funds in U.S.
Dollars are offered to each of the Reference Banks (at approximately 11:00
a.m., London, England time, two (2) Eurodollar Business Days prior to the first
day of such Interest Period) in the London interbank market for delivery on the
first day of such Interest Period, such deposits being for a period of time
equal or comparable to such Interest Period and in an amount equal or
comparable to each Reference Bank's Pro Rata Share of the principal amount of
the Eurodollar Loan to which such Interest Period relates. Each determination
by Agent of the Interbank Offered Rate shall be conclusive in the absence of
manifest error. Notwithstanding the foregoing, the Required Banks may, at any
time and from time to time, in their sole discretion, with respect to any
Interest Period applicable to any Eurodollar Loan designate as the "Interbank
Offered Rate" in lieu of the rate determined pursuant to the above formula
either (a) the Interbank Offered Rate for United States dollar deposits in the
London market that is quoted to the Agent by Knight-Ridder Money Center
Services (or such comparable service as Agent may, in its sole discretion,
designate), or (b) the Interbank Offered Rate for United States dollar deposits
in the London market in an amount equal or comparable to the applicable
Eurodollar Loan and with a maturity equal or comparable to the applicable
Interest Period, as shown on Ruters' Monitor Money Rates Service "LIBOR" page
or published in a comparable financial publication recognized by large United
States money center commercial banks, in which event, the term "Interbank
Offered Rate" shall mean the rate
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determined pursuant to clause (a) or (b), whichever shall be selected by the
Agent in its sole discretion.
Intercompany Acquisition Notes. Means those certain promissory notes
identified as Intercompany Acquisition Notes on Schedule 4 attached hereto and
incorporated herein by reference together with all promissory notes issued
after the Closing Date by a Subsidiary of the Borrower to Borrower or from one
of Borrower's Subsidiaries to another for purposes of evidencing all or any
portion of the cost incurred by the Borrower or such Subsidiary (other than the
portion of such costs which is paid, directly or indirectly, with proceeds of
the Loans) to consummate the acquisition of a Hospital, Health Care Facility or
Health Care Service Business and all renewals, extensions, amendments,
restatements and replacements of any such promissory notes.
Intercompany Loan Documents. Means each and every instrument, agreement
and other document evidencing, securing or otherwise relating to any
Intercompany Note or any Intercompany Acquisition Note and all renewals,
extensions, amendments and other modifications made from time to time with
respect thereto.
Intercompany Notes. Means those certain promissory notes identified as
Intercompany Notes on Schedule 4 together with all Additional Intercompany
Notes and all renewals, extensions, amendments, restatements and replacements
of any of such promissory notes.
Interest Expense. Means, for the applicable period of determination,
the aggregate amount of interest expense (excluding amortization of debt
issuance costs) accrued during such period on Indebtedness of the Person or
Persons with respect to which such calculation is made, including the interest
portion of payments under Capital Leases, all as determined in accordance
with GAAP.
Interest Payment Date. Means (a) with respect to any Base Rate Loan,
the last day of March, June, September and December of each calendar year that
occurs prior to the Maturity Date commencing on the first of such days to occur
after the Closing Date, (b) with respect to any Eurodollar Loan as to which
Borrower has selected an Interest Period of one (1), two (2) or three (3)
months, the last day of such Interest Period, (c) with respect to any
Eurodollar Loan as to which Borrower has selected an Interest Period of six (6)
months, the last day of the three (3) month period falling within such Interest
Period (commencing with the day that is three (3) months from the first day of
such Interest Period) and the last day of such Interest Period, (d) the
Maturity Date, and (e) with respect to all interest accruing from and after the
Maturity Date, such interest shall be due and payable on demand, and each date
on which a demand for payment is made shall be referred to as an "Interest
Payment Date"; provided, however, if any such payment date does not occur on a
Business Day, then the Interest Payment Date shall be the next succeeding
Business Day.
Interest Period. Means, with respect to each Eurodollar Loan, the
period commencing (a) on the borrowing date of such Eurodollar Loan, or (b) on
the conversion date pertaining to such Eurodollar Loan, if such Eurodollar Loan
is made pursuant to a conversion as described
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in Section 2.9(a) hereof, or (c) on the day following the last day of the
Interest Period during which Borrower gives a Rollover Notice in the case of a
rollover of such Eurodollar Loan to a successive Interest Period, as described
in Section 2.9(c) hereof, and ending on the numerically corresponding day of
the calendar month that is one, two, three, or six months after the
commencement date of the Interest Period, as Borrower shall select in
accordance with Sections 2.4(a), 2.9(a) or 2.9(c) hereof; provided, that, (i)
any Interest Period which would otherwise end on a day which is not a
Eurodollar Business Day shall be extended to the next succeeding Eurodollar
Business Day unless such Eurodollar Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Eurodollar Business Day, (ii) any Interest Period that begins on the last
Eurodollar Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (i) above, end on the last Eurodollar Business
Day of the calendar month in which the Interest Period terminates, (iii) if the
Interest Period for any Eurodollar Loan would otherwise end after the Maturity
Date, such Interest Period shall end on the Maturity Date, and (iv) no Interest
Period may commence before and end after any Commitment reduction date or
principal payment date, unless after giving effect thereto, the aggregate
amount of Loans having Interest Periods, which end after such date shall be
equal to or less than the aggregate principal amount of the Loans scheduled to
be outstanding hereunder after such date.
JCAHO. Means the Joint Commission on Accreditation of Health Care
Organizations.
L/C Application. Means Banque Paribas' standard form of application
and agreement for standby letters of credit, completed to the satisfaction of
Banque Paribas.
L/C Request Certificate. Means a L/C Request Certificate in the form of
Exhibit J hereto, appropriately completed, executed by Borrower and
delivered to Banque Paribas pursuant to Section 2.2(c) in connection with
Borrower's request for the issuance, amendment, renewal or extension of a
Letter of Credit.
Lateral Borrowing. Has the meaning ascribed to such term in clause g
of the definition of Permitted Indebtedness which is set forth below.
Letter of Credit. Means a standby letter of credit issued by Banque
Paribas for the account of the Borrower pursuant to this Agreement and the
applicable L/C Application and all renewals, extensions, amendments,
replacements, substitutions and other modifications made from time to time with
respect thereto.
Letter of Credit Fee. Means a fee based on the aggregate undrawn face
amounts of all Letters of Credit outstanding from time to time which shall be
calculated as of the last day of each March, June, September and December of
each calendar year, beginning with the first of such dates following the
Closing Date, and shall equal the amount determined by multiplying (a) the
average daily aggregate undrawn face amounts of all Letters of Credit
outstanding during the quarter of the calendar year ending on the date of
determination, times (b) the product (expressed as a decimal) determined by
multiplying the Applicable Letter of Credit Fee
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Percentage by a fraction, the numerator of which is the number of days
contained in the quarter of the calendar year ending on the date as of which
such calculation is made (excluding, in the case of the first calendar year
quarter, the days occurring prior to the Closing Date and, in the case of the
quarter of the calendar year during which the Revolving Loan Maturity Date
occurs, the days following such date), and the denominator which is the number
of days contained in the applicable calendar year (e.g. 365 or 366).
Letter of Credit Fee Payment Date. Means each date as of which (a) the
Letter of Credit Fee is determined (e.g. the last day of each March, June,
September and December of each calendar year), and (b) the Revolving Loan
Maturity Date (or, if such date is not a Business Day, the first Business Day
thereafter), beginning on the first of such days following the Closing Date and
ending on the Revolving Loan Maturity Date.
Lien. Means any valid and enforceable interest in any property, whether
real, personal or mixed, securing an Indebtedness, obligation or liability owed
to or a claim by any Person other than the owner of such property, whether such
interest is based on the common law or any constitution, statute or contract
and including, but not limited to, a security interest, pledge, mortgage,
assignment, conditional sale or trust receipt, or a transfer, lease,
consignment or bailment for security purposes.
Loan. Means each Revolving Loan.
Loan Papers. Means, collectively, this Agreement, the Note, the
Security Documents, the Letters of Credit, the L/C Applications, the L/C
Request Certificates and any and all other agreements, instruments,
certificates and other documents now or hereafter executed or delivered in
connection with any of the foregoing or the transactions contemplated thereby
(including, without limitation, those agreements, instruments, certificates,
and other documents, the forms of which appear as Exhibits hereto), as such
agreements, instruments, certificates and other documents may be amended,
renewed, extended, restated, replaced, substituted, supplemented or otherwise
modified from time to time.
Loan Party. Means the Borrower, each Guarantor and each other Person
who shall be liable for the payment or performance of all or any portion of the
Obligations or who shall own any property that is subject to (or purported to
be subject to) a Lien which secures all or any portion of the Obligations.
Loan Request Certificate. Means a Loan Request Certificate in the form
of Exhibit C hereto, appropriately completed, executed by Borrower and
delivered to Agent pursuant to Section 2.4(a) in connection with Borrower's
request for an Advance.
Margin Stock. Means margin stock, as such term is defined in
Regulation U.
Material Adverse Effect. Means any (a) material adverse effect upon the
validity, performance or enforceability of any Loan Paper or the validity,
enforceability, perfection or intended priority of any Lien created or intended
to be created thereunder or the rights or
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remedies of Agent or any Bank under any of the foregoing, (b) material adverse
effect upon the financial condition or financial performance or the business,
operations or prospects of Borrower or of Borrower and the Consolidated
Subsidiaries taken as a whole, (c) material adverse effect upon the ability of
Borrower or any Subsidiary of Borrower to fulfill its payment obligations, if
any, under the Loan Papers, or (d) material adverse effect upon the value of
the Collateral taken as a whole.
Maturity Date. Means March 31, 1999, or such earlier date on which the
entire unpaid principal amount of the Loans shall become due and payable
whether by the lapse of time, acceleration or otherwise; provided, however, if
such date is not a Business Day, then the Maturity Date shall be the next
succeeding Business Day.
Maximum Lawful Rate. Means the maximum rate (or, if the context so
permits or requires, an amount calculated at such rate) of interest from time
to time permitted under Federal or state laws now or hereafter applicable to
the portion of the Obligations in question, after taking into account, to the
extent required by applicable law, any and all relevant payments, charges
deemed to be interest (whether or not so characterized by the parties) and
calculations. Banks hereby notify and disclose to Borrower and Consolidated
Subsidiaries that, for purposes of Tex.Rev.Civ.Star.Ann. art. 5069-1.04, as it
may be amended from time to time, the applicable rate ceiling shall be the
"indicated rate" ceiling from time-to-time in effect as limited by Art.
5069-1.04(b); provided, however, to the extent permitted by applicable law,
Banks shall have the right to change the applicable rate ceiling from time to
time in accordance with applicable law.
MHLP Agreement. Means that certain Amended and Restated Agreement of
Limited Partnership of Richmond Metropolitan Hospital, Ltd. dated as of
September 30, 1984, as amended by First Amendment to Amended and Restated
Agreement of Limited Partnership of Metropolitan Hospital, L.P., dated as of
February 26, 1987, as the same may be amended or otherwise modified from time
to time.
Mortgage. Means each mortgage or deed of trust pursuant to which the
Borrower or a Loan Party grants (or purports to grant) a Lien on any real
property as security for all or any portion of the Obligations as the same may
be renewed, extended, restated, supplemented, increased, amended or modified
from time to time.
Mortgaged Estates. Means the Assets encumbered by the Mortgages.
Net Worth. Means, as of the applicable date of determination and
without duplication, the stockholders' equity of Borrower and its Consolidated
Subsidiaries, plus the value of redeemable preferred stock issued by the
Borrower, all as determined in accordance with GAAP.
Note. Means any Revolving Note as the same may, from time to time, be
extended, renewed, amended, increased, substituted, or otherwise modified
(including any substitution pursuant to Section 10.6) or all of such Revolving
Notes, as the context may require.
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Obligations. Means (a) all Indebtedness, obligations and liabilities of
the Borrower to any Bank or the Agent under this Agreement or any other Loan
Paper including, without limitation, all Loans, Advances and Reimbursement
Obligations whether liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several or joint and several, due or to become due, or now
existing or hereafter arising; (b) all Indebtedness, obligations, and
liabilities owing to any Bank or the Agent by any Subsidiary of the Borrower or
other Loan Party under any Guaranty or other Loan Paper whether liquidated or
unliquidated, direct or indirect, absolute or contingent, joint or several or
joint and several, due or to become due, or now existing or hereafter arising;
(c) without limiting the generality of the foregoing, all interest accruing on
any of the Obligations described in clauses (a) and (b) above and attorneys'
fees incurred in the enforcement or collection thereof, regardless of whether
any such Obligations are direct or indirect, fixed or contingent, joint or
several or joint and several, or due or to become due, or now existing or
hereafter arising; (d) all fees payable pursuant to any Loan Paper; and (e) all
renewals, extensions, amendments, supplements, increases and other
modifications made from time to time with respect to any of the foregoing.
Original Loan Agreement. Means that certain Loan Agreement dated as of
November 5, 1993 entered into by Champion Healthcare Corporation, a Texas
corporation (which was subsequently merged into and succeeded by the Borrower),
Banque Paribas, NationsBank of Tennessee, N.A., First Union National Bank of
North Carolina, and Banque Paribas, as agent for itself and such other banks,
as such Loan Agreement was subsequently amended by that certain First Amendment
to Loan Agreement dated as of December 31, 1993, that certain Second Amendment
to Loan Agreement dated as of May 31, 1994, that certain Third Amendment to
Loan Agreement dated as of October 21, 1994, that certain Fourth Amendment to
Loan Agreement dated as of December 5, 1994, that certain Fifth Amendment to
Loan Agreement dated as of December 21, 1994, and that certain Sixth Amendment
to Loan Amendment dated as of April 13, 1995.
OSHA. Means the Occupational Safety and Health Act (29 U.S.C. Section
651 et seq.) as amended, and all rules and regulations issued pursuant thereto.
Other Assets. Means, as to any Person, all Assets on such Person's
balance sheet, as of the applicable date of determination, other than cash,
current assets and land, building and equipment.
Permitted Acquisition. Means an Acquisition by the Borrower or an
Eligible Intermediate Subsidiary or Eligible Operating Subsidiary (either
directly through an Asset purchase or indirectly through the acquisition of at
least one hundred percent (100%) of the outstanding Securities of the Person
which owns such Assets) of a Hospital, Health Care Facility or Health Care
Service Business on terms mutually agreeable to the owner thereof, as to which
all of the conditions precedent to an Acquisition Advance, as set out in
Section 4.2, have been met; provided, however, that (a) no acquisition of a
Hospital shall constitute a Permitted Acquisition without the prior written
approval of the Required Banks if the total costs to acquire such Hospital
(including, without limitation, direct and indirect costs and Indebtedness
assumed in connection with such Acquisition, but net of working capital,
determined in accordance with
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GAAP, of the Hospital being acquired, to the extent the Borrower, or the
Eligible Intermediate Subsidiary or Eligible Operating Subsidiary which is the
purchaser, receives the benefit of such working capital on a dollar per dollar
basis) exceed $25,000,000 or if such total costs are greater than the product
obtained by multiplying five (5) times the EBITDA of the Hospital to be
acquired, determined as of the date of acquisition; (b) no Acquisition of a
Health Care Facility shall constitute a Permitted Acquisition without the prior
written approval of the Required Banks if the total costs to acquire such
Health Care Facility (including, without limitation, direct and indirect costs
and Indebtedness assumed in connection with such Acquisition, but net of
working capital, determined in accordance with GAAP, of the Health Care
Facility to be acquired, to the extent the Borrower, or the Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary which is the
purchaser, receives or otherwise obtains the benefit of such working capital on
a dollar per dollar basis) exceed $7,500,000 or if such total costs are greater
than the product obtained by multiplying three (3) times the EBITDA of the
Health Care Facility to be acquired, determined as of the acquisition date; and
(c) no Acquisition of a Health Care Service Business shall constitute a
Permitted Acquisition without the prior written approval of the Required Banks
unless such Health Care Service Business is located in and provides services to
the region and consumer markets then served by the Borrower or one or more of
its Consolidated Subsidiaries (or which will, upon contemporaneously closing a
Permitted Acquisition of a Hospital, be served by Borrower or a Consolidated
Subsidiary) and the total costs to acquire any single Health Care Service
Business does not exceed $5,000,000 (including, without limitation, direct and
indirect costs and Indebtedness assumed in connection with such Acquisition,
but net of working capital, determined in accordance with GAAP, of the Health
Care Service Business to be acquired, to the extent the Borrower, or the
Eligible Intermediate Subsidiary or Eligible Operating Subsidiary which is the
purchaser, receives or otherwise obtains the benefit of such working capital on
a dollar per dollar basis) and the aggregate total costs to acquire all Health
Care Service Businesses which are acquired after the Closing Date (including,
without limitation, direct and indirect costs and Indebtedness assumed in
connection with such Acquisition, but net of working capital, determined in
accordance with GAAP, of the Health Care Service Business to be acquired, to
the extent the Borrower, or the Eligible Intermediate Subsidiary or Eligible
Operating Subsidiary which is the purchaser, receives or otherwise obtains the
benefit of such working capital on a dollar per dollar basis) do not exceed
$15,000,000.
Permitted Indebtedness. Means:
(a) the Obligations;
(b) the obligations to pay taxes that are not delinquent or that
are being contested in accordance with Section 6.1(e);
(c) accounts payable and other expenses incurred in the ordinary
course of business (including, without limitation, accounts payable and
other expenses incurred by a Subsidiary of the Borrower which are
payable or owing to another Person who is the Borrower or another
Subsidiary of the Borrower through the cash management system of
Borrower and its Subsidiaries to the extent the same is not required,
pursuant to this Agreement to be evidenced by an Intercompany Note);
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(d) salaries and wages payable in the ordinary course of business
consistent with past practices;
(e) the existing Indebtedness owed by the Borrower or an
Eligible Intermediate Subsidiary or Eligible Operating Subsidiary
expressly identified on Schedule 6 hereto (including renewals and
extensions thereof on terms no less favorable than the existing terms or
such other terms as may have been approved in writing by the Required
Banks and, specifically excluding, increases thereof unless otherwise
permitted under this Agreement or another Loan Paper or approved in
writing by the Required Banks);
(f) contractual obligations incurred in the ordinary course of
business which would not be classified as "liabilities" on a balance
sheet prepared in accordance with GAAP;
(g) the Indebtedness owed by an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary to the Borrower or to another Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary if (i) such
Indebtedness is evidenced by an Intercompany Note, (ii) the aggregate
amount of all such Indebtedness which is owed by any such Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary is less than or
equal to the product obtained by multiplying three (3) times the sum of
the EBITDA of such Subsidiary (only if it is an Eligible Operating
Subsidiary) plus the EBITDA of each of its Eligible Operating
Subsidiaries, determined as of the last day of the immediately preceding
calendar month (the EBITDA of all Subsidiaries of such Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary with respect to
which such calculation is made which are not Eligible Operating
Subsidiaries shall be excluded), (iii) such Indebtedness is secured by
Liens on the same Assets of such Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary that secure the Obligations and such Liens
are subordinate to all Liens securing the Obligations but not otherwise
subordinate to any other Liens except those, if any, which are superior
to the Liens securing the Obligations, and (iv) such Indebtedness is
subordinated to the Obligations (including all Guaranties of the
Obligations by any of Borrower's Subsidiaries) on the same terms and
conditions as are set forth in the form of the Intercompany Note attached
as Exhibit K-1 or, in the case of an Intercompany Note which evidences
Lateral Borrowing, Exhibit K-2. Notwithstanding the limitation contained
in clause (ii) above upon the amount of Indebtedness permitted by this
clause (g), (A) there shall be no such limitation on the Indebtedness
owed by one Eligible Operating Subsidiary to another Eligible Operating
Subsidiary which does not hold any ownership interest in the Eligible
Operating Subsidiary which owes such Indebtedness (provided, however,
that all of the other requirements set forth in clauses (i), through (iv)
shall be satisfied), and (B) in lieu of the limitation upon the amount of
such Indebtedness which is set forth in clause (ii) above with respect to
CHC/Psychiatric Healthcare Corporation, the limitation which shall be
applicable to such Indebtedness which may be owed by CHC/Psychiatric
Healthcare Corporation shall be the lesser of $5,000,000.00 or ninety
percent (90%) of the PHC Eligible Receivables and, to the extent cash
dividends are paid to CHC/Psychiatric Healthcare Corporation by
Psychiatric Healthcare Corporation of Louisiana and/or Psychiatric
Healthcare Corporation of Missouri subsequent to the Closing Date ("PHC
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Subsidiary Dividends"), amounts equal to such PHC Subsidiary Dividends
may be borrowed by CHC/Psychiatric Healthcare Corporation from the
Borrower or another Eligible Intermediate Subsidiary or Eligible
Operating Subsidiary.
(h) Indebtedness owed by an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary to the Borrower or to another Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary if such
Indebtedness is evidenced by an Intercompany Acquisition Note which is
unsecured and is subordinated to the Obligations (including all
Guaranties of the Obligations by any of Borrower's Subsidiaries) and to
all Intercompany Notes on the same terms and conditions as are set forth
in the form of the Intercompany Acquisition Note attached hereto as
Exhibit K-3;
(i) other Indebtedness of the Borrower if, prior to incurring such
Indebtedness, Borrower has provided to the Agent and the Banks
Financial Statements, prepared on a Pro Forma basis, which demonstrate
to the satisfaction of the Agent that (i) the Borrower and all Eligible
Operating Subsidiaries are and shall remain in compliance with all
terms, covenants and provisions of this Agreement (provided, however,
that with respect to covenants which involve the calculation of EBITDA
for the Borrower and its Consolidated Subsidiaries, calculations of
EBITDA made for such covenants shall only be made for the Borrower and
Consolidated Subsidiaries), and (ii) the ratio of Senior Debt to EBITDA
(determined on a consolidated basis for the Borrower and its
Consolidated Subsidiaries in accordance with Section 6.2(i) for the
immediately preceding twelve consecutive calendar months) is less than,
and will remain less than, 2.50 to 1.00;
(j) Additional Subordinated Debt of Borrower; and
(k) obligations under Capital Leases (subject to any
applicable limitation set forth in the definition of Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary in Section 1.2
above).
Permitted Investments. Means investments in:
(a) Indebtedness, evidenced by notes maturing not more than 180
days after the date of issue, issued or guaranteed by the government of
the U.S.;
(b) time deposits and certificates of deposit, maturing not more
than 180 days after the date of issue, issued by commercial banks, each
of which is a member of the Federal Reserve System and which has combined
capital and surplus and undivided profits of not less than
$1,000,000,000, or any other financial institution if the amount on
deposit is fully insured by the Federal Deposit Insurance Corporation;
(c) commercial paper, maturing not more than 180 days after the
date of issue, issued by a corporation (other than an Affiliate of
Borrower) with a rating of "P-1" (or its then equivalent) according to
Moody's Investors Service, Inc., "A-1" (or its then equivalent) according
to Standard & Poor's Corporation, or "F-1" (or its then equivalent)
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according to Fitch's Investors Service, Inc., or a better rating on any
such rating index or another index approved by Agent in its sole
discretion;
(d) money market funds that invest only in securities which mature
within one year after the date of purchase and which have ratings which
meet the standards of clause (c) above;
(e) Securities issued or guaranteed by the government of the U.S.
which mature no later than one year after the date of acquisition; and
(f) agreements to repurchase investments permitted under the
categories set forth above.
Permitted Liens. Means, with respect to any Asset:
(a) Liens securing the Obligations in favor of Agent and Banks;
(b) pledges or deposits made in the ordinary course of business to
secure payment of worker's compensation insurance (or to participate in
any fund in connection with worker's compensation insurance),
unemployment insurance, pensions or social security programs;
(c) Liens imposed by mandatory provisions of law and arising in the
ordinary course of business (such as materialmen's, mechanic's and
warehousemen's Liens and other like Liens) securing Indebtedness the
payment of which is not yet due;
(d) Liens for taxes, assessments and governmental charges or levies
imposed upon a Person or upon such Person's income or profits or property
if the same are not yet due and payable;
(e) the Liens referred to in clauses (A), (B) and (C) below if and
only if (i) the amount, applicability or validity thereof is currently
(at the time in question) being contested in good faith by appropriate
action promptly and diligently conducted and adequate cash reserves
(segregated to the extent required by GAAP) have been set aside therefor,
(ii) levy and execution thereon have been stayed and continue to be
stayed, and (iii) they do not in the aggregate materially detract from
the value of the property of the Person in question or materially impair
the use of such property in such Person's business: (A) Liens for taxes
due and payable, (B) Liens upon, and defects of title to, personal
property and claims asserted in legal proceedings prior to adjudication
of a dispute on the merits, and (C) judgment Liens on appeal;
(f) Liens arising from good faith deposits in connection with
tenders, leases, real estate bids or contracts (other than contracts
involving the borrowing of money), deposits to secure public or statutory
obligations, and deposits to secure (or in lieu of) surety,
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stay, appeal or customs bonds, and deposits to secure the payment of
taxes, assessments, customs duties or other similar charges;
(g) encumbrances consisting of: (i) zoning restrictions,
restrictive covenants, encroachments, protrusions, easements or other
restrictions on or affecting the use of real property, provided that
such items do not in the aggregate materially detract from the value of
the property of the Person in question or materially impair the use of
such property in such Person's business, and none of which is violated
by existing or proposed structures or uses; and (ii) matters disclosed
in a title commitment, title policy or survey approved by Agent;
(h) Liens solely securing Capital Leases provided that each such
Lien is limited to the Asset so leased;
(i) Liens securing the Indebtedness permitted under clause (g) of
the definition of "Permitted Indebtedness" in this Agreement if and to
the extent that, and so long as, such Indebtedness and the Liens securing
such Indebtedness have been collaterally assigned to Agent for the
benefit of Banks as security for the payment and performance of the
Obligations pursuant to Security Documents in form and substance
satisfactory to Agent; and
(j) Liens, if any, described on Schedule 6 hereto;
provided, however, that none of the aforesaid Liens, other than the Liens
permitted pursuant to clauses (a), (c), (d), (e), (g), (h), (i) and (j)
preceding, shall constitute a Permitted Lien if it attaches or relates to any of
the Collateral or any Security issued by an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary of the Borrower; and provided, further, however,
that each of the Liens referred to in clauses (b) through (j) preceding shall be
of inferior priority to the Liens in favor of Agent and Banks except as may be
expressly otherwise provided on Schedule 6 hereto or except as Agent and
Required Banks may subsequently agree in writing.
Person. Means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind.
PHC Eligible Receivables. Means Receivables created by Psychiatric
Healthcare Corporation of Louisiana or Psychiatric Healthcare Corporation of
Missouri in the ordinary course of business arising out of the sale by either
such Person of goods or the rendition of services by either such Person.
Receivables of Psychiatric Healthcare Corporation of Louisiana or Psychiatric
Healthcare Corporation of Missouri shall not be deemed to be PHC Eligible
Receivables unless no more than one hundred twenty (120) days have elapsed
since the invoice date for the Receivable. PHC Eligible Receivables shall not
include Receivables payable directly to either of Psychiatric Healthcare
Corporation of Louisiana or Psychiatric Healthcare Corporation of Missouri by
an account debtor who is not entitled to Medicare or Medicaid benefits and does
not have medical or hospitalization insurance or is not covered under an
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employee reimbursement program, provider plan, or similar program maintained
with the applicable Psychiatric Healthcare Corporation of Louisiana or
Psychiatric Healthcare Corporation of Missouri, as applicable.
PHC Subsidiary Dividends. Has the meaning set forth in clause (g)
of the definition of Permitted Indebtedness.
Plan. Means all "employee benefit plans" as defined in Section 3(3) of
ERISA with respect to which Borrower or any Consolidated Subsidiary is a party
or bound or with respect to which it has any direct, indirect or contingent
liability.
Potential Default. Means the occurrence of any event which, with notice
or the lapse of time or both, would become or create an Event of Default (and,
unless otherwise expressly stated or the context in which such term is used
otherwise indicates, the term means an Event of Default), and "potential
default" means the occurrence of any event which, with notice or the lapse of
time or both, would become an event of default under the agreement, document or
instrument in question (and, unless otherwise expressly stated or the context
in which such term is used otherwise indicates, the term means an Event of
Default).
Prescribed Forms. Means such duly executed form(s), statement(s) or
document(s), and in such number of copies, which may, from time to time, be
prescribed by law and which, pursuant to applicable provisions of (a) an income
tax treaty between the U. S. and the country of residence of the Bank providing
the form(s), statement(s) or document(s), (b) the Code, or (c) any applicable
rule or regulation under the Code, permit Borrower to make payments hereunder
or under any other Loan Paper to or for the account of such Bank free of, or at
a reduced rate of, deduction or withholding for income or similar taxes.
Prime Rate. Means the rate of interest from time to time publicly
announced by The Chase Manhattan Bank, North America ("Chase") at its principal
office as its prime commercial lending rate or such other banking institution as
may be selected by the Agent with notice to the Borrower. Such rate is set by
Chase as a general reference rate of interest, taking into account such factors
as Chase may deem appropriate, it being understood that many of Chase's
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any customer and that
Chase may make various commercial or other loans at rates of interest having no
relationship to such rate.
Prior Debt. Means the Indebtedness described on Schedule 8 attached
hereto and made a part hereof for all purposes.
Pro-Forma and Pro-Forma Effect. Means, in making any calculation to
determine if Borrower and its Consolidated Subsidiaries are in compliance with
Sections 6.2(c) (g), (h), (i) or (j) or to determine if any condition
precedent to an Advance has been met, that the calculation will be made
assuming that: (a) any Permitted Acquisition made or to be made with the
proceeds of an Advance during the twelve-month period preceding the date as of
which the determination is made (the "Reference Period") and any Indebtedness
associated with any
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Acquisition which is incurred during the Reference Period, were made or
incurred on the first day of the Reference Period; and (b) any funds used or to
be used by Borrower or any Subsidiary in consummating an Acquisition during the
Reference Period were used for that purpose on the first day of the applicable
Reference Period; (c) EBITDA for the Borrower and its Consolidated Subsidiaries
for the Reference Period includes EBITDA which is allocable to Assets and
Subsidiaries acquired in Acquisitions completed during the Reference Period for
the entire Reference Period including that part of such period which preceded
the date of the Acquisition, but shall exclude the EBITDA allocable to any of
such Assets or Subsidiaries which shall be sold or otherwise transferred in
transactions completed contemporaneously with the Acquisition or which shall be
completed within a reasonable time thereafter as a part of the transactions
which resulted in the Acquisition; (d) Interest Expense with respect to any
Indebtedness assumed to have been incurred on the first day of the applicable
Reference Period pursuant to clause (a) above which bears interest at a
floating rate was incurred during the Reference Period at a fixed rate of
interest per annum which was equal to the interest rate provided under the
agreement governing such Indebtedness on the first day of the Reference Period;
(e) Interest Expense for the applicable Reference Period does not include
amounts which would otherwise be characterized as Interest Expense accruing
during the Reference Period if such Interest Expense was or will be refinanced
with proceeds of Indebtedness assumed to have been incurred as of the first day
of the Reference Period pursuant to clause (a) above; (f) nonrecurring expenses
incurred by the Borrower or any of its Subsidiaries with respect to
Acquisitions completed prior to the Closing Date which would ordinarily be
deducted from earnings for purposes of determining net income in accordance
with GAAP, shall not be deemed to constitute expenses of such nature for
purposes of this calculation; and (g) non-recurring expenses incurred by the
Borrower and/or its Subsidiaries on or before the Closing Date in connection
with the financing transactions contemplated by this Agreement or the Original
Loan Agreement which would ordinarily be deducted from earnings for purposes of
determining net income in accordance with GAAP, shall not be deemed to
constitute expenses of such nature for purposes of this calculation.
Proprietary Rights. Means all patents, copyrights, trademarks,
servicemarks, trade names, trade styles and applications and licenses relating
thereto and rights thereunder.
Pro Rata Share. Means, with respect to each Bank, as of the date of any
determination, such Bank's proportionate share of the Aggregate Commitments.
As of the date of this Agreement, the Pro Rata Share of each Bank is as set
forth on Schedule 1 hereto.
Quarterly Dates. Means the last day of March, June, September and
December of each calendar year, the first of which shall be the first such day
after the Closing Date.
RCRA. Means the Solid Waste Disposal Act (42 U.S.C. Section 6901 et
seq.), as amended and in effect from time to time, and all regulations issued
pursuant thereto (known as RCRA for a subsequent amending act).
Receivables. Means all present and future Accounts, accounts receivable
and other rights to payment for Goods sold or leased or for services rendered,
whether now existing or hereafter
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arising, and whether or not such Accounts, accounts receivable or other rights
have been earned by performance.
Reference Banks. Means Banque Paribas and such other Bank or Banks (if
any) as Agent may, in addition to Banque Paribas, designate as Reference Banks
from time to time in its discretion upon notice to Borrower and Banks.
Register. Has the meaning provided in Section 10.6(d) of this
Agreement.
Regulation D. Means Regulation D of the Board of Governors from time to
time in effect and shall include any successor or other regulation relating to
reserve requirements applicable to member banks of the Federal Reserve System
(or its successor).
Regulation U. Means Regulation U of the Board of Governors from time to
time in effect and shall include any successor or other regulation hereafter
promulgated by the Board of Governors to replace Regulation U and having
substantially the same function.
Reimbursement Obligation. Means Borrower's obligation to reimburse
for any drawing under, or payment made by Banque Paribas with respect to, any
Letter of Credit.
Reportable Event. Means any reportable event as defined in Section 4043
of Title IV of ERISA and applicable regulations.
Required Banks. Means, as of any date of determination, Banks which
hold, in the aggregate, 66.66% or more of the sum of the aggregate principal
amount of the Loans plus the aggregate face amount of the Letters of Credit
then outstanding or, if no Loans or Letters of Credit are then outstanding,
66.66% or more of the Aggregate Commitments; provided, however, with respect to
the matters described in Section 10.7 below, the term "Required Banks" shall
mean those Banks which hold, in the aggregate, 100% of the sum of the aggregate
principal amount of the Loans plus the aggregate face amount of the Letters of
Credit then outstanding or, if no Loans or Letters of Credit are then
outstanding, 100% of the Aggregate Commitments.
Restricted Payments. Means, with respect to any Person (a) cash
dividends or distributions or any other dividends or distributions on, or in
respect of, any class of Securities of such Person, except for distributions
made solely in Securities of the same class, and (b) any and all funds, cash,
property or other payments or distributions made (including, without
limitation, sinking fund payments) in respect of the retirement, redemption,
repurchase or other acquisition of such Securities, unless such Securities
shall be redeemed or acquired through the exchange of such Securities with
Securities of the same class.
Revolving Credit Contract Rate. Means, as of any date of determination,
the fluctuating per annum rate of interest which equals the lesser of the
Maximum Lawful Rate (such interest rate to be adjusted simultaneously with any
change in the Maximum Lawful Rate) or: (a) with
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respect to Base Rate Loans, the Prime Rate (such interest to be adjusted
simultaneously with any change in the Prime Rate) plus the Applicable Base Rate
Percentage; and (b) with respect to each Eurodollar Loan, the Eurodollar Rate
applicable to such Loan plus the Applicable Eurodollar Rate Percentage;
provided, however, subject to all provisions of Section 10.4, if at any time
the Revolving Credit Contract Rate shall be computed on the basis of the
Maximum Lawful Rate, any subsequent reduction in the Revolving Credit Contract
Rate shall not reduce such interest rate thereafter payable below the Maximum
Lawful Rate until the aggregate amount of such interest accrued and payable
equals the total amount of interest that would have accrued if such interest
had at all times been computed solely on the basis of clauses (a) and (b)
above. Except as otherwise provided in Section 2.7(d) with respect to
Eurodollar Loans, interest computed at the Revolving Credit Contract Rate shall
be computed on the basis of a year of 365 or 366 days, as the case may be,
actual days elapsed, including the first day but excluding the last day of the
period for which interest is payable. The Borrower, Banks and Agent understand
and acknowledge that the Applicable Base Rate Percentage and Applicable
Eurodollar Rate Percentage are calculated for each quarter of Borrower's Fiscal
Year based on information provided by the Borrower to the Banks and Agent and
that such information may not be provided to the Banks and Agent for a number
of days following the first day of the quarter of Borrower's Fiscal Year with
respect to which such percentages are applicable. Consequently, the Revolving
Credit Contract Rate which may be applicable during a certain quarter of
Borrower's Fiscal Year may not be known prior to the commencement of such
quarter. In such event, the Revolving Credit Contract Rate, once determined,
shall be applied retroactively to the first day of the applicable quarter of
Borrower's Fiscal Year. Prior to the determination of such interest rate, the
Banks and Agent may calculate the Revolving Credit Contract Rate by using the
percentage specified in clause (a) of each of the definitions of Applicable
Base Rate Percentage and Applicable Eurodollar Rate Percentage. Upon
determining the Applicable Base Rate Percentage and applicable Eurodollar Rate
Percentage and, thereby, establishing the actual Revolving Credit Contract Rate
for the applicable quarter of Borrower's Fiscal Year, the Borrower, Banks and
Agent shall, as soon as may reasonably be practical, make such adjustments, if
any, as are necessary with respect to the calculation of interest, payments
made upon the Obligations and the application of payments made upon the
Obligations to give effect to the Revolving Credit Contract Rate. Without
limiting the generality of Section 10.4, the Borrower understands and
acknowledges that errors and miscalculations may result in determining the
Revolving Credit Contract Rate and the calculation of interest on the
Obligations and the application of payments made upon the Obligations and
agrees that the Agent and Banks shall have the absolute unconditional right to
fully investigate any alleged error or miscalculation and, in the event an
error or miscalculation has occurred, to correct such error or miscalculation
through the reallocation of payments made to principal and/or interest, the
refund of excess interest, the demand for payment of interest which was not
charged or collected or any other action deemed necessary or appropriate by the
Agent, and IN NO EVENT SHALL THE AGENT OR ANY BANK BE SUBJECT TO ANY PENALTY
PROVIDED BY LAW OR OTHERWISE INCLUDING, WITHOUT LIMITATION, ANY PENALTY WHICH
WOULD OTHERWISE RESULT FROM THE CONTRACTING FOR, CHARGING, RECEIVING, TAKING,
COLLECTING, RESERVING OR APPLYING INTEREST IN SUCH EVENT IN EXCESS OF THE
MAXIMUM LAWFUL RATE.
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Revolving Loan. Means any Advance made under the Revolving Loan
Facility and "Revolving Loans" means all of such Advances.
Revolving Loan Commitment. Means, with respect to each Bank, such
Bank's commitment to make Revolving Loans under the Revolving Loan Facility in
an aggregate principal amount at any time outstanding of up to but not
exceeding an amount equal to its Pro Rata Share of the Aggregate Revolving Loan
Commitment. The recital of a Revolving Loan Commitment does not mean that any
Bank is obligated to advance such amount.
Revolving Loan Facility. Means the credit facility in the maximum
amount of Aggregate Revolving Loan Commitment made available pursuant to
Section 2.1 of this Agreement.
Revolving Loan Maturity Date. Has the same meaning as the term
"Maturity Date" which is set forth above.
Revolving Note(s). Has the meaning provided in Section 2.1 (c) of
this Agreement.
Rollover Notice. Has the meaning provided in Section 2.9(a) of this
Agreement.
Schedule. Means, unless specifically indicated otherwise, the schedules
attached to this Agreement.
Section. Means, unless specifically indicated otherwise, the sections
and subsections of this Agreement.
Securities. Means any and all securities and other equity rights or
ownership interests of any type or character in any Person which is not a
natural Person, including, without limitation, (a) capital stock or other
equity rights, bonds, notes or other instruments convertible into capital stock
or other equity interests, (b) options, warrants or other rights to acquire
capital stock or other equity interests, and (c) partnership
and joint venture interests.
Security Documents. Means all security agreements, pledges,
assignments, agency agreements, Guaranties, Mortgages, financing statements,
stock certificates, stock powers, lock box agreements and such related
agreements, documents, instruments and certificates as may exist or be required
from time to time by the Agent or the Banks to create or evidence (or which
purport to create or evidence) a Lien or which constitute (or purport to
constitute) a Guaranty and which secure, guarantee or otherwise ensure
collection, payment or performance of all or any portion of the Obligations or
otherwise pertain to any such Lien or Guaranty together with all renewals,
extensions, supplements, restatements, amendments and other modifications made
from time to time with respect thereto.
Senior Debt. Means each of the following: (a) the Obligations, (b) the
Indebtedness of Borrower and its Consolidated Subsidiaries which is evidenced
by Capital Leases, and (c) any other Indebtedness of Borrower and its
Consolidated Subsidiaries which is not expressly
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subordinated in right of payment to the Obligations (including all Guaranties
of the Obligations by any of Borrower's Subsidiaries) and all Intercompany
Notes other than pension obligations, deferred taxes, malpractice reserves and
minority interests (determined in accordance with GAAP) included within the
definition of Indebtedness, as such term is defined in this Agreement.
Solvent. Means, with respect to any Person, as of the date of the
applicable determination, that on such date (a) the fair value of the Assets of
such Person (both at fair valuation and at present fair salable value) is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the Assets of such Person is not less than the amount which would be sufficient
to pay the probable liability of such Person on its debts as they become
absolute and matured, (c) such Person is able to realize upon its Assets and
pay its debts, contingent obligations and other commitments and liabilities as
they mature in the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay such debts and liabilities as they become due and
owing, and (e) such Person is not engaged in a business or a transaction, and
does not intend to engage in a business or a transaction, for which such
Person's Assets would constitute unreasonably small capital after giving due
consideration to current and anticipated future capital requirements and
current and anticipated future business conduct and prevailing practices in the
industry in which such Person is engaged. In computing the amount of
contingent liabilities at any time, such liabilities shall be computed at the
amount which, in light of the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
Subordinated Debt. Means the Indebtedness described on Schedule 7
attached hereto and made a part hereof and all Additional Subordinated Debt.
Subsidiary. Means, as of the date of any determination, each Person,
which is not a natural Person, with respect to which 50% or more of the
Securities having ordinary voting power (or comparable power) sufficient to
select a majority of the board of directors (or Persons holding comparable
authority) is directly or indirectly owned, separately or collectively, by
Borrower and Subsidiaries of Borrower, and the terms "Subsidiary" and
"Subsidiaries" include Subsidiaries of Subsidiaries.
Title Policies. Means mortgagee policies of the title insurance,
together with such endorsements thereto as may be requested by Agent,
acceptable in form and substance to Agent, issued by title companies acceptable
to Agent, insuring that the Mortgages create first and prior Liens on the
Mortgaged Estates, subject only to the Permitted Encumbrances defined in each
such Mortgage.
Treasury Rate. Means the Yield Rate on U.S. Treasury Securities of a
comparable amount and which have a maturity that is comparable to the principal
amount with respect to which the Treasury Rate is applicable, as such Yield Rate
is reported in the Wall Street Journal on the fifth Business Day preceding the
date such Treasury Rate is determined (or if no Yield
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Rate is published for such U.S. Treasury Security, then the nearest equivalent
U.S. Treasury Security as shall be selected by the Agent in its sole
discretion, and if the publication of such Yield Rate in the Wall Street
Journal is discontinued, the Agent shall determine such Yield Rate from another
source selected by it, in its sole discretion).
Tribunal. Means any Federal, State, municipal or other governmental
department, judicial body, commission, board, bureau, agency or instrumentality
of the U. S. or of any state, commonwealth, country, nation, territory,
possession, county, parish or municipality, whether now or hereafter
constituted or existing.
TSCA. Means the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.) as amended and in effect from time to time, and all rules and
regulations issued pursuant thereto.
UCC. Means the Uniform Commercial Code as enacted in the applicable
jurisdiction, as amended and in effect from time to time.
U.S. Means the United States of America.
ARTICLE II
THE LOANS
2.1 Revolving Loan Facility.
(a) Revolving Loan Commitments. Upon the terms and subject to the
conditions set forth in this Agreement, and upon request of Borrower, as
provided herein, each Bank agrees, severally and not jointly, to make
Advances under the Revolving Loan Facility to or for the account of Borrower
from the date hereof to the Revolving Loan Maturity Date; provided, however,
that (i) the aggregate principal amount of the Advances made by such Bank under
this Section 2.1(a) and outstanding, plus such Bank's Pro Rata Share of the
aggregate undrawn face amount of all Letters of Credit then outstanding, may
not at any time exceed such Bank's Revolving Loan Commitment, (ii) the
aggregate principal amount of all the Advances made by all Banks under this
Section 2.1(a) and outstanding, plus the aggregate undrawn face amount of all
Letters of Credit then outstanding, may not at any time exceed the Aggregate
Revolving Loan Commitment, and (iii) the aggregate principal amount of all the
Advances made by all Banks under this Section 2.1(a) and outstanding, plus
the aggregate undrawn face amount of all Letters of Credit then outstanding,
may not at any time exceed the product obtained by multiplying three (3) times
the sum calculated by adding together the EBITDA, determined on a Pro Forma
basis, of each Eligible Operating Subsidiary as of the last day of the
immediately preceding month. Each Revolving Loan shall be made as a part of a
borrowing or credit accommodation consisting of revolving loans made by Banks;
provided, however, that the failure of any Bank to advance its Pro Rata Share
of any such Loan shall not in itself relieve any other Bank of its obligation
under this Section 2.1(a) (it being agreed, however, that no Bank shall be
responsible or have any liability for the failure of any other Bank to do so).
Prior to the Revolving Loan Maturity Date, Borrower may borrow, repay and
reborrow under the Revolving Loan Facility up to the
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full amount of the Aggregate Revolving Loan Commitment in accordance with the
terms of this Agreement.
(b) Limitations on Advances. Notwithstanding anything to the contrary
contained in Section 2.1(a) or elsewhere in this Agreement, no Bank shall be
obligated, pursuant to Section 2.1(a) or otherwise, to make any Advance to or
for the account of Borrower, and Borrower shall not be entitled to borrow if,
after giving full effect to the requested Advances by such Bank and all other
Banks, the aggregate principal amounts outstanding on the Revolving Credit Notes
plus the aggregate undrawn face amounts of all Letters of Credit then
outstanding would cause the violation of any of the limitations set forth in
Section 2.1(a)(i), (ii) and (iii).
(c) Revolving Notes. Each Bank's Advances outstanding under its
Revolving Loan Commitment shall be evidenced by a promissory note executed by
Borrower and payable to the order of such Bank in the maximum original
principal amount of such Bank's Revolving Loan Commitment, substantially in the
form of Exhibit D hereto (as amended, renewed, extended, restated, replaced,
substituted, supplemented or otherwise modified from time to time,
individually, a "Revolving Note" and, collectively, the "Revolving Notes").
(d) Use of Proceeds. All proceeds of the Revolving Loans and
Letters of Credit shall be used, subject to the terms and conditions of this
Agreement and the other Loan Papers, solely (i) to finance Permitted
Acquisitions, (ii) to fund the working capital needs of the Borrower and its
Subsidiaries which arise in the ordinary course of business and for Capital
Expenditures of the Borrower and its Subsidiaries, (iii) to refinance the
Prior Debt, and (iv) to satisfy such other general corporate financing needs of
the Borrower and, subject to the terms and conditions of this Agreement and any
other Loan Papers, of the Borrower's Subsidiaries which may, from time to time,
arise in the ordinary course of business. None of such proceeds may be used by
Borrower or any Subsidiary (A) for the purpose, whether immediate, incidental
or ultimate, of purchasing or carrying any Margin Stock or of refinancing
Indebtedness originally incurred for such purpose, or (B) for any purpose which
constitutes a violation of, or is inconsistent with, the regulations of the
Board of Governors, including, without limitation, Regulation G, T, U or X of
the Board of Governors, or (C) for any other purpose which constitutes a
violation of, or would be in consistent with, the terms and conditions of this
Agreement or any other Loan Paper.
2.2 Letters of Credit.
(a) Issuance of Letters of Credit. Upon the terms and subject to
the conditions set forth in this Agreement, including, without limitation, the
satisfaction of all conditions to Advances contained in this Agreement and all
conditions to the issuance of Letters of Credit contained in this Section 2.2,
and upon request of Borrower, as provided herein, Banque Paribas agrees to
issue, and each other Bank agrees, severally and not jointly, to participate in
the issuance of, Letters of Credit for the account of Borrower and to renew,
extend and provide substitutions for Letters of Credit, from time to time, from
the date hereof through the Revolving Loan Maturity Date pursuant to the terms
of the applicable L/C Request Certificate and L/C Application therefor;
provided, however, that Banque Paribas shall have no obligation
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to issue any Letter of Credit or to renew, extend or provide a substitution for
any Letter of Credit and no Bank shall have the obligation to participate in
any such Letter of Credit if (i) the aggregate principal amount of the Advances
made by any Bank under Section 2.1(a) above which remain outstanding, plus
such Bank's Pro Rata Share of the aggregate undrawn face amount of all Letters
of Credit then outstanding would exceed such Bank's Revolving Loan Commitment,
(ii) the aggregate principal amount of all the Advances made by all Banks under
Section 2.1(a) which are then outstanding, plus the aggregate undrawn face
amount of all Letters of Credit then outstanding would exceed the Aggregate
Revolving Loan Commitment, (iii) the aggregate principal amount of all the
Advances made by all Banks under Section 2.1(a) which are then outstanding,
plus the aggregate undrawn face amount of all Letters of Credit then
outstanding would exceed the product obtained by multiplying three (3) times
the sum calculated by adding together the EBITDA of each Eligible Operating
Subsidiary, determined on a Pro Forma basis as of the last day of the
immediately preceding month, (iv) such proposed Letter of Credit would cause
the aggregate undrawn face amount of all Letters of Credit then outstanding to
exceed $5,000,000, (v) such proposed Letter of Credit would not expire at least
ten days prior to the outside date specified as the Revolving Loan Maturity
Date, (vi) the expiration date of the proposed Letter of Credit would extend
for more than one year beyond the date of issuance or, if applicable, the date
the Letter of Credit is renewed, extended or substituted, (vii) the proposed
Letter of Credit or the proceeds thereof would be used in whole or in part for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any Margin Stock, (viii) if drawn, the proceeds of such proposed
Letter of Credit would be used for a purpose which is not permitted under the
terms of this Agreement, or (ix) a Potential Default or Event of Default
occurred and is continuing (or would result from the issuance, renewal,
extension or substitution of such proposed Letter of Credit) which has not been
waived by the Required Banks in accordance with this Agreement. Each Letter of
Credit shall be issued as a part of a borrowing or credit accommodation
consisting of a Letter of Credit issued by Banque Paribas and participated in
by Banks in accordance with their respective Pro Rata Shares; provided,
however, that the failure of any Bank to participate in the issuance of any
Letter of Credit to the extent of its Pro Rata Share shall not relieve any
other Bank from its obligation under this Section 2.2(a) (it being agreed,
however, that no Bank shall be responsible or have any liability for the
failure of any other Bank to do so).
(b) L/C Request Certificate and L/C Application. A L/C Request
Certificate with respect to each requested issuance, amendment, renewal,
extension or substitution of a Letter of Credit together with an EBITDA
Certificate, appropriately completed, which shall demonstrate that no EBITDA
Overadvance then exists or will result from such Letter of Credit transaction
shall be delivered by Borrower to the Agent and Banque Paribas, not later than
1:00 p.m., Houston, Texas time, at least three Business Days prior to the
requested date of the issuance, amendment, renewal, extension or substitution
of the Letter of Credit, and in all cases the L/C Request Certificate shall be
effective and irrevocable upon receipt thereof by the Agent or Banque Paribas.
Banque Paribas shall, if the requested terms of such Letter of Credit or
amendment, renewal, extension or substitution thereof are not inconsistent with
this Agreement and are otherwise acceptable to Banque Paribas, in its
discretion, issue the requested Letter of Credit or amend, renew, extend or
substitute the Letter of Credit in accordance with the terms hereof upon
receipt of such L/C Request Certificate and the applicable L/C Application
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appropriately completed and specifying all information called for in the L/C
Application (which information shall include, unless not applicable, without
limitation, the requested date of issuance of such Letter of Credit, which date
shall be a Business Day, the requested face amount of such Letter of Credit,
the expiration date of such Letter of Credit, the name and address of the
beneficiary of such Letter of Credit, the form of such Letter of Credit or the
amendment, renewal or extension thereof requested and such other information as
Banque Paribas shall require pursuant to the L/C Application). No L/C Request
Certificate, L/C Application or Letter of Credit shall contain any terms or
conditions that are inconsistent with this Agreement; provided, however, that
(i) if any terms or conditions contained in any L/C Request Certificate, L/C
Application or Letter of Credit are inconsistent with this Agreement, this
Agreement shall control as between and among the parties to this Agreement, and
(ii) notwithstanding anything to the contrary contained herein, the
Reimbursement Obligations shall exist, and shall not be impaired, reduced or
otherwise affected by, any such inconsistent terms or conditions.
(c) Issuance of Letters of Credit. Not later than 1:00 p.m.,
Houston, Texas time, on the issuance or effective date set forth in the
applicable L/C Application, subject to the terms and conditions of this
Agreement and the other Loan Papers, Banque Paribas shall make the Letter of
Credit or the amendment, renewal, extension or substitution thereof available
to Borrower at Banque Paribas' office for Borrower's delivery to the
beneficiary thereof. Immediately upon the issuance of any Letter of Credit,
Banque Paribas shall be deemed to have sold and transferred to each other Bank,
and each such other Bank shall be deemed unconditionally and irrevocably to
have purchased and received from Banque Paribas, without recourse or warranty,
an undivided interest and participation, to the extent of such other Bank's Pro
Rata Share, in such Letter of Credit (as the same may thereafter be amended,
renewed, extended or substituted pursuant to this Agreement), each drawing
thereunder and the obligations of Borrower under this Agreement and the L/C
Application with respect thereto and any Collateral and other security therefor
or Guaranty pertaining thereto. Upon any change in the Pro Rata Share of any
Bank which may hereafter occur, it is hereby agreed that, with respect to all
Letters of Credit then outstanding, there shall be an automatic adjustment to
the interest and participation hereby created to reflect the new Pro Rata
Shares of the Banks. BANQUE PARIBAS SHALL HAVE NO LIABILITY TO THE BORROWER OR
ANY BANK FOR ANY ACTION TAKEN OR OMITTED BY BANQUE PARIBAS UNDER OR IN
CONNECTION WITH A LETTER OF CREDIT, IF TAKEN OR OMITTED IN THE ABSENCE OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(d) Reimbursement Obligations; Advances under Letters of Credit.
Drafts drawn under each Letter of Credit shall be promptly reimbursed by
Borrower to Banque Paribas not later than the first Business Day following the
date of drawing and shall bear interest from the date of drawing until
reimbursed in full at a rate per annum equal to the interest rate in effect
during such period for Base Rate Loans. Banque Paribas shall give Borrower
telephonic or telecopy notice of the drawing under any Letter of Credit on the
same day when drawn, but failure by Banque Paribas to give such notice shall
not affect Borrower's obligation to reimburse Banque Paribas for such drawing
on the first Business Day following the date of the drawing and shall not
create liability for the Agent or any Bank. The payment by Banque Paribas of
a draft drawn under any Letter of Credit shall constitute, for all purposes
of this Agreement, the
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making, concurrently with such payment and regardless of compliance with any
condition precedent set forth in Article IV or any other provision of this
Agreement or any other Loan Paper, an Advance under the Revolving Loan
Facility, which shall be a Base Rate Loan, in the amount of such payment. In
the event and to the extent that any draft drawn under any Letter of Credit
shall not have been promptly reimbursed, together with interest accrued
thereon, Banque Paribas shall promptly notify the Agent and each other Bank of
such failure, and each such other Bank shall, on the first Business Day
following such notification, and notwithstanding (A) anything to the contrary
contained in Section 2.1 or this Section 2.2 or elsewhere in this Agreement,
or (B) any EBITDA Overadvance, the existence of any Potential Default or Event
of Default or the inability of or failure by Borrower or any Subsidiary to
comply with any condition precedent set forth in Article IV or any other
provision of this Agreement or any other Loan Paper (which conditions precedent
shall not apply to this Section 2.2(d)), pay to Banque Paribas in immediately
available funds in accordance with Section 2.4(c), an amount equal to such
Bank's Pro Rata Share of the unreimbursed portion of such drawing and interest
accrued thereon. If and to the extent any such other Bank shall not have so
made its Pro Rata Share of the unreimbursed portion of the amount of such
drawing and interest accrued thereon, such other Bank agrees to pay to Banque
Paribas, forthwith on demand, such amount, together with interest thereon, for
each day from such date until the date such amount is paid to Banque Paribas at
the Federal Funds Rate. The failure of any Bank to pay to Banque Paribas such
Bank's Pro Rata Share of the unreimbursed portion of any drawing under any
Letter of Credit and all interest accrued thereon shall not relieve any other
Bank of its obligation hereunder to pay such Bank's Pro Rata Share thereof on
the date required, as specified above, but no Bank shall be liable or otherwise
responsible for the failure of any other Bank to do so. Whenever Banque
Paribas receives a payment of a Reimbursement Obligation from Borrower as to
which Banque Paribas has received any payments from the other Banks pursuant to
this Section 2.2(d) or interest thereon, Banque Paribas shall pay to each other
Bank which has paid its Pro Rata Share thereof to Banque Paribas, in
immediately available funds, an amount equal to such other Bank's Pro Rata
Share thereof.
(e) Letter of Credit Fees. On each Letter of Credit Fee Payment
Date, subject to Section 10.4, Borrower shall pay to Agent, for the ratable
benefit of the Banks, a Letter of Credit Fee. The Borrower, Banks and Agent
understand and acknowledge that the applicable Letter of Credit Fee Percentage
is calculated for each quarter of Borrower's Fiscal Year based on information
provided by the Borrower to the Banks and Agent and that such information may
not be provided to the Bank and Agent for a number of days following the first
day of the quarter of Borrower's Fiscal Year with respect to which the Letter
of Credit Fee is calculated. Consequently, the Applicable Letter of Credit Fee
Percentage may not be known prior to the date the Letter of Credit Fee is
calculated or is payable. In such event, the Banks and Agent may calculate the
Letter of Credit Fee by using the percentage specified in clause (a) of the
definition of Applicable Letter of Credit Fee Percentage; however, upon
determining the Applicable Letter of Credit Fee Percentage and, thereby,
determining the actual Letter of Credit Fee for the applicable quarter of
Borrower's Fiscal Year, the Banks and Agent shall make such adjustments, if
any, as are necessary with respect to the calculation of the Letter of Credit
Fee and payments made with respect thereto to give effect to the actual Letter
of Credit Fee. Without limiting the generality of Section 10.4, the Borrower
understands and acknowledges that
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errors may result in determining the Letter of Credit Fee and agrees that the
Agent and Banks shall have the absolute unconditional right to fully
investigate any alleged error or miscalculation and, in the event a
miscalculation has occurred, to correct such error through the refund of any
excess Letter of Credit Fee, the demand for payment of any Letter of Credit Fee
which was not charged or collected or any other action deemed necessary or
appropriate by the Agent, and in no event shall the Agent or any Bank be
subject to any penalty provided by law or otherwise, including, without
limitation, any penalty which would otherwise result from the contracting for,
charging, receiving, taking, collecting, reserving or applying interest in such
event in excess of the Maximum Lawful Rate.
(f) Nature of Letter of Credit Obligations Absolute. The
obligations of Borrower to reimburse Banque Paribas for drawings made under
Letters of Credit together with interest accrued thereon shall be unconditional
and irrevocable and shall be paid strictly in accordance with this Section 2.2
and the applicable L/C Application regardless of the circumstances, including,
without limitation: (i) any lack of validity or enforceability of any Letter of
Credit; (ii) the existence of any claim, setoff, defense or other right
which Borrower may have at any time against a beneficiary of any Letter of
Credit or against any Bank, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction; (iii) any draft,
demand, statement, certificate or other document presented under any Letter of
Credit being forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (iv) payment by
Banque Paribas against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit (except
for any payment resulting from Banque Paribas' gross negligence or willful
misconduct); (v) any other circumstance or happening whatsoever which is
similar to any of the foregoing; or (vi) the fact that any Potential Default or
Event of Default shall have occurred and be continuing.
2.3 Determinations of EBITDA for Eligible Operating Subsidiaries.
EBITDA for each Eligible Operating Subsidiary shall be calculated by Borrower
on a Pro Forma basis as of the Closing Date and on a monthly basis thereafter
(or a more frequent basis, if Borrower so elects, pursuant to Section 6.3(a))
after the Closing Date and shall be certified to Agent by a Financial Officer
of Borrower pursuant to each EBITDA Certificate to be delivered by Borrower to
Agent pursuant to Section 4.1(d) or 6.3(a); provided, however, that,
notwithstanding anything to the contrary contained in this Agreement or any
EBITDA Certificate, Agent shall have the final right in good faith to review
and adjust, at any time and from time to time, based upon any information
available to Agent, any determination made by Borrower with respect to the
EBITDA of any Eligible Operating Subsidiary to the extent such determination is
not in accordance with this Agreement. In the event that Agent determines, at
any time or from time to time, that the EBITDA of any Eligible Operating
Subsidiary is different from the amount calculated as such by Borrower pursuant
to the then most recent EBITDA Certificate delivered to Agent, then Agent shall
promptly notify Borrower and each Bank of the EBITDA for such Eligible
Operating Subsidiary, as determined by Agent.
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2.4 Borrowing and Related Procedures.
(a) Loan Request Certificate. Banks shall make Advances to
Borrower in accordance with the terms hereof upon receipt by Agent of an EBITDA
Certificate, appropriately completed, which shall demonstrate that no EBITDA
Overadvance then exists or would result from the requested Advance together
with a Loan Request Certificate appropriately completed and specifying all
information called for in the Loan Request Certificate, including, without
limitation, the following information:
(i) the requested amount of such Advance, which amount must be
equal to $1,000,000 or an integral multiple of $100,000 in excess
thereof;
(ii) the specific use of the proceeds of such Advance (e.g.,
whether it is to be an Acquisition Advance);
(iii) whether such Advance shall be a Base Rate Loan or a
Eurodollar Loan;
(iv) in the case of an Advance requested to be a Eurodollar
Loan, the duration of the Interest Period applicable thereto; and
(v) the requested date of such Advance, which date shall be a
Business Day in the case of a Base Rate Loan and a Eurodollar Business
Day in the case of a Eurodollar Loan.
Such Loan Request Certificate shall be delivered by Borrower to Agent (A) with
respect to any requested Base Rate Loan, not later than 1:00 p.m., Houston,
Texas time, one Business Day prior to the requested date of the Advance, and
(B) with respect to any requested Eurodollar Loan, not later than 1:00 p.m.,
Houston, Texas time, at least three Eurodollar Business Days prior to the
requested date of the Advance, and in all cases the Loan Request Certificate
shall be effective and irrevocable upon receipt thereof by
Agent.
(b) Notice to Banks. Upon receipt of a Loan Request Certificate,
Agent shall promptly notify each Bank, no later than (2) Eurodollar Business
Days prior to the requested date of the Advance, of the contents thereof and of
such Bank's Pro Rata Share with respect thereto. Upon determination of the
interest rate applicable to any Eurodollar Loan, Agent shall promptly notify
each Bank of such interest rate.
(c) Funding of Loans. Not later than 11:00 a.m., Houston, Texas
time, on the funding date set forth in the Loan Request Certificate with
respect to any Revolving Loan, each Bank shall make available its Pro Rata
Share of the requested Advance, in immediately available funds, to Agent at
Agent's address referred to in Section 10.1, subject to the terms and
conditions of this Agreement and the other Loan Papers, and Agent shall, not
later than 1:00 p.m., Houston, Texas time on the same date, make the funds so
received by Agent from Banks available to Borrower; provided, however, that
Borrower hereby directs that the portion of the
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initial Advance under the Revolving Loan Facility which is to be used to pay
the Prior Debt shall be paid by Agent directly to the holders of such Prior
Debt, all pursuant to written instructions to be received by Agent from
Borrower. Unless Agent shall have received written notice from a Bank prior to
the date of any requested Advance that such Bank will not make available to
Agent such Bank's Pro Rata Share of such Advance, Agent may assume that such
Bank has timely made such share available to Agent on the date of such
requested Advance, and Agent may (but shall not be obligated to), in reliance
upon such assumption, make available to Borrower on such date a corresponding
amount. If and to the extent that such Bank shall not have made its Pro Rata
Share thereof available to Agent, such Bank and Borrower severally agree to pay
to Agent, forthwith upon demand, such corresponding amount, together with
interest thereon, for each day from the date such amount is made available by
Agent until the date such amount is repaid to Agent at (i) with respect to
Borrower, the interest rate applicable to the subject Loan, and (ii) with
respect to such Bank, the Federal Funds Rate. If (and only if) such Bank shall
repay to Agent such corresponding amount, such amount shall constitute such
Bank's share of the Loan for purposes of this Agreement.
2.5 Principal Payments. On May 31, 1998, the amount by which the
sum of the aggregate principal amount of all Advances then outstanding plus the
aggregate undrawn face amount of all Letters of Credit then outstanding shall
exceed $80,000,000, together with all unpaid interest accrued on such amount,
shall be and become immediately due and payable upon the Revolving Loans [and
the Aggregate Revolving Loan Commitment shall be permanently reduced pursuant
to Section 2.12(a)] and, on the Revolving Loan Maturity Date, the entire unpaid
principal balance of all Advances and all accrued unpaid interest thereon shall
be and become immediately due and payable.
2.6 Prepayments.
(a) Voluntary Prepayments. Subject to the terms of this Agreement,
including without limitation Section 2.10(d), Borrower may prepay the Loans in
whole or in part at any time and from time to time by notifying Agent of the
particular Loans to be prepaid, the amount of such prepayment and the prepayment
date; provided, however, that (i) with respect to partial prepayments, the
prepayment of principal must be in an amount equal to $1,000,000 or an integral
multiple of $100,000 in excess thereof, (ii) no prepayment of Eurodollar Loans
shall be permitted pursuant to this Section 2.6(a) unless (A) such prepayment is
made on the last day of the Interest Period applicable thereto, or (B) if such
prepayment is made prior to such last day, the Eurodollar Consequential Loss
estimated by Agent to be attributable to such Eurodollar Prepayment is, if Agent
in its discretion makes such request for payment at such time (which request
shall be made by Agent at the direction of the Required Banks), paid by Borrower
concurrently with such prepayment (any such payment or request for payment of
the estimated Eurodollar Consequential Loss shall be subject to adjustment based
upon the actual amounts owing by Borrower with respect to such Eurodollar
Prepayment pursuant to this Agreement), (iii) no prepayment of Eurodollar Loans
shall be permitted pursuant to this Section 2.6(a) if, as a result of any such
prepayment, the aggregate principal amount of Eurodollar Loans remaining
outstanding shall be less than $5,000,000, and (iv) Borrower may prepay
Eurodollar Loans only upon three Business Days' prior written notice to Agent.
Agent shall, promptly after
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receiving notice from Borrower of any voluntary prepayment to be made pursuant
to this Section 2.6(a), notify each Bank of the principal amount of the Loans
held by such Bank which are to be prepaid, the prepayment date and the manner
of application of the prepayment. Any notice by Borrower given with respect to
a proposed prepayment of a Eurodollar Loan shall commit Borrower to prepay such
Loan in accordance with such notice unless such notice is revoked by Borrower
prior to any reliance on such notice by any Bank.
(b) Mandatory Prepayments; EBITDA Overadvance; Reduction in
Commitments. Subject to the terms of this Agreement, if, upon any
determination of EBITDA for the Eligible Operating Subsidiaries, Agent
determines that an EBITDA Overadvance exists, then Agent shall promptly give
notice of such EBITDA Overadvance to Borrower, and Borrower shall, within one
Business Day following such notice, prepay the aggregate outstanding principal
amounts of the Revolving Notes by an amount equal to or greater than the EBITDA
Overadvance.
(c) Application of Payments. Prepayments shall be applied to the
Loans in the following manner. Each voluntary and mandatory prepayment of
principal made pursuant to this Section 2.6 shall be made together with accrued
but unpaid interest to the date of payment and shall be applied toward payment
of the outstanding Loans in the following manner: (i) first, toward payment of
fees and the interest accrued on the principal amount prepaid; (ii) second,
toward prepayment of principal outstanding on the Base Rate Loans; (iii) third,
toward prepayment of principal outstanding on the Eurodollar Loans; and (iv)
fourth, toward payment of the remaining Obligations, in such manner as Agent
shall, in its discretion, determine. Subject to the foregoing, prepayments
shall be applied to such of the Eurodollar Loans as Borrower may designate by
written notice delivered to the Agent; provided, however, that (A) Borrower
shall select Eurodollar Loans to be prepaid in a manner which will minimize any
Eurodollar Consequential Loss resulting from such prepayments, (B) if Borrower
fails to designate the Eurodollar Loans to which such prepayments shall be
applied, then Agent shall be entitled to apply the prepayments to the
Eurodollar Loans in any manner that Agent deems appropriate provided that Agent
uses reasonable efforts to minimize any Eurodollar Consequential Loss resulting
therefrom, (C) if, as the result of the application of any mandatory
prepayment, a Eurodollar Prepayment would occur, then Agent, upon receipt of
such mandatory prepayment, shall place the portion thereof that would, if
immediately applied, cause a Eurodollar Prepayment in a Deposit Account
maintained by Agent and pledged as Collateral for the Obligations for the
benefit of Banks (pursuant to agreements in form and substance satisfactory to
Agent) and shall apply such portion to the outstanding Obligations on the
earliest date thereafter as is possible without causing a Eurodollar
Prepayment, and (D) if a Potential Default or Event of Default has occurred and
is continuing at the time of any prepayment, then Agent shall be entitled to
apply the prepayment to the Obligations in any manner Agent shall deem
appropriate.
2.7 Interest.
(a) Interest Payment Dates. Interest accrued on the unpaid
principal amount of the Revolving Notes outstanding from time to time shall be
due and payable on each Interest Payment Date.
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(b) Interest Rates Prior to Default. The principal amounts of all
Loans from time to time outstanding shall bear interest at the applicable
Revolving Credit Contract Rate, subject to Sections 2.7(d) and 10.4.
(c) Default Rate. Notwithstanding any provision to the contrary
contained in this Section 2.7, upon the occurrence of an Event of Default,
unless otherwise expressly provided herein or in another Loan Paper, the
unpaid principal balance and, to the extent permitted by applicable law,
accrued but unpaid interest on the Obligations then outstanding (including,
without limitation, the Loans) shall bear interest at the Default Rate from the
date of the occurrence of such Event of Default to the date such Event of
Default is cured or is waived by the Banks in accordance with the terms of this
Agreement or, if earlier, the date such Obligations are paid; provided,
however, that the Obligations consisting of other than Loans shall not (unless
otherwise expressly stated herein to the contrary) begin to bear interest until
such amounts are past due.
(d) Computation of Interest. Subject to Section 10.4, interest on
the Obligations (i) consisting of other than Eurodollar Loans shall be
calculated on the basis of the actual number of days elapsed and computed as if
each year consisted of 365 or 366 days, as the case may be, and (ii) consisting
of Eurodollar Loans shall be calculated on the basis of the actual number of
days elapsed and computed as if each year consisted of 360 days, except when
such computation would cause the Maximum Lawful Rate to be exceeded on all or
any portion of such Obligations, in which event, interest shall be computed
with respect to such Obligations (or portion thereof) as if each year consisted
of 365 or 366 days, as the case may be. Such computations shall be made by
including the first day but excluding the last day of the period for which such
interest is payable.
2.8 Fees. Borrower shall pay the following fees in connection with
this Agreement:
(a) Commitment Fee. On each Commitment Fee Payment Date, subject to
Section 10.4, the Borrower shall pay the Commitment Fee which is due and
payable on such date to Agent for distribution to the Banks. The Borrower,
Banks and Agent understand and acknowledge that the Applicable Commitment Fee
Percentage is calculated for each quarter of Borrower's Fiscal Year based on
information provided by the Borrower to the Banks and Agent and that such
information may not be provided to the Banks and Agent for a number of days
following the first day of the quarter of the Borrower's Fiscal Year with
respect to which the Commitment Fee is calculated. Consequently, the
Applicable Commitment Fee Percentage may not be known prior to the date as of
which the Commitment Fee is calculated or is payable. In such event, the Banks
and Agent may calculate the Commitment Fee by using the percentage specified in
clause (a) of the definition of Applicable Commitment Fee Percentage, but upon
determining the Applicable Commitment Fee Percentage and, thereby, calculating
the actual Commitment Fee for the applicable quarter of Borrower's Fiscal Year,
the Borrower, Banks and Agent shall, as soon as may reasonably be practical,
make such adjustments, if any, as are necessary with respect to the calculation
of the Commitment Fee and payments made with respect thereto to give effect to
the actual Commitment Fee. Without limiting the generality of Section 10.4, the
Borrower understands and acknowledges that errors may result in determining
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the Commitment Fee and payments made with respect to the Commitment Fee and
agrees that the Agent and Banks shall have the absolute unconditional right to
fully investigate any alleged error or miscalculation and, in the event a
miscalculation has occurred, to correct such error through the refund of any
excess Commitment Fee, the demand for payment of any Commitment Fee which was
not charged or collected or any other action deemed necessary or appropriate by
the Agent and, in no event, shall the Agent or any Bank be subject to any
penalty provided by law or otherwise including, without limitation, any penalty
which would otherwise result from the contracting for, charging, receiving,
taking, collecting, reserving or applying interest in such event in excess of
the Maximum Lawful Rate.
(b) Computation of Fees. Each determination by Agent with respect to
Commitment Fees or Letter of Credit Fees shall be presumed correct.
(c) Sharing of Commitment Fees and Letter of Credit Fees. All
Commitment Fees and Letter of Credit Fees payable to Agent shall be distributed
to Banks in accordance with their respective Pro Rata Shares. Unless otherwise
expressly provided herein or in another Loan Paper, all other fees payable by
Borrower to Agent with respect to the Facility shall not be so distributed and
shall be retained by Agent.
(d) Charging Borrower's Account. In the event Borrower fails to
pay any Commitment Fee or Letter of Credit Fee on the date the same is due and
payable, Banks are hereby authorized (but shall not be required) to advance or
to cause to be advanced the amount of such fee as a Loan to Borrower.
2.9 Eurodollar Loans: Conversion, Rollover, Etc.
(a) Conversion from Base Rate Loans. Provided that no Potential
Default or Event of Default shall have occurred and be continuing, upon three
Eurodollar Business Days' prior written notice from Borrower to Agent
specifying the commencement date and length of the applicable Interest Period
selected by Borrower, Borrower may convert an amount equal to $1,000,000, or an
integral multiple of $100,000 in excess thereof, of any outstanding Base Rate
Loan into a Eurodollar Loan. Such notice shall be given by Borrower's
execution and delivery to Agent of a Rollover Notice in the form of Exhibit E
hereto, appropriately completed (a "Rollover Notice"). Each such Rollover
Notice shall be effective and irrevocable upon receipt thereof by Agent.
(b) Conversion from Eurodollar Loans. Unless Agent shall have
actually received notice from Borrower requesting otherwise, delivered in
accordance with Section 2.9(c) below, at least three Eurodollar Business Days
prior to the last day of the Interest Period applicable to any Eurodollar Loan,
then on the last day of the applicable Interest Period, such Eurodollar Loan
shall be converted to a Base Rate Loan.
(c) Rollover. Provided that no Potential Default or Event of
Default shall have occurred and be continuing, at least three Eurodollar
Business Days prior to the last day of the Interest Period applicable to a
Eurodollar Loan, Borrower may give to Agent written notice that
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all or any portion of such Eurodollar Loan shall continue as a Eurodollar Loan
upon the expiration of the then-current Interest Period by executing and
delivering to Agent a Rollover Notice. Such Rollover Notice shall specify the
amount of the Eurodollar Loan which shall be continued (which amount must be
$1,000,000 or an integral multiple of $100,000 in excess thereof) and the
length of the succeeding Interest Period selected by Borrower with respect
thereto. Each Rollover Notice shall be effective and irrevocable upon receipt
thereof by Agent. If the required Rollover Notice shall not have been timely
received by Agent, then Borrower shall be deemed to have elected to have such
Eurodollar Loan be converted to a Base Rate Loan as provided in Section 2.9(b).
(d) Lending Office. Any Bank may cause any Eurodollar Loan to be
made by its principal office or by a foreign or domestic subsidiary, Affiliate,
branch or correspondent. Notwithstanding the right of any Bank to fund all or
any portion of a Eurodollar Loan in any manner that it deems appropriate, such
Bank shall, regardless of the actual means of funding, be deemed to have funded
the Eurodollar Loan in accordance with the interest option from time to time
selected by Borrower.
2.10 Protection of Yield.
(a) Increased Costs, etc. Subject to Section 10.4, if at any
time, and from time to time, any Bank determines that the adoption,
modification or implementation of, or compliance with, any applicable law, rule
or regulation regarding taxation (exclusive of any law, rule or regulation
imposing taxes on the income of such Bank or imposing franchise taxes on such
Bank), required levels of reserves, deposits, insurance or capital (including
any allocation of capital requirements or conditions), or similar requirements
applicable to such Bank, or any interpretation or administration thereof by any
Tribunal, central bank or other Person charged with the interpretation or
administration of or assuring compliance with any of such requirements, has or
would have the effect of (i) increasing such Bank's costs of making, funding or
maintaining any of the Loans, its Commitment, the Facility or any part thereof,
or (ii) reducing the yield or rate of return of such Bank on any of the Loans,
its Commitment, the Facility or any part thereof, to a level below that which
such Bank would have achieved but for the adoption, modification,
interpretation, administration or implementation of, or compliance with, any
such requirements, Borrower shall, within 15 days after request therefor by
such Bank, pay to such Bank such additional amounts as will compensate such
Bank for such increase in costs or reduction in yield or rate of return of such
Bank. No failure by any Bank to immediately request payment of any additional
amounts payable under this Section 2.10(a) shall constitute a waiver of such
Bank's right to request payment of such amounts at any subsequent time. Each
Bank requesting that Borrower pay additional amounts pursuant to this Section
2.10(a) shall submit to Borrower and Agent a certificate, executed by such
Bank, as to such additional amounts, which certificate shall be presumed
correct. Such certificate shall set forth in reasonable detail the nature of
the occurrence giving rise to such claim for additional amounts, the additional
amounts to be paid to it hereunder, and the method by which such amounts were
determined. In determining such amounts, such Bank may use any reasonable
averaging or attribution method which it determines to be appropriate. Any
portion of the additional amounts required to be paid under this Section
2.10(a) remaining unpaid 15 days after
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the due date thereof shall bear interest at the Default Rate. Notwithstanding
the foregoing, if and to the extent that any additional amounts to be paid by
Borrower pursuant to this Section 2.10(a) directly relate to Base Rate Loans,
then Borrower shall be obligated to pay such amounts only if and to the extent
that the general circumstances which have caused such additional amounts to be
owing are applicable to the Required Banks.
(b) Substitute Interest Rate. Notwithstanding anything to the
contrary contained in this Agreement, if, on or before any date on which a
Eurodollar Rate is to be determined hereunder, Agent determines that deposits
of U.S. Dollars in the appropriate amount for the appropriate period are not
being offered in the interbank eurodollar market for U. S. Dollars, or that by
reason or circumstances affecting such market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate, then Agent shall promptly give
notice of such determination to Borrower, and such determination shall be
conclusive and binding in the absence of manifest error. During the 15 days
next following the giving of such notice, Borrower and Agent shall negotiate in
good faith in order to arrive at a mutually satisfactory alternative interest
rate (the "Substitute Rate") to replace the rate otherwise applicable to the
pertinent Eurodollar Loans of Borrower during the applicable Interest Periods.
If, within such 15 day period, Borrower and Agent agree in writing upon a
Substitute Rate, such rate shall be effective from the first day of each
applicable Interest Period. If Agent and Borrower fail to agree upon a
Substitute Rate within such 15 day period, the Substitute Rate applicable to
the pertinent Eurodollar Loans during each applicable Interest Period shall be
the interest rate applicable to Base Rate Loans.
(c) Changes in Law Rendering Loan Unlawful or Impractical. In the
event that (i) any change in applicable law, treaty or regulation or the
interpretation thereof (whether or not having the force of law) shall make it
unlawful, impossible or impractical for any Bank to make or continue to
maintain all or any portion of a Eurodollar Loan, or (ii) any Tribunal, central
bank or other fiscal, monetary or other authority having jurisdiction over any
Bank or all or any portion of a Eurodollar Loan shall request such Bank in
writing to comply with restrictions (whether or not having the force of law)
which seek to prohibit such Bank from making or continuing to maintain such a
Eurodollar Loan, then such Bank shall so notify Borrower and Agent, and upon
notice by such Bank, such Eurodollar Loan shall be converted to a Base Rate
Loan, except that, subject to the provisions of Section 2.10(d) hereof, such
conversion need not be effected on the last day of the Interest Period
applicable to such Eurodollar Loan, and upon notice by such Bank, the
obligation of such Bank to make or to continue to maintain such Eurodollar Loan
hereunder shall terminate. Such notice shall be accompanied by a certificate
of such Bank provided to Borrower and Agent as to the reasons why it is no
longer lawful, possible or practical for such Bank to make or continue to
maintain such Eurodollar Loan and such certificate shall be presumed correct.
(d) EURODOLLAR CONSEQUENTIAL LOSS. BORROWER AGREES TO INDEMNIFY
AND HOLD HARMLESS EACH BANK FROM AND AGAINST ANY EURODOLLAR CONSEQUENTIAL LOSS;
PROVIDED, HOWEVER, THAT NO SUCH OBLIGATION OF INDEMNITY SHALL EXIST WITH
RESPECT TO ANY EURODOLLAR PREPAYMENT (IF ANY) RESULTING FROM ANY BANK'S FAILURE
TO FUND AN
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ADVANCE (I) THAT SUCH BANK WAS OBLIGATED TO FUND, AND (II) WHICH WAS INITIALLY
FUNDED BY AGENT PURSUANT TO SECTION 2.4(C). BORROWER SHALL PAY, WITHIN 15 DAYS
AFTER REQUEST THEREFOR BY ANY BANK, THE AMOUNT OF ANY EURODOLLAR CONSEQUENTIAL
LOSS INCURRED BY SUCH BANK. A CERTIFICATE OF SUCH BANK PROVIDED TO BORROWER
AND AGENT SPECIFYING THE AMOUNT OF ANY EURODOLLAR CONSEQUENTIAL LOSS SUFFERED
BY SUCH BANK AND THE BASIS UPON WHICH SUCH LOSS IS COMPUTED SHALL BE PRESUMED
CORRECT.
(e) Reasonable Efforts. Borrower and Banks shall use reasonable
efforts to avoid or to minimize amounts payable by Borrower pursuant to this
Section 2.10, and Borrower shall, as promptly as practical, notify Agent, and
each Bank shall, as promptly as practicable, notify Borrower and Agent, of the
existence of any event or circumstance of which it is aware which will require
the payment by Borrower of any such amounts; provided, however, that the
failure to give any such notification shall not result in any liability to any
Bank and shall not affect the rights of any Bank or the obligations of Borrower
hereunder or under any other Loan Paper; provided, further, however, that
Borrower shall not be obligated to pay any additional amount to any Bank
pursuant to this Section 2.10 unless request is made for payment of such
additional amount within one year after such Bank became aware that such
additional amount was owing by Borrower.
2.11 Manner and Application of Payment.
(a) Manner of Payment. All Obligations shall be paid by Borrower
without setoff, counterclaim or deduction of any kind, except as may be
permitted by Section 2.13(a), to Agent (for the account of Agent and Banks, as
appropriate) not later than 11:00 a.m., Houston, Texas time, on the date due,
and shall be payable in lawful currency of the U. S. in immediately available
funds. Agent will promptly (on the same Business Day that such payment is
received if such payment is received by Agent by 11:00 a.m., Houston, Texas
time) distribute to each Bank its Pro Rata Share of each payment made upon the
Loans and each Commitment Fee and Letter of Credit Fee which is received by
Agent for the account of Banks. From and after the effective date of each
Assignment and Acceptance which is accepted by Agent and with respect to which
all pertinent information is recorded in the Register pursuant to Section 10.6,
Agent shall make all payments under this Agreement with respect to the interest
assigned thereby to the Bank which is the assignee thereunder, and the parties
to such Assignment and Acceptance shall, directly between themselves, make all
appropriate adjustments in such payments for periods prior to such effective
date. Whenever any payment with respect to any of the Obligations shall be due
on a date which is not a Business Day, the date for payment thereof shall be
extended to the next succeeding Business Day. If the date for any payment of
principal is extended, interest shall accrue and be payable by Borrower with
respect to such extension.
(b) Application of Payments. Payments (other than prepayments)
made upon the Loans and other Obligations shall be applied by Agent toward
payment of such Loans and Obligations in such manner as the Agent shall, in its
discretion, determine unless the Required Banks request a different application
of such payment, in which event the Agent shall apply such
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payments to the Loans and other Obligations in the manner requested by the
Required Banks. Without limiting the foregoing, payments (other than
prepayments) made upon the Loans and other Obligations may be applied to
payment of such Loans and Obligations in the following manner: (i) first,
against fees and the interest accrued and unpaid on the Loans or Obligations as
of the date of such payments; (ii) second, against the principal of the Base
Rate Loans; (iii) third, against the principal of the Eurodollar Loans; and
(iv) fourth, against the remaining Obligations. Notwithstanding the foregoing,
Borrower may designate by written notice delivered to Agent in accordance with
this Agreement, any Eurodollar Loans which could be repaid first to minimize
any Eurodollar Consequential Loss resulting from such payments; provided,
however, that if Borrower shall fail to deliver written notice designating the
Eurodollar Loans to which such payments could be applied to minimize any
Eurodollar Consequential Loss or if a Potential Default or Event of Default has
occurred or is continuing, then Agent shall be entitled to apply the payment to
the Eurodollar Loans in any manner which Agent shall deem appropriate.
2.12 Termination and Reduction of Commitments.
(a) Automatic Termination and Reduction of Commitments. The
Aggregate Revolving Loan Commitment shall automatically terminate on the
Revolving Loan Maturity Date. Furthermore, the Aggregate Revolving Loan
Commitment shall automatically be permanently reduced to $80,000,000 on May 31,
1998. Upon the reduction of the Aggregate Revolving Loan Commitment, each
Bank's separate Revolving Loan Commitment shall be proportionately reduced so
that the Revolving Loan Commitment of each Bank shall equal its Pro Rata Share
of the Aggregate Revolving Loan Commitment, as the same has been reduced.
(b) Voluntary Termination or Reduction of Commitments. Upon at
least three Business Days' prior notice to Agent, Borrower may at any time, in
whole, permanently terminate the Aggregate Revolving Loan Commitment, or from
time to time, in part, permanently reduce, the Aggregate Revolving Loan
Commitment. Each partial reduction of the Aggregate Revolving Loan Commitment
shall be in an amount equal to $1,000,000 or an integral multiple of $250,000
in excess thereof. The Aggregate Revolving Loan Commitment may not be reduced
(or terminated) pursuant to this Section 2.12(b) to an amount that is less than
the aggregate principal amount of the Revolving Loans then outstanding plus the
aggregate undrawn face amounts of all Letters of Credit then outstanding. Once
so terminated or reduced, the Aggregate Revolving Loan Commitment may not
thereafter be increased by Borrower. Upon any reduction of the Aggregate
Revolving Loan Commitment, the separate Revolving Loan Commitment of each Bank
shall be proportionately reduced so that the amount of each Bank's Revolving
Loan Commitment shall equal its Pro Rata Share of the Aggregate Revolving Loan
Commitment, as the same has been reduced.
2.13 Taxes
(a) Taxes. Any and all payments by Borrower under this Agreement, the
Notes or the other Loan Papers shall be made free and clear of, and without
deduction for, any and all present or future taxes, levies, imports,
deductions, charges or withholdings and all liabilities
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with respect thereto (hereinafter referred to as "Taxes"), excluding, in the
case of Agent and each Bank, taxes imposed on its income, and franchise taxes
imposed upon it, by the jurisdiction under the laws of which Agent or such Bank
(as the case may be) is organized or is or should be qualified to do business
or any political subdivision thereof, and excluding, in the case of each Bank,
taxes imposed on its income, and franchise taxes imposed upon it, by the
jurisdiction of such Bank's lending office or any political subdivision
thereof.
(b) Other Taxes. To the extent permitted by applicable law and
subject to Section 10.4, Borrower agrees to and shall pay any and all present
or future stamp or documentary taxes or other excise or property taxes, charges
or similar levies now or hereafter imposed, excluding only taxes imposed on the
income of Agent or a Bank and franchise taxes imposed on Agent or a Bank, which
arise from any payment made under this Agreement or the other Loan Papers or
from the execution, delivery, registration or recordation of this Agreement or
any other Loan Paper or which may otherwise become payable with respect to this
Agreement or any other Loan Paper or any Collateral (hereinafter referred to as
"Other Taxes").
(c) Additional Amounts Payable by Borrower. Subject to Section
10.4, if Borrower shall be required by law to deduct any amount in respect of
Taxes or Other Taxes (including, without limitation, withholding taxes), taxes
imposed on the income of Agent or a Bank and franchise taxes imposed on Agent
or a Bank, from or in respect of any sum payable under this Agreement or under
any Note to Agent or any Bank, (i) the sum payable by Borrower shall be
increased to an amount which shall, after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.13) result in the payment to Agent or such Bank (as the case may be) the
amount that it would have received had no such deductions been made, (ii)
Borrower shall make such deductions, and (iii) Borrower shall pay the full
amount deducted to the taxation authority or other Tribunal entitled to the
receipt thereof in accordance with applicable law.
(d) TO THE EXTENT PERMITTED BY APPLICABLE LAW AND SUBJECT TO
SECTION 10.4, BORROWER SHALL INDEMNIFY AGENT AND EACH BANK FOR THE FULL AMOUNT
OF TAXES (INCLUDING, WITHOUT LIMITATION, WITHHOLDING TAXES) AND OTHER TAXES
(INCLUDING, WITHOUT LIMITATION, ANY TAXES AND OTHER TAXES IMPOSED BY ANY
JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2.13) PAID BY AGENT OR SUCH
BANK (AS THE CASE MAY BE) AND ALL LIABILITIES (INCLUDING PENALTIES, ADDITIONS
TO TAX, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO,
WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED.
SUCH INDEMNIFICATION SHALL BE MADE BY BORROWER WITHIN 15 DAYS FROM THE DATE
AGENT OR SUCH BANK (AS THE CASE MAY BE) MAKES REQUEST THEREFOR AND PROVIDES
BORROWER WITH A RECEIPT EVIDENCING PAYMENT THEREOF.
(e) Tax Receipts, Refunds. Within 30 days after the date of any
payment of Taxes or Other Taxes by or at the direction of Borrower, Borrower
will furnish to Agent the original or a certified copy of a receipt evidencing
payment thereof. In the event that (i) Agent or any
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Bank ever receives any refund, credit or deduction from any taxing authority or
other Tribunal which the Agent or such Bank would not otherwise have been
entitled to receive if Borrower had not paid the Taxes or Other Taxes as
required by this Section 2.13 (it being understood that the decision as to
whether or not to claim, and if claimed, as to the amount of any such refund,
credit or deduction shall be made by Agent or such Bank, as the case may be, in
its sole discretion), and (ii) Agent or such Bank (as the case may be)
determines that such refund, credit or deduction relates to such payment by
Borrower of Taxes or Other Taxes, then Agent or Bank (as the case may be) shall
pay to Borrower an amount equal to (A) any net reduction in taxes actually
obtained by Agent or such Bank (as the case may be) and determined by Agent or
such Bank to be attributable to such refund, credit or deduction, less (B) all
reasonable expenses of Agent or Bank (as the case may be) attributable to such
refund, credit or deduction. Agent and Banks shall not be obligated, in
connection with any term or provision of this Section 2.13, to allow Borrower
to obtain copies of or to review any tax returns or books or records of Agent
or any Bank.
(f) Change of Lending Office. Any Bank claiming any additional
amounts payable pursuant to this Section 2.13 for Taxes or Other Taxes shall
use its reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its lending office if
the making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts, unless such Bank determines in good faith that
such change would be disadvantageous to such Bank.
(g) Reasonable Efforts. Agent and each Bank agree that they will
take reasonable actions to avoid or to minimize amounts payable by Borrower
under this Section 2.13; provided, however, that neither Agent nor any Bank
shall be obligated by reason of this Section 2.13 to take any action which it,
in good faith, determines would be disadvantageous to it, and neither the Agent
nor any Bank shall be required to contest the payment of any Taxes or Other
Taxes or to disclose any information regarding its tax affairs or tax
computations or reorder its tax or other affairs or tax or other planning.
Notwithstanding anything to the contrary in this Section 2.13, in no event
shall Borrower ever be obligated to pay penalties assessed or interest
applicable to past due Taxes or Other Taxes if and to the extent that such
penalties or interest are due to Agent's or such Bank's (as the case may be)
failure to comply with applicable laws.
ARTICLE III
SECURITY AND GUARANTIES
3.1 Security Documents. To secure, guaranty and otherwise ensure
the full and timely performance of Borrower's and each other Loan Party's
covenants set forth in this Agreement or in any other Loan Paper and to secure
the repayment of the Notes and all other Obligations, except as otherwise
provided in Sections 3.2 and 3.3 below, the Borrower agrees (a) to grant and
assign, and cause each of its Subsidiaries to grant and assign, a fully
perfected, valid Lien upon each item of Collateral owned by it subject to no
other Lien except Permitted Liens and prior to all Liens except those Permitted
Liens, if any, stipulated on Schedule 6 to be prior Liens or otherwise agreed
to by the Required Banks in writing subsequent to the Closing
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Date, and (b) to cause each of its Subsidiaries to execute and deliver to the
Agent a full, unconditional and continuing Guaranty of the Obligations in form
and substance satisfactory to Agent, provided, however, the Guaranties of
Subsidiaries of Borrower which do not constitute Eligible Intermediate
Subsidiaries, Eligible Operating Subsidiaries or De Minimis Subsidiaries shall
be limited to the aggregate Indebtedness owed by such Person to the Borrower or
to an Eligible Intermediate Subsidiary or Eligible Operating Subsidiary
including, without limitation (but without constituting authority to any such
Person to incur Indebtedness which would otherwise result in violation of this
Agreement) Indebtedness of the type described in Section 6.2(a)(i)(B).
3.2 De Minimis Subsidiaries. Notwithstanding Section 3.1 above,
the Assets of De Minimis Subsidiaries shall be excluded from the Collateral,
and no De Minimis Subsidiary shall be required to grant or assign a Lien on any
of its Assets as security for the Obligations; provided, however, that,
promptly upon any Subsidiary ceasing to be a De Minimis Subsidiary, this
Section 3.2 shall no longer apply to such Subsidiary or its Assets and Borrower
shall, and shall cause such Subsidiary to, promptly comply with the terms and
provisions of Section 3.1.
3.3 New Subsidiaries, Subsequently Acquired Collateral. Borrower
shall, promptly after the formation or acquisition, notify Agent of the
existence of any Subsidiary of the Borrower which is not identified as such on
Schedule 5 hereto and also shall, promptly upon request by Agent, cause each
such Subsidiary (subject to Section 3.2 above and the following provisions of
this Section 3.3) to execute and deliver (as appropriate) to Agent, for the
benefit of the Banks, such Security Documents as Agent may, from time to time,
in its discretion, request, all in form and substance satisfactory to Agent, to
secure, guarantee and otherwise assure the full and timely payment and
performance of the Obligations including, without limitation, (a) a Guaranty of
the Obligations (which shall be joint and several with Borrower and each other
Subsidiary of Borrower which is a Guarantor), and (b) such Security Documents
as shall create valid and fully perfected, first priority Liens on all Assets
of such Subsidiary (including the Securities issued to it by its own
Subsidiaries and all Intercompany Notes and Intercompany Acquisition Notes
payable to it by its own Subsidiaries and by any other Subsidiary of the
Borrower, but excluding those Assets, if any, which are excluded from the
definition of the term "Collateral" as set forth in this Agreement) subject to
no other Lien except Permitted Liens and prior to all Liens except those
Permitted Liens, if any, stipulated on Schedule 6 to be prior Liens or
otherwise agreed to by the Required Banks in writing subsequent to the Closing
Date. Notwithstanding the foregoing, however, no Subsidiary of the Borrower
which does not constitute an Eligible Intermediate Subsidiary or Eligible
Operating Subsidiary shall be required to grant or assign a Lien on any of its
Assets to secure the Obligations or to Guaranty any of the Obligations so long
as it has not incurred any Indebtedness to the Borrower or to an Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary [such as Indebtedness
described in Section 6.2(a)(i)(B)] and it is wholly owned by an Eligible
Intermediate Subsidiary, the Securities of which are subject to fully
perfected, first priority Liens securing the Obligations, and all Intercompany
Notes and Intercompany Acquisition Notes issued by it have been pledged by the
Eligible Intermediate Subsidiary which is its parent to secure the Obligations
and such Intercompany Notes and Intercompany Acquisition Notes are subject to
fully perfected, first-priority Liens which secure the Obligations.
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3.4 Cash Collateral Account.
(a) Cash Collateral. Upon the occurrence of an Event of Default
and demand by Agent, or upon the occurrence of any Event of Default under
Section 8.1(f) or 8.1(g) without demand by Agent, Borrower shall, pursuant to
Section 8.3(a)(vi), promptly pay to Agent, in immediately available funds, an
amount equal to 110% of the maximum amount then available to be drawn under the
Letters of Credit then outstanding. Furthermore, in the event that, for
whatever reason, the maturity of any Letter of Credit extends beyond the
Revolving Loan Maturity Date, Borrower will promptly pay to Agent, in
immediately available funds on the Revolving Loan Maturity Date, an amount
equal to 110% of the maximum amount then available to be drawn under the
Letters of Credit then outstanding. Any amounts so received by Agent pursuant
to this Section 3.2(a) shall be deposited by Agent in a deposit account
maintained by Agent, or by any Bank selected by Agent in its discretion, for
the benefit of Banks (the "Cash Collateral Account").
(b) Security Interest. As security for the payment of all
Reimbursement Obligations and for all other Obligations, Borrower hereby
grants, conveys, assigns, pledges, sets over and transfers to Agent (for the
benefit of Banque Paribas and Banks), and creates in Agent's favor (for the
benefit of Banque Paribas and Banks) a security interest in, all money,
instruments and securities at any time held in or acquired in connection with
the Cash Collateral Account, together with all proceeds thereof. The Cash
Collateral Account shall be under the sole dominion and control of Agent, and
Borrower shall not have any right to withdraw or cause Agent to withdraw any
funds deposited in the Cash Collateral Account. At any time and from time to
time, upon Agent's request, Borrower promptly shall execute and deliver any and
all such further agreements, documents, instruments and certificates, including
financing statements, as may be necessary, appropriate or desirable in Agent's
judgment to obtain the full benefits (including perfection and priority) of the
security interest created or intended to be created by this Section 3.2(b) and
of the rights and powers herein granted. Borrower shall not create or suffer
to exist any Lien on any amounts or investments held in the Cash Collateral
Account other than the Lien granted under this Section 3.2(b).
(c) Application of Funds. Agent may, and shall upon request of
Borrower, (i) apply any funds in, the Cash Collateral Account toward payment of
Reimbursements Obligations when the same become due and payable if and to the
extent that Borrower shall fail directly to pay such Reimbursement Obligations
and (ii) after the date on which the Commitments of Banks shall have
terminated, all Letters of Credit shall have expired and all Reimbursement
Obligations shall have been paid in full, apply any proceeds remaining in the
Cash Collateral Account first to pay any unpaid Obligations then outstanding
hereunder and then to refund any remaining amount to Borrower.
(d) Investment of Funds. Agent may invest the funds held in the
Cash Collateral Account (so long as the aggregate amount of such funds exceeds
any relevant minimum investment requirement) in (i) direct obligations of the
U.S. or any agency thereof, or obligations guaranteed by the U.S. or any agency
thereof and (ii) one or more types of other cash-equivalent investments as
Agent may desire from time to time, in each case with such
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maturities as Agent may specify, pending application of such funds toward
payment of Reimbursement Obligations or of other Obligations as provided
herein. All such investments shall be made in Agent's name for the account and
benefit of Agent (provided, however, that Borrower shall be obligated to pay
all taxes with respect to such investments) and shall be subject to Section
3.2(c). Borrower recognizes that any losses or taxes with respect to such
investments shall be borne solely by Borrower, and Borrower agrees to indemnify
and hold Agent and Banks harmless from and against any such losses or taxes.
Agent may liquidate any investment held in the Cash Collateral Account in order
to apply the proceeds of such investment toward payment of the Reimbursement
Obligations or other Obligations then due and payable, as the case may be,
without regard to whether such investment has matured and without liability for
any penalty or other fee incurred (with respect to which Borrower hereby agrees
to reimburse Agent) as a result of such application.
(e) Fees. Borrower shall pay to Agent or the Bank with whom the Cash
Collateral Account has been established, for the account of Agent or such Bank
(as applicable), the fees customarily charged by Agent or such Bank with
respect to the maintenance of accounts similar to the Cash Collateral Account.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Initial Advance or Letter of Credit. The obligations of the
Banks to make the initial Advance under the Revolving Loan Facility or of
Banque Paribas to issue the initial Letter of Credit hereunder shall be subject
to the prior satisfaction of each of the following conditions precedent:
(a) Notes. The Revolving Notes shall have been duly executed by
Borrower and delivered to Agent.
(b) Security Documents. All Security Documents deemed necessary
or appropriate by the Agent or Banks including, without limitation, an
unconditional and irrevocable Guaranty of the Obligations duly executed by each
of the Borrower's Subsidiaries subject to no limitations other than those, if
any, agreed to in writing by the Required Banks and such Security Documents
which are necessary or appropriate to create a fully perfected, valid Lien on
each item of Collateral subject to no other Lien except Permitted Liens and
prior to all Liens except those Permitted Liens, if any, stipulated on Schedule
6 to be prior Liens or otherwise agreed to by the Required Banks in writing
subsequent to the Closing Date, all of which shall be in form and substance
acceptable to the Agent and Banks and shall have been duly executed
by the Borrower and the applicable Loan Parties (as appropriate) and delivered
to Agent and, if and to the extent appropriate, filed and recorded.
(c) Corporate Certificate. A Corporate Certificate in the form of
Exhibit F hereto, appropriately completed, shall have been duly executed by the
Borrower and each other Loan Party and certain of their respective officers, as
indicated therein, and delivered to Agent. The
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resolutions of the Board of Directors of such corporation, the certificate or
articles of incorporation of such corporation and the bylaws of such
corporation shall be attached thereto shall be in form and substance reasonably
satisfactory to Agent. In the event any Loan Party is not a corporation, such
Loan Party shall deliver a certificate which is substantially the same as the
Corporate Certificate attached as Exhibit F, modified in the manner that is
appropriate to reflect such entity's status and to which shall be attached
evidence of authorization which is comparable to board of directors resolutions
and copies of all documents by which such Loan Party was created and is
governed.
(d) EBITDA Certificate. Agent shall have received an EBITDA
Certificate, appropriately completed, dated as of the date of such Advance or
date of issuance of any Letter of Credit or amendment thereto, and certified as
to accuracy by a Financial Officer of Borrower which shall demonstrate that no
EBITDA Overadvance is then existing or will result from the requested Advance
or issuance of the Letter of Credit.
(e) Good Standing and Authority. Certificates shall have been delivered
to the Agent which have been issued by the appropriate Tribunal of each
jurisdiction in which Borrower and each other Loan Party is incorporated or
otherwise formed and of each other jurisdiction in which the Borrower and each
other Loan Party transacts business if it is required to qualify in such
jurisdiction to conduct business and if the failure to so qualify could cause a
Material Adverse Effect, each dated a Current Date, to the effect that the
Borrower or such other Loan Party is in existence, in good standing with
respect to the payment of franchise and similar taxes and duly qualified to
transact business in such jurisdiction.
(f) Opinions of Counsel. A legal opinion of Michener, Larimore,
Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P., and other counsel
reasonably acceptable to Agent as to matters relating to the law of
jurisdictions and Tribunals other than the State of Texas or the U.S., as
counsel for Borrower and the other Loan Parties, substantially in the form of
Exhibit G attached hereto shall have been duly executed by such counsel and
delivered to Agent.
(g) UCC and Lien Searches. Search certificates from the Secretaries
of State (or such other Tribunals as may be appropriate for UCC or other Lien
searches) of Borrower and each of Borrower's Subsidiary's and each other Loan
Party's state of incorporation or formation, the states where the Borrower's,
each such Subsidiary's and each other Loan Party's chief executive offices are
located and all other states in which the Borrower, any such Subsidiary or any
other Loan Party transacts business setting forth all UCC filings, financing
statements and other Lien filings against Borrower, any such Subsidiary or any
other Loan Party, shall have been delivered to Agent, which certificates shall
confirm that the Assets of Borrower, the such Subsidiaries and the other Loan
Parties are free and clear of all Liens except Permitted Liens, if any.
(h) Balance Sheets. The March 31, 1995 consolidating balance
sheet of Borrower and each Consolidated Subsidiary, a consolidated balance
sheet of Borrower and its Consolidated Subsidiaries dated as of March 31, 1995,
a Pro Forma consolidating balance sheet of Borrower and each Consolidated
Subsidiary dated as of March 31, 1995, and a Pro Forma consolidated balance
sheet of Borrower and its Consolidated Subsidiaries dated as of March 31, 1995,
shall
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have been delivered to Agent, each of which shall be certified by a Financial
Officer of Borrower and, with respect to the consolidating balance sheets and
Pro Forma consolidating balance sheets, such balance sheets shall reflect, to
the satisfaction of Agent, that (i) both before and after giving effect to the
transactions contemplated by this Agreement (and assuming funding of the
Revolving Loans in an amount equal to the greatest amount of principal which is
projected by Borrower to ever be outstanding upon the Aggregate Revolving Loan
Commitment), the Borrower and each Consolidated Subsidiary is, both as a
separate entity and on a consolidated basis with its Subsidiaries, Solvent and
(ii) there has not occurred any material adverse change in the financial
condition of Borrower or any of its Consolidated Subsidiaries since March 31,
1995.
(i) Cash Flow Projections and Financial Statements. Consolidated
cash flow projections of Borrower and its Consolidated Subsidiaries and other
Financial Statements of Borrower and each of its Subsidiaries as Agent may
request, for the seven year period following the Closing Date commencing with
Fiscal Year 1994, shall have been delivered to the Agent, which projections and
Financial Statements shall be certified by a Financial Officer of Borrower, and
with respect to the projections and Financial Statements of each Subsidiary of
Borrower, such cash flow projections shall reflect, to the satisfaction of
Agent, that, both before and after giving effect to the transactions
contemplated by this Agreement (and assuming funding of the Revolving Loans in
an amount equal to the greatest amount of principal which is projected by
Borrower to ever be outstanding upon the Aggregate Revolving Loan Commitment),
the Borrower and each of its Subsidiaries is, both as a separate entity and on
a consolidated basis with its Subsidiaries, Solvent.
(j) Fees. All fees required to have been paid by Borrower pursuant
to this Agreement on any other Loan Paper shall have been paid (to the extent
then due).
(k) Insurance, etc. Borrower and each Subsidiary of Borrower shall have
obtained and shall maintain insurance as required pursuant to Section 6.1(c)
and Agent shall have received a letter from Alexander & Alexander (or another
insurance broker for Borrower which is satisfactory to Agent) addressed to the
Agent to the effect that the insurance set forth in Section 6.1(g) of this
Agreement covers all Assets of a character usually insured by Persons engaged
in the same or similar business similarly situated against loss or damage of
the kinds and in the amount customarily insured against by such Persons and is
insurance as is usually carried by such Persons.
(l) No Material Adverse Effect. There shall not have occurred any
event or events and there shall not exist any circumstance or circumstances
which, individually or collectively, could cause a Material Adverse Effect.
(m) No Litigation, etc. There are no investigations, actions,
suits or proceedings pending or threatened in or before any Tribunal that could
cause a Material Adverse Effect.
(n) Environmental Reports. Agent shall have received reports
addressed to Agent or upon which Agent is expressly entitled to rely, in form
and substance reasonably satisfactory to
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Agent, as to the environmental status of the Mortgaged Estates and such of the
operating facilities and real estate holdings of Borrower and each Subsidiary
of Borrower as may be acceptable to Agent, and the status of such environmental
matters shall be reasonably satisfactory to Agent.
(o) Landlord's Waivers. Agent shall have received, from each
landlord who owns any real property leased by Borrower or any Subsidiary of
Borrower on which tangible Assets of Borrower or any Subsidiary of Borrower
which have a fair market value in excess of $2,000,000.00 are located (unless
all of such Assets are excluded from the Collateral pursuant to the terms of
this Agreement), a waiver, in form and substance satisfactory to Agent, of such
landlord's interest in the Assets of Borrower or the applicable Subsidiary of
Borrower.
(p) Intercompany Notes and Intercompany Acquisition Notes. Agent
shall have received the original Intercompany Notes and Intercompany
Acquisition Notes, which promissory notes shall be in form and substance
reasonably satisfactory to Agent and shall be endorsed to Agent and
collaterally assigned to Agent as Collateral for the Obligations.
(q) Stock Certificates and Stock Powers. Agent shall have
received the original stock certificates (or other certificates, if any, issued
with respect to Securities) evidencing the shares of each of the Borrower's
Eligible Intermediate Subsidiaries and Eligible Operating Subsidiaries (to the
extent such Securities are evidenced by certificates) together with blank stock
powers relating thereto duly executed and delivered by the Borrower and each
such Subsidiary of Borrower, as appropriate, with respect to each such Person's
Subsidiaries which are Eligible Intermediate Subsidiaries or Eligible Operating
Subsidiaries.
(r) Proceedings Satisfactory. All proceedings taken in connection
with the transactions contemplated by the Loan Papers shall be reasonably
satisfactory to Agent, all Loan Papers shall be in form and substance
reasonably satisfactory to Agent, and all legal matters incident to this
Agreement and the other Loan Papers and the transactions contemplated by the
Loan Papers shall be reasonably satisfactory to Jenkens & Gilchrist, a
Professional Corporation, counsel to Agent.
(s) Closing Certificate. A Closing Certificate in the form of
Exhibit H hereto, appropriately completed, shall have been executed by Borrower
and certain of its officers, as indicated therein, and delivered to Agent.
(t) Title Policies. Agent shall have received the Title Policies
or unconditional and irrevocable commitments for the issuance of the Title
Policies together with the agreement of each title company to issue its Title
Policy upon recordation of the Mortgage, the Lien of which is to be insured by
such Title Policy.
(u) Surveys. Agent shall have received a survey covering each of
the Mortgaged Estates and such other operating facilities and real estate
holdings of the Borrower or any Subsidiary of Borrower as Agent may request,
certified to Agent and acceptable to Agent.
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(v) Appraisals. Agent shall have received satisfactory appraisals
of each of the Mortgaged Estates and such other operating facilities and real
estate holdings of the Borrower or any Subsidiary of Borrower as Agent may
request (excluding the Mortgaged Estates and facilities owned, respectively, by
CHC-A of Midland, Inc. and CHC-B of Midland, Inc.).
(w) Payment of the Prior Debt. Borrower will have provided for
the full and final payment of the Prior Debt and shall have obtained the
unconditional and irrevocable agreement of the holder of the Prior Debt to
immediately execute and deliver to Agent releases for all Liens securing all or
any part of the Prior Debt in form suitable for recordation and filing, as
appropriate; provided, however, the Borrower shall have until June 30, 1995 to
discharge (or replace with Letters of Credit issued pursuant to this Agreement)
the letters of credit issued by CoreStates Bank, N.A. which constitute Prior
Debt.
4.2 Each Acquisition Advance. The obligation of Banks to make each
Acquisition Advance under the Revolving Loan Facility shall be subject to the
prior or concurrent satisfaction of each of the following conditions precedent:
(a) Covenant Compliance\EBITDA Limitation. Borrower and its
Consolidated Subsidiaries must be in compliance with each of the covenants set
forth in Sections 6.1 and 6.2 immediately prior to the Acquisition Advance and
consummation of the Permitted Acquisition and on a Pro Forma basis immediately
following the Advance and consummation of the Permitted Acquisition which shall
be demonstrated in advance in writing as required in Section 4.(b) below and
the amount of the Acquisition Advance shall not exceed three (3) times the
EBITDA of the Hospital, Health Care Facility or Health Care Services Business
to be acquired. To the extent the acquisition costs exceed three (3) times the
EBITDA of the Hospital, Health Care Facility or Health Care Services Business
to be acquired, such costs may be paid by Borrower from sources other than the
Loans if such amounts are evidenced by an Intercompany Acquisition Note.
(b) Permitted Acquisitions, Acquisition Documents. No Acquisition
Advance shall be requested by the Borrower and none of the proceeds of any
Advance shall be used by the Borrower to acquire or make any investment in any
Person or to acquire or make any investment in the Assets of any Person unless
(i) such Acquisition or investment constitutes a Permitted Acquisition, and
(ii) Agent and the Banks have received, at least thirty (30) days prior to the
Advance, all documentation relevant to the proposed Acquisition or investment
including, without limitation, the purchase agreement (subject only to future
modifications which are not material) and due diligence items (including,
without limitation, satisfactory appraisals, environmental assessments, title
commitments and surveys for all real property), and (iii) Agent and Banks have
received, at least forty-five (45) days prior to the Advance, such Financial
Statements (prepared on a Pro Forma basis) as the Agent may reasonably request.
All documentation and Financial Statements must be in form and substance
satisfactory to the Agent and Required Banks and shall demonstrate that the
Acquisition or investment constitutes a Permitted Acquisition and, without
limiting the generality of the foregoing, that the requirements of Section 4.2
above are satisfied.
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4.3 All Advances and Letters of Credit. The obligation of Banks
to make any Advance and the obligation of Banque Paribas to issue any Letter of
Credit (including, without limitation, the initial Advance or Letter of Credit)
under any Facility shall be subject to the condition that each condition
specified in Section 4.1 and Section 4.2 (if the requested Advance is an
Acquisition Advance) shall previously have been and shall continue to be
satisfied, whether or not any such condition was previously waived, and to the
prior satisfaction of each of the following additional conditions precedent:
(a) EBITDA Overadvance. After giving full effect to the requested
Advance or issuance, renewal, extension or substitution of the Letter of
Credit, no EBITDA Overadvance would result.
(b) No Default. As of the date of the making of such Advance or
issuance, renewal, extension or substitution of a Letter of Credit and after
giving effect thereto, no Potential Default or Event of Default then exists or
would exist.
(c) Representations and Warranties. The representations and
warranties contained in the Loan Papers (including, without limitation, those
contained in Article V hereof and those relating to the information
disclosed on the Schedules hereto) shall be true and correct in all material
respects on the date such Advance is made or such Letter of Credit is issued,
renewed, extended or substituted with the same force and effect as though made
on and as of such date, except (with respect to an Advance or issuance,
renewal, extension or substitution of a Letter of Credit proposed to be made on
other than the Closing Date) to the extent that such representations or
warranties are expressly by their terms made only as of the Closing Date or
another specific date other than such date.
(d) Covenants and Agreements. All covenants and agreements to
have been complied with and performed by Borrower and each applicable
Subsidiary of the Borrower or other Loan Party at the time of or prior to the
making of such Advance or the issuance, renewal, extension or substitution of
such Letter of Credit shall have been fully complied with and performed.
(e) Loan Request Certificate. With respect to each Advance, the Loan
Request Certificate relating thereto, appropriately completed and executed by
Borrower in form and substance satisfactory to Agent, shall have been
delivered to Agent.
(f) Security Interests. Each item of Collateral shall be subject
to a valid and enforceable and fully perfected Lien upon such item of
Collateral subject to no other Lien except the Permitted Liens and prior to all
Liens except those, if any, stipulated on Schedule 6 to the prior Liens or
otherwise agreed to by the Required Banks in writing subsequent to the Closing
Date.
(g) Payment of the Prior Debt. With respect to all Advances made
subsequent to June 30, 1995, Borrower shall have provided for the full and final
payment of all Prior Debt and shall have obtained and, where appropriate,
recorded or filed, releases for all Liens securing all or any part of the Prior
Debt.
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(h) Additional Items. Such additional agreements, documents,
instruments and certificates as Agent, Banks or Jenkens & Gilchrist, a
Professional Corporation, counsel to Agent, may reasonably request to ensure or
evidence the transactions contemplated by this Agreement and the other Loan
Papers and compliance by Borrower and each other Loan Party with this Agreement
and each other Loan Paper to which it is a party shall have been duly executed,
where applicable, and delivered to Agent.
4.4 Representation and Warranty. Each request for an Advance and
each L/C Request Certificate shall constitute a representation and warranty by
Borrower to Agent and Banks that all conditions precedent in this Article IV
applicable thereto have been satisfied in full (both as of the date of the
request and, unless the Agent and the Banks are otherwise notified by the
Borrower in writing, as of the date of the Advance or issuance, renewal,
extension or substitution of the Letter of Credit, as applicable). Each
delivery of a Rollover Notice to Agent shall constitute a representation and
warranty by Borrower to Agent and Banks that no Potential Default or Event of
Default then exists (both as of the date of the notice and, unless the Agent
and the Banks are otherwise notified by the Borrower in writing, as of the date
of the Advance or issuance, renewal, extension or substitution of the Letter of
Credit).
4.5 Determinations Regarding Conditions Precedent. Except as may
be expressly stated in this Article IV to the contrary, all determinations of
compliance with applicable conditions precedent shall be made by Agent in good
faith. If and to the extent that any Bank shall, in accordance with this
Article IV, have the right to make or be involved in any such determination,
such Bank shall be deemed to have consented to, approved or accepted or to be
satisfied with each agreement, document, instrument or certificate or other
matter to be consented to, satisfactory to, approved by or accepted by such
Bank unless (a) an officer of Agent responsible for the administration of this
Agreement and holding the position of Vice President or higher shall have
received written notice from such Bank, prior to the relevant time and date,
specifying its objection thereto, and (b) such objection shall not have been
withdrawn by written notice to Agent.
4.6 Waivers of Conditions Precedent. No waiver by the Agent or
any Bank of any condition precedent to any Advance shall be effective unless
such waiver is in writing and signed by the Required Banks. The Agent and
Required Banks may condition their approval of any waiver of a condition
precedent including, without limitation, the waiver of any condition precedent
to an Acquisition Advance upon the payment by the Borrower of a fee or other
consideration which the Agent and Banks, in their sole discretion, consider
appropriate.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Agent and Banks, as
follows:
5.1 Organization, Standing, Qualification. Except as disclosed on
Schedule 10, each of Borrower and its Subsidiaries (a) is duly organized,
validly existing and in good standing
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under the laws of its State of formation, (b) has all requisite power,
corporate or otherwise, to conduct its business and to execute, deliver and
perform its obligations under this Agreement and the other Loan Papers to which
it is a party, and (c) is duly qualified to transact business in each
jurisdiction where the nature of its Assets or the conduct of its business
requires such qualification and where the failure to so qualify could have a
Material Adverse Effect.
5.2 Authorization, Enforceability, etc.
(a) The execution, delivery, and performance by the Borrower and
the other Loan Parties of the Loan Papers to which each is a party have been
duly authorized by all necessary action and do not and will not (i) violate any
provision of any material agreement or any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect to
which Borrower or any other Loan Party is a party or by which it or any of its
material Assets are bound or affected, (ii) result in, or require the creation
or imposition of, any Lien (other than a Permitted Lien in favor of Agent and
Banks) upon or with respect to any Collateral or any other Asset owned by
Borrower or any Subsidiary, or (iii) except as may be disclosed on Schedule 10,
result in a breach of, or constitute a default by Borrower or any Subsidiary or
other Loan Party under, any indenture, loan or credit agreement or any other
material contract, agreement, document or instrument to which it is a party or
by which it or any of its Assets are bound or affected.
(b) No approval, authorization, order, license, permit, franchise
or consent of or registration, declaration, qualification or filing, and no
lapse of a waiting period or lack of objection, with or from any Tribunal or
other Person is required in connection with the execution, delivery and
performance by Borrower or any Subsidiary or any other Loan Party of any Loan
Paper to which it is a party or by which it or any of its Assets are bound or
affected.
(c) This Agreement has been duly executed and delivered by
Borrower and constitutes the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, subject to
applicable Debtor Relief Laws. The other Loan Papers to which the Borrower,
any Subsidiary or any other Loan Party is a party, when duly executed and
delivered by Borrower, such Subsidiary or such other Loan Party, will
constitute the legal, valid and binding obligations of such Person, enforceable
against such Person in accordance with their respective terms, subject to
applicable Debtor Relief Laws. Except as disclosed on Schedule 10, the
Security Documents, when duly executed and delivered by Borrower and each other
Loan Party which is a party thereto, will create in favor of Agent and Banks a
valid, first priority Lien on each item of the Collateral.
5.3 Financial Statements and Business Condition.
(a) Borrower's Financial Statements (including the Base Financial
Statements) were prepared in accordance with GAAP and fairly present the
consolidated and consolidating financial conditions and results of operations
of Borrower and its Consolidated Subsidiaries as of, and for the Fiscal Year
(or portion thereof, as the case may be) ending on, the date(s) thereof,
subject to year-end adjustments (if applicable). There were no material
liabilities, direct
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or indirect, fixed or contingent, of Borrower or any Consolidated Subsidiary as
of the dates of Borrower's Financial Statements (including the Base Financial
Statements) which are not reflected therein or in the notes thereto or which
otherwise have not been disclosed to Agent and Banks in Schedule 10. Except
for occurrences heretofore disclosed in writing to Agent and Banks and
described in such disclosure as being adverse (if any), there has not occurred
any material adverse change in the financial condition of Borrower or any
Consolidated Subsidiary from the financial condition shown in the Base
Financial Statements, and neither Borrower nor any Consolidated Subsidiary has
incurred any material liability, direct or indirect, fixed or contingent except
in the ordinary course of its business as currently conducted. No event or
events have occurred, and no circumstance or circumstances exist, which,
individually or collectively, has or could have a Material Adverse Effect.
(b) The balance sheets referred to in Section 4.1(h) fairly present
the financial conditions of Borrower, the Eligible Intermediate Subsidiaries,
the Eligible Operating Subsidiaries and/or the Consolidated Subsidiaries, as
the case may be, as of the dates thereof. Borrower's Pro-Forma balance sheets
referred to in Section 4.1(h) reflect the transactions contemplated by this
Agreement.
5.4 Filing of Tax Returns. Each of Borrower, the Subsidiaries and
the Loan Parties has filed all tax returns required to have been filed and has
paid all taxes shown to be due and payable on such returns, including interest
and penalties, and all other taxes which are payable by it, to the extent the
same have become due and payable. Borrower is not aware of any proposed tax
assessment against it or any Subsidiary or other Loan Party, and all tax
liabilities of each of Borrower, each Subsidiary and each other Loan Party are
adequately provided for. No tax liability of Borrower, any Subsidiary or any
other Loan Party has been asserted for taxes in excess of those already paid,
except as is being contested by such taxpayer in good faith consistent with the
requirements therefor set forth in Section 6.1 (e).
5.5 Title to Properties: Prior Liens. Each of Borrower and the
Subsidiaries has good and indefeasible title to all material Assets purported
to be owned by it and each Loan Party has good and indivisible title to each
item of Collateral purported to be owned by it (except for minor defects in
title and minor encumbrances not in any case materially detracting from the
value of the Assets affected thereby). As of the Closing Date, no Person has
any right, title or interest in or to, or Lien against, the Collateral, except
for Permitted Liens. No Permitted Liens described in clause (e) of the
definition of such term will be prior or superior to the Liens of the Security
Documents when such Security Documents are duly filed or recorded, as
appropriate unless expressly stipulated on Schedule 6 to be Prior Liens.
5.6 Leases. All material real property leases under which
Borrower or any Subsidiary is lessee or tenant are in full force and effect,
and there does not exist any default or potential default thereunder by which
any such lease could be terminated. Each such lease existing as of the Closing
Date is identified on Schedule 10 attached hereto and copies of all such leases
and all amendments and supplements thereto shall be furnished to Agent upon
request.
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5.7 Ownership of Borrower and Subsidiaries. As of the Closing Date, the
ownership (record and beneficial) of Borrower and the Subsidiaries is
accurately set forth on Schedule 5 attached hereto.
5.8 Solvency. Each of Borrower and the Subsidiaries is, both as a
separate entity and on a consolidated basis with its Subsidiaries, and both
before and after giving effect to the transactions contemplated by this
Agreement, Solvent.
5.9 Business, Compliance. Each of Borrower and the Subsidiaries
has performed and complied with all material obligations required to be
performed or complied with by it, and is not in default (to the extent it could
be materially and adversely affected) under any license, permit, order,
authorization, grant, contract, agreement or regulation material to its
business to which it is a party or by which it or any of its Assets are bound
or affected. The businesses and operations of each of Borrower and the
Subsidiaries have been and are being conducted in accordance with all
applicable laws, rules and regulations of all Tribunals, except for such
conduct which would not result in a Material Adverse Effect.
5.10 Licenses, Permits, etc. Borrower and each Subsidiary
possesses such valid Proprietary Rights and consents, authorizations, licenses,
permits, accreditation, exemptions and orders of Tribunals or otherwise
(including, without limitation, accreditation by JCAHO, except for the
following: CHC-A of Midland, Inc., which is not accredited by JCAHO; and CHC-B
of Midland, Inc. which shall not be accredited by JCAHO until the expiration of
eighteen (18) months after the date on which the Hospital being constructed by
such Person is completed and placed in operation; and accreditation and
certification as providers of health care services eligible to receive payment
and compensation and to participate under Medicare and Medicaid) as are
necessary or appropriate to carry on its business as now being or currently
proposed to be conducted. Schedule 10 contains a description of all
Proprietary Rights of Borrower and each Subsidiary existing as of the Closing
Date that are material to such Person's business and disclosure of the Person
that owns the rights thereto.
5.11 Litigation, Proceedings, etc. Except as otherwise provided in
Schedule 10, there are no investigations, actions, suits, proceedings, orders
or injunctions pending or threatened against or affecting Borrower, any
Subsidiary, any other Loan Party or the Assets of any such Person, at law or in
equity, or before or by any Tribunal which (a) either has had or could
reasonably be expected to have a Material Adverse Effect, or (b) is either
related or could reasonably be expected to relate to the Loans, the
Commitments, the Facility or the other transactions contemplated by the Loan
Papers, and no accidents, acts or actions have occurred which involve any claim
which is not fully covered by insurance or for which adequate reserves have not
been established which are reflected in the Base Financial Statements. Neither
Borrower, any Subsidiary nor any other Loan Party is in default with respect to
any order, writ, injunction or decree of any Tribunal, which default could
cause a Material Adverse Effect.
5.12 Plans. As of the Closing Date, Schedule 10 identifies all
Plans and, except as set forth on Schedule 10, each such Plan has been
maintained at all times in compliance, in all material respects, with its
provisions and applicable law, including, without limitation,
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compliance with the applicable provisions of ERISA. As of the Closing Date,
(a) none of the Plans is an "employee stock ownership plan" as defined in
Section 4975(e)(7) of the Code, (b) except to the extent described on Schedule
10, no Group Member has provided, or agreed to provide, medical benefits to any
former employee or dependent of such employee for periods subsequent to the
severance of such employee's employment, other than as specifically required
under Section 4980B of the Code, and (c) except as set forth on Schedule 10,
there has been no prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) with respect to any Plan. Without limiting
the generality of any other provision hereof, neither the Borrower, any
Subsidiary nor any other Loan Party is directly or indirectly or contingently
liable with respect to any "employee benefit plan" as defined in Section 3(3)
of ERISA with respect to which the Borrower or any other Person which is a
member of a "controlled group" that includes or is under common control with
the Borrower, within the meaning of Sections 414(b) and (c) of the Code, is a
party or bound or with respect to which the Borrower or any such Person shall
have any direct or indirect or contingent liability.
5.13 Chief Executive Office; Locations of Collateral, Trade Names.
The chief executive office and principal place of business of Borrower, each
Subsidiary of Borrower and each other Loan Party are located in Harris County,
Texas, or at such other location as is shown on Schedule 10. As of the Closing
Date, the present and foreseeable locations of the offices and facilities of
Borrower and each Subsidiary of Borrower and all of the tangible Collateral and
the books and records relating to the Collateral, and all assumed or trade
names of Borrower, each Subsidiary of Borrower and each Loan Party or any
division of any such Person, are set forth on Schedule 10.
5.14 Federal Reserve Regulations. Neither Borrower nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
Margin Stock.
5.15 Fiscal Year. The Fiscal Year of Borrower and each of its
Subsidiaries ends on December 31st.
5.16 Environmental Matters.
(a) Each of the Borrower, the Subsidiaries of Borrower and the other
Loan Parties is in compliance, in all material respects, with all Environmental
Laws.
(b) There are no presently outstanding complaints that Borrower or
any Subsidiary of Borrower or other Loan Party is now or at any time prior
hereto was in violation of any Environmental Law. There are no administrative
or judicial proceedings presently pending or any administrative or judicial
proceedings threatened by a Tribunal against Borrower, any Subsidiary of
Borrower or any other Loan Party pursuant to any Environmental Law, and there
is no claim presently outstanding against Borrower, any such Subsidiary or any
other Loan Party which was asserted pursuant to any Environmental Law.
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(c) Except as may be disclosed on Schedule 10, there are no facts or
circumstances known to Borrower or any Subsidiary of Borrower or other Loan
Party that could reasonably form the basis of any claim against Borrower, any
such Subsidiary or any other Loan Party under any Environmental Law, including,
but not limited to, any claim arising from past or present environmental
practices asserted under CERCLA, RCRA, the Clean Air Act, the Clean Water Act
or any other Federal, State or local Environmental Law.
5.17 Labor Disputes. Except as may be set forth on Schedule 10, as
of the Closing Date (a) there is no collective bargaining agreement or other
labor contract covering employees of Borrower, any Subsidiary of Borrower or
any other Loan Party, (b) no such collective bargaining agreement or other
labor contract is scheduled to expire during the term of this Agreement, and
(c) to Borrower's knowledge, no union or other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
Borrower, any such Subsidiary or any other Loan Party. There is no pending or,
to Borrower's knowledge, threatened strike, work stoppage, unfair labor
practice claim or other labor dispute against or affecting Borrower, any
Subsidiary of Borrower or any other Loan Party or their respective employees
which would be likely to have a Material Adverse Effect.
5.18 Subsidiaries. Except as identified on Schedule 5, as of the
Closing Date the Borrower has no Subsidiaries. As of the Closing Date, all
Eligible Intermediate Subsidiaries, Eligible Operating Subsidiaries,
Consolidated Subsidiaries and De Minimis Subsidiaries are identified on
Schedule 5. Except as may be expressly stated to the contrary on Schedule 5, as
of the Closing Date all Subsidiaries of Borrower are Consolidated Subsidiaries.
5.19 Investment Company Act, Public Utility Holding Company Act.
Neither the Borrower, any Subsidiary of Borrower nor any other Loan Party is
(a) an "investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended, or (b) a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935, as amended.
5.20 Common Benefit. Borrower and all Subsidiaries of Borrower are
members of an affiliated group. Borrower and each Subsidiary of Borrower
expect to derive substantial benefit (and Borrower and each Subsidiary of
Borrower may reasonably be expected to derive substantial benefit), directly
and indirectly, from the Loans and the other transactions contemplated by this
Agreement and the other Loan Papers. Each Subsidiary of Borrower will receive
reasonably equivalent value in exchange for the Collateral and Guaranty being
provided by it as security for the payment and performance of the Obligations.
By contract, Borrower provides cash management and related services to its
Subsidiaries.
5.21 Burdensome Contracts; Certain Contracts with Account Debtors.
Neither Borrower, any Subsidiary of Borrower nor any other Loan Party is a
party to, or bound by, any agreement, contract or Plan which is materially
burdensome (taking into consideration any benefits provided thereby) and which
has, or is expected to have, a Material Adverse Effect.
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5.22 Intercompany Notes and Intercompany Acquisition Notes. The
Intercompany Notes and Intercompany Acquisition Notes evidence all Indebtedness
advanced by the payees thereof to the makers thereof, and the Indebtedness
evidenced thereby was, or may hereafter be, incurred to finance Acquisitions
made by such makers or to capitalize such makers or arose, or may hereafter
arise, from the cash management system maintained by Borrower and its
Subsidiaries.
5.23 Health Care Proceedings. Except as may be disclosed on
Schedule 10, there is no pending investigation of Borrower or any Subsidiary by
JCAHO, which investigation is not otherwise conducted in the ordinary course of
business and no criminal, civil or administrative action, audit, or
investigation by a fiscal intermediary or by the federal government or any
other Tribunal exists or is threatened with respect to Borrower or any
Subsidiary which could reasonably be expected to adversely affect Borrower's or
any Subsidiary's (a) right to receive a material portion of Medicare and
Medicaid reimbursement to which it would otherwise be entitled, or (b) right to
participate in the Medicare and Medicaid programs, or which could otherwise
have a material adverse effect on the receipt of Medicare and Medicaid
reimbursements by Borrower or any Subsidiary, and neither Borrower nor any
Subsidiary is subject to any pending but unassessed Medicare or Medicaid
claim-payment adjustments, except to the extent Borrower or such Subsidiary has
established adequate reserves for such adjustments in accordance with GAAP.
5.24 Senior Debt. The Obligations and all renewals, amendments,
modifications, supplements, extensions, refundings or refinancings of any of
the Obligations, constitute "Senior Indebtedness" of the Borrower (as such term
is defined in Article IX of the Note Purchase Agreement described on Schedule
7), and the holders thereof from time to time shall be entitled to all of the
rights of a holder of "Senior Indebtedness."
5.25 Full Disclosure. No information, exhibit or written report
furnished by or on behalf of Borrower or any Subsidiary or any other Loan Party
to Agent or any Bank in connection with this Agreement or the transactions
contemplated hereby contains any material misstatement of fact or omits the
statement of a material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE VI
COVENANTS
6.1 Affirmative Covenants. So long as any portion of the Obligations
remains unpaid or unperformed or any Bank is committed to make any Loan or
issue any Letter of Credit or any Letter of Credit remains outstanding
hereunder:
(a) Payment and Performance of Obligations. Borrower shall pay
all principal, interest, fees and other charges with respect to the Obligations
when and as the same become due and payable in accordance with the Loan Papers
and shall strictly observe and perform, or cause to be observed and performed,
all covenants, agreements, terms, conditions and limitations
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contained in the Loan Papers applicable to it or any Subsidiary of Borrower or
other Loan Party and shall do all things necessary to prevent the occurrence of
any default thereunder.
(b) Maintenance of Existence, Qualification and Assets. Borrower
shall at all times maintain, and cause each Subsidiary of Borrower (other than
Subsidiaries which are not Eligible Intermediate Subsidiaries, Eligible
Operating Subsidiaries or De Minimis Subsidiaries and which are not obligated
upon any Indebtedness owed to Borrower or to an Eligible Intermediate
Subsidiary or Eligible Operating Subsidiary or De Minimis Subsidiary) to
maintain (i) its legal existence, (ii) its qualification to transact business
and good standing in all jurisdictions where the nature of its Assets or the
conduct of its business requires such qualification and where the failure to so
qualify could cause a Material Adverse Effect, and (iii) its material Assets
(exclusive of obsolete Assets) in proper repair, working order and condition,
ordinary wear and tear excepted.
(c) Maintenance of Insurance. Borrower shall at all times maintain,
and cause each Subsidiary of Borrower to maintain, insurance covering such
risks and in such amounts as is customarily maintained by businesses similarly
situated, including, without limitation, insurance covering the following in
such amounts as Agent may reasonably determine to be appropriate: (i) workmen's
compensation insurance, except as may be provided in Section 6.1(k);
(ii) commercial general liability (which includes property damage insurance) in
respect of all activities in which such Person might incur personal liability
for the death or injury of any third Person, or damage to or destruction of
another's property; (iii) insurance against loss or damage by fire, lightning,
hail, tornado, explosion and other similar risk; and (iv) comprehensive
automobile liability insurance.
(d) Maintenance of Security. Borrower shall execute and deliver,
or cause to be executed and delivered by the appropriate Subsidiary of Borrower
or other Person, to Agent all Security Documents and shall take such other
actions, as Agent deems necessary or appropriate in order to maintain valid,
enforceable and perfected Liens (subject to no Lien other than Permitted Liens
and prior to all Liens other than those Permitted Liens, if any, which are
stipulated on Schedule 6 to be prior Liens or otherwise agreed to by the
Required Banks in writing subsequent to the Closing Date) in favor of Agent on
all Collateral, including any Collateral acquired after the date of this
Agreement, securing the Obligations.
(e) Payment of Taxes and Claims. Borrower shall pay, and shall
cause each Subsidiary of Borrower to pay, all taxes imposed upon it or any of
its Assets or with respect to any of its franchises, businesses, income or
profits and shall cause each other Loan Party to pay all taxes imposed on any
Collateral owned (or purported to be owned) by it, before any penalty or
interest accrues thereon and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become a vendor's Lien or landlords',
mechanics', laborers', materialmen's, operator's, statutory or other similar
Lien affecting any of its Assets or, in the case of other Loan Parties, the
Collateral owned by any such Person (or purported to be owned by it); provided,
however, that neither Borrower, any Subsidiary of Borrower nor any other Loan
Party shall be required to pay any such taxes or claims if and to the extent
that (i) the amount,
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applicability or validity thereof is currently (at the time in question) being
contested in good faith by appropriate action promptly initiated and diligently
conducted, and (ii) such Person shall have set aside on its books cash reserves
(segregated to the extent required by GAAP) that are adequate for the payment
of such taxes or claims; and provided, further, that all such taxes, penalties,
interest and claims shall in any event be paid forthwith upon the commencement
of any proceedings to foreclose any Lien which may have attached as security
therefor. Borrower shall promptly notify Agent of any taxes or claims
contested by Borrower, any Subsidiary of Borrower or any other Loan Party and
the circumstances relating thereto, in detail reasonably satisfactory to Agent.
(f) Compliance with Laws and Documents. Borrower shall comply,
and shall cause each Subsidiary of Borrower and each other Loan Party to
comply, in all material respects, with the provisions of any and all laws,
rules, regulations, orders, Governmental Requirements and agreements material
to its businesses and operations, including, without limitation, all
Environmental Laws and all applicable rules and regulations of JCAHO (except
for CHC-A of Midland, Inc., which is not JCAHO accredited, and CHC-B of
Midland, Inc. which shall not be accredited by JCAHO during the period which
ends eighteen (18) months after the date the Hospital being constructed by such
Person is completed and becomes operational), Medicare and Medicaid, and shall
maintain or cause to be maintained its ability to fully perform its obligations
thereunder. With respect to any Plan of any Group Member which is subject to
the minimum funding standards of ERISA, Borrower shall cause such Group Member
to at all times make prompt payments of contributions required to be made to
meet such minimum funding standards.
(g) Inspections. Borrower shall, at any reasonable time and from
time to time during business hours, after Agent shall have given Borrower one
Business Day's prior notice, permit, and shall cause each Subsidiary of
Borrower to permit, any agents or representatives of Agent or any Bank to
inspect any of Borrower's or such Subsidiary's Assets and to examine and make
copies of and abstracts from its records and books of account and to discuss
its affairs, finances and accounts with any of its officers, employees or
independent public accountants (and by this provision Borrower authorizes said
accountants to discuss with Agent and Banks and their agents and
representatives, the affairs, finances and accounts of Borrower and its
Subsidiaries). The foregoing rights of the Agent and Banks shall be subject to
the rights of patients to maintain the confidentiality of their medical
records.
(h) Records. Borrower shall keep, and shall cause each Subsidiary
of Borrower to keep, adequate books and records reflecting all financial
transactions of such Person, in which complete entries shall be made in
accordance with GAAP.
(i) Expenses. Borrower shall promptly pay, from time to time upon
request made by Agent, any and all costs, fees and expenses paid or incurred by
Agent, Banks or Banque Paribas incident to (i) this Agreement or any other Loan
Paper or any amendment thereto or the filing or recordation, if appropriate,
thereof (including, without limitation, the fees and expenses of Agent and
Banque Paribas and counsel to Agent and Banque Paribas incurred in connection
with the negotiation, preparation, execution and administration of the Loan
Papers or any amendment thereto and the filing or recordation, if appropriate,
of any Loan Papers), and (ii) the
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syndication of the Loans or Commitment by Agent or Banque Paribas. In
addition, Borrower shall promptly pay, from time to time upon request made by
Agent after the occurrence of a Potential Default or an Event of Default, any
and all costs, fees and expenses incurred by Agent or any Bank incident to (A)
the collection and enforcement of the Obligations and the Loan Papers, (B) the
exercise of any right or remedy under or with respect to the Obligations and
the Loan Papers, and (C) the defense or prosecution of any action, suit or
proceeding under or with respect to the Obligations and the Loan Papers.
Without limiting the obligations of Borrower under the preceding sentence, each
Bank shall endeavor in good faith to mitigate the costs, fees and expenses for
which Borrower is liable under the preceding sentence, by engaging the services
of one common counsel on behalf of all Banks in each applicable jurisdiction,
but only if and to the extent that, and for such period of time as such Bank
determines, in its sole discretion, that the use of such common counsel is
consistent with its best interests under the circumstances.
(j) Maintenance of Assets. Borrower shall maintain, and shall
cause each Subsidiary of Borrower (other than Subsidiaries which are not
Eligible Intermediate Subsidiaries, Eligible Operating Subsidiaries or De
Minimis Subsidiaries and which are not obligated on any Indebtedness owed to
Borrower or to an Eligible Intermediate Subsidiary or Eligible Operating
Subsidiary or De Minimis Subsidiary) to maintain, all Proprietary Rights and
other Assets material to the conduct of its business as heretofore or to be
conducted by it.
(k) Workers' Compensation. If and to the extent that Borrower or
any Subsidiary of Borrower is or becomes a non-subscriber under any applicable
workers' compensation statute, Borrower shall, and shall cause each such
Subsidiary to, consistently take all reasonable precautions as may be necessary
or appropriate to minimize the risk of loss to Borrower or such Subsidiary
associated with, or arising from, claims that would otherwise be covered by
such workers' compensation statute if Borrower or such Subsidiary had continued
to subscribe under such statute.
(l) Further Assurances. Borrower and each Subsidiary of Borrower
shall execute and deliver, or shall cause to be executed and delivered, any
and all other and further agreements, documents, instruments and certificates
as, in the judgment of Agent, may be necessary or appropriate to more
effectively evidence or secure the Obligations and the performance of the
terms and provisions of the Loan Papers (subject, however, to the limitations
set forth in Sections 3.2 and 3.3).
(m) Maintenance of Solvency. Borrower shall, from time to time,
take all actions as may be necessary or appropriate to ensure that each
Subsidiary of Borrower is and remains, at all times, both as a separate entity
and on a consolidated basis with its Subsidiaries, Solvent; provided, however,
that Borrower shall not take any such actions (i) if and to the extent that
taking such actions would cause Borrower not to be Solvent or would cause a
Potential Default, or an Event of Default, or (ii) after the occurrence of a
Potential Default or an Event of Default without the prior written consent of
Agent. Furthermore, the obligation of Borrower pursuant
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to this Section 6.1(m) shall be subordinate and junior, in all respects, to
the rights of Banks to receive any and all payments with respect to the
Obligations (including all Guaranties of the Obligations by Borrower's
Subsidiaries), and no Subsidiary of the Borrower, no creditor of any such
Subsidiary (other than Agent and Banks) and no other Person (other than Agent
and Banks) acting by or through any such Subsidiary shall have any rights with
respect to this Section 6.1(m) or may enforce the terms or provisions of
this Section 6.1(m).
(n) Ownership of Consolidated Subsidiaries. Borrower shall ensure
that each Eligible Intermediate Subsidiary and each Eligible Operating
Subsidiary remains a Consolidated Subsidiary, and Borrower shall ensure that
each other currently existing Consolidated Subsidiary (other than Subsidiaries
which are not Eligible Intermediate Subsidiaries, Eligible Operating
Subsidiaries or De Minimis Subsidiaries and which are not obligated upon any
Indebtedness owed to Borrower or to an Eligible Intermediate Subsidiary,
Eligible Operating Subsidiary or De Minimis Subsidiary) remains a Consolidated
Subsidiary. Furthermore, Borrower shall insure that each of Borrower's
Subsidiaries which does not constitute an Eligible Intermediate Subsidiary or
an Eligible Operating Subsidiary is a Subsidiary of an Eligible Intermediate
Subsidiary which is wholly-owned by Borrower and/or another Eligible
Intermediate Subsidiary, and all Securities of any Eligible Intermediate
Subsidiary which holds an ownership interest in any such Person shall be
subject to fully perfected, first priority Liens which secure the Obligations,
and the Borrower and each Eligible Intermediate Subsidiary which holds an
ownership interest in any such Person shall have granted, as security for the
Obligations, a fully perfected, first-priority Lien on all Intercompany Notes
and Intercompany Acquisition Notes payable to it including, without limitation,
the Intercompany Notes and Intercompany Acquisition Notes which are payable to
it by such Person.
(o) Rank of Obligations. Borrower shall, and shall cause each
Subsidiary of Borrower to, do all things necessary to ensure that their
respective Obligations under this Agreement and the other Loan Papers rank, and
at all times shall rank (i) at least pari passu in right of payment with all
other (if any) senior, unsubordinated Indebtedness of Borrower or any
Subsidiary of Borrower, and (ii) with respect to the Collateral, senior to all
other Indebtedness of Borrower or any Subsidiary of Borrower except for those
items, if any, which are specified on Schedule 6 to be Permitted Liens which
are the senior to the Liens which secure the Obligations.
(p) Management Letters. Borrower shall, and shall cause its
Subsidiaries to, promptly implement the recommendations contained in any
management or similar letter delivered to the Borrower or any Subsidiary of
Borrower by its accountants unless the board of directors (or Persons holding
comparable authority) of such Person finds in a written resolution that to
implement such recommendations would be impractical or unreasonable or not
otherwise in the best interest of such Person.
(q) Maintenance of Business. Borrower shall, and shall cause each
of its Subsidiaries (other than Subsidiaries which are not Eligible
Intermediate Subsidiaries, Eligible Operating Subsidiaries or De Minimis
Subsidiaries and which are not obligated upon any Indebtedness owed to Borrower
or to an Eligible Intermediate Subsidiary or Eligible Operating Subsidiary or
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De Minimis Subsidiary) to, continue and preserve in all material respects (i)
the nature of its activities and operations as they exist on the Closing Date,
including, without limitation, the maintenance of all licenses and permits
necessary for the conduct of such business, its accreditation by JCAHO [except
for CHC-A of Midland, Inc. and CHC-B of Midland, Inc. until the expiration of
eighteen (18) months following the date on which the Hospital being
construction by such Person is completed and placed in operation] or any
equivalent authority over hospitals, and (ii) its qualification as a provider
of health care services eligible for compensation under Medicare and Medicaid
and equivalent programs; provided, however, Borrower may close its operations
at 3201 Sage Street, Midland, Texas, upon completion of the Midland Hospital
Project, and increase the operations of CHC-B of Midland, Inc. in connection
with the Midland Hospital Project.
(r) Intercompany Notes and Intercompany Acquisition Notes. All
Indebtedness owed by any Subsidiary of Borrower to the Borrower or to any other
Subsidiary of Borrower (other than that described in clause (c) of the
definition of Permitted Indebtedness and similar Indebtedness that may, from
time to time, be owing by one Subsidiary of the Borrower which is not an
Eligible Operating Subsidiary to another such Subsidiary) shall be evidenced by
an Intercompany Note or Intercompany Acquisition Note, and all Intercompany
Notes and Intercompany Acquisition Notes (a) shall contain terms and provisions
substantially identical to the terms and provisions contained in the forms of
Intercompany Notes which are attached hereto as Exhibit K-1 and Exhibit K-2, as
applicable, or the form of Intercompany Acquisition Note which is attached
hereto as Exhibit K-3 and made a part hereof for all purposes, (b) shall at all
times remain expressly subordinate and inferior, pursuant to terms and
provisions satisfactory to Agent, to the payment of the Obligations including,
without limitation, all Guaranties of the Obligations given by Subsidiaries of
the Borrower (all Intercompany Acquisition Notes and all Intercompany Notes
other than those Intercompany Notes payable to the Borrower or to an Eligible
Intermediate Subsidiary or to an Eligible Operating Subsidiary which holds an
ownership interest in the maker of any such promissory note shall at all times,
remain expressly subordinate to all other Intercompany Notes pursuant to terms
and provisions essentially identical to those contained in the forms of
Intercompany Notes as attached Exhibit K-1 and Exhibit K-2, as applicable, or
the form of Intercompany Acquisition Note attached as Exhibit K-3), (c) each
Intercompany Note which is payable to the Borrower or to an Eligible
Intermediate Subsidiary or to an Eligible Operating Subsidiary which holds an
ownership interest in the maker of such promissory note by an Eligible
Intermediate Subsidiary or an Eligible Operating Subsidiary shall be secured by
valid and fully perfected Liens on the same Assets of the maker of such
Intercompany Note which constitute Collateral under this Agreement, (d) all
Intercompany Notes which are payable to the Borrower or to an Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary by a Subsidiary of the
Borrower which is not an Eligible Intermediate Subsidiary or Eligible Operating
Subsidiary shall be secured by such Subsidiaries' Receivables, as contemplated
by Section 6.2(a) below (provided, however, all Liens securing any such
Intercompany Note shall be and remain subordinate and inferior, pursuant to
terms and provisions satisfactory to Agent, to the Liens which secure the
Obligations including, without limitation, Guaranties of the Obligations given
by the Borrower's Subsidiaries), and (e) all Intercompany Acquisition Notes,
all Intercompany Notes owed by an Eligible Operating Subsidiary to another
Eligible Operating Subsidiary which does not hold an ownership interest
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in the maker of such promissory note and those Intercompany Notes payable by a
Subsidiary of the Borrower which is not an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary to another such Subsidiary shall be unsecured and
shall be subordinate to the Obligations (including, without limitation,
Guaranties of the Obligations given by Subsidiaries of the Borrower) and shall
be unsecured.
6.2 Negative Covenants. So long as any portion of the Obligations
remains unpaid or unperformed or any Bank is committed to make any Loan or
issue any Letter of Credit or any Letter of Credit remains outstanding
hereunder:
(a) Limitation on Indebtedness. Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, create, incur, assume, have
outstanding, act as surety with respect to or provide a Guaranty with respect
to any Indebtedness except Permitted Indebtedness; provided, however:
(i) Subsidiaries of the Borrower which are not Eligible
Intermediate Subsidiaries or Eligible Operating Subsidiaries may incur
other Indebtedness if (A) the holder of such Indebtedness is not the
Borrower or another Subsidiary of Borrower, or (B) in the event the
holder of such Indebtedness is the Borrower or another Subsidiary of the
Borrower, (1) such Indebtedness is evidenced by an Intercompany Note,
(2) such Indebtedness was incurred prior to the Closing Date or, if it
is incurred after the Closing Date, it is senior to all Indebtedness of
such Subsidiary other than the Obligations (or such Subsidiary's
Guaranty of such Obligations), (3) it is secured by a valid, fully
perfected, first priority Lien upon the Receivables of such Subsidiary,
and (4) the principal amount outstanding on such Indebtedness does not
at any time exceed an amount expressed in U.S. Dollars, equal to
seventy-five percent (75%) of such Subsidiary's Eligible Receivables
[(or, with respect to Psychiatric Healthcare Corporation of Louisiana
and Psychiatric Healthcare Corporation of Missouri, an amount expressed
in U.S. Dollars, equal to ninety percent (90%) of the PHC Eligible
Receivables owned by such Person (provided, however, that the aggregate
amount of such Indebtedness owed by both such Persons shall not exceed
$5,000,000) and, with respect to each such Person, and an amount equal
to any PHC Subsidiary Dividends made by each Person]; provided that, in
the case of a Subsidiary of Borrower which has, as its Subsidiary or
Subsidiaries, one or more Persons which are not either Eligible
Intermediate Subsidiaries or Eligible Operating Subsidiaries, such
Intermediate Subsidiary of Borrower may incur Indebtedness pursuant to
this Section 6.2(a)(1)(B) in an aggregate amount equal to seventy-five
percent (75%) of the Eligible Receivables of its Subsidiaries which are
not Eligible Intermediate Subsidiaries or Eligible Operating
Subsidiaries to the extent that such Subsidiaries are permitted to incur
Indebtedness under this Section 6.2(a)(i)(B).
(ii) Borrower may enter into a Guaranty of the Indebtedness owed by
a Subsidiary which is not an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary if, but only if, such Guaranty is
unsecured and qualifies as Additional Subordinated Debt and the
Indebtedness which is guaranteed is owed by such Subsidiary to a Person
which is not another Subsidiary of Borrower; and
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(iii) Borrower and Eligible Intermediate Subsidiaries and Eligible
Operating Subsidiaries may enter into Guaranties of lease obligations
owed by Subsidiaries which are not Eligible Intermediate Subsidiaries or
Eligible Operating Subsidiaries (both Capital Leases and operating
leases) if the total amount of such Indebtedness for which the Borrower
and all Eligible Intermediate Subsidiaries and Eligible Operating
Subsidiaries are liable does not, at any time, exceed five percent (5%)
of the book value of the total Assets of all Eligible Intermediate
Subsidiaries and Eligible Operating Subsidiaries, determined on a
consolidated basis, with the amount of such Indebtedness being calculated
over the duration of the applicable leases, discounted to a current
value using a discount rate equal to the applicable Treasury Rate.
(b) Ownership of Subsidiaries. Borrower shall not permit any change
in the ownership of any Subsidiary of the Borrower (other than Subsidiaries
which are not Eligible Intermediate Subsidiaries, Eligible Operating
Subsidiaries or De Minimis Subsidiaries and which are not obligated upon any
Indebtedness owed to Borrower or to an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary or De Minimis Subsidiary).
(c) Current Ratio. Giving Pro-Forma Effect to any Acquisition
made or to be made or Indebtedness incurred or to be incurred as of the date of
determination, Borrower shall not permit the ratio of (i) the sum of (A) the
current Assets of Borrower and its Consolidated Subsidiaries plus (B) the
amount by which the lesser of (1) the Aggregate Revolving Loan Commitment or
(2) the product obtained by multiplying three (3) times the sum calculated by
adding the EBITDA determined separately on a ProForma basis as of the date of
determination for each of the Eligible Operating Subsidiaries, exceeds the
aggregate principal amounts then outstanding on the Revolving Notes plus the
aggregate undrawn face amounts of all Letters of Credit which are then
outstanding, to (ii) current liabilities of Borrower and its Consolidated
Subsidiaries to be less than 1.5 to 1. Notwithstanding the foregoing, current
liabilities of Borrower and its Consolidated Subsidiaries shall not be deemed
to include the Loans merely because the stated maturity date for the Loans or
any portion thereof does not extend beyond one (1) year.
(d) Minimum Total Equity. Giving Pro-Forma Effect to any Acquisition
made or to be made or Indebtedness incurred or to be incurred as of the date
of determination, Borrower and the Consolidated Subsidiaries shall at all
times maintain consolidated stockholders' equity equal to such Persons'
consolidated stockholders' equity existing as of December 31, 1994 plus
ninety-five percent (95%) of the sale proceeds (net of issuing costs) from the
issuance by the Borrower or any Subsidiary of Borrower of its own Securities
(other than Securities issued to Borrower or a Subsidiary of Borrower) plus
fifty percent (50%) the positive net income determined on a consolidated basis
with respect to the Borrower and the Consolidated Subsidiaries for each of
Borrower's Fiscal Years ending subsequent to December 31, 1994; provided,
however, that for purposes of this Section 6.2(d), the following non-cash
charges shall not be deducted from earnings for purposes of calculating net
income, (i) if the Hospital currently owned by CHC-A of Midland, Inc. is sold
or closed following completion of the Hospital being constructed by CHC-B of
Midland, Inc., up to $2,000,000 of any non-cash writeoff that may result from
the sale or closure of such Hospital, (ii) the unamortized portion
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of any deferred financing costs which may be incurred by Borrower in connection
with the Subordinated Debt up to, but not to exceed, $3,500,000, and (iii) up
to $300,000 of any unamortized charges which may be incurred by Metropolitan
Hospital, L.P. in connection with the discharge of the Prior Debt.
(e) Interest Coverage Ratio. Giving Pro-Forma Effect to any
Acquisition made or to be made or Indebtedness incurred or to be incurred as of
the date of determination, Borrower shall not, on the last day of any quarter
of Borrower's Fiscal Year, permit the ratio of (i) EBITDA, to (ii) Interest
Expense (all of which shall be determined on a consolidated basis for the
Borrower and Consolidated Subsidiaries based on the immediately preceding
consecutive twelve month period) to be less than the ratio set forth below as
being applicable to determinations made during the period specified beside such
ratio:
Closing Date - 6/30/95 1.85 to 1.00
7/1/95 - 9/30/95 1.95 to 1.00
10/1/95 and thereafter 2.00 to 1.00
(f) Fixed Charge Coverage Ratio. Giving Pro-Forma Effect to any
Acquisition made or to be made or Indebtedness incurred or to be incurred as
of the date of determination, Borrower shall not, on the last day of any
quarter of Borrower's Fiscal Year, permit the Fixed Charge Coverage Ratio to be
less than the ratio set forth below as being applicable to determinations made
during the period specified beside such ratio:
Closing Date - 9/30/95 1.25 to 1.00
10/1/95 and thereafter 1.50 to 1.00
(g) Maximum Senior Debt to Capital Ratio. Giving Pro-Forma Effect
to any Acquisition made or to be made or Indebtedness incurred or to be
incurred as of the date of determination, Borrower shall not, on the last day
of any quarter of Borrower's Fiscal Year, permit the ratio of Senior Debt to
Capital to exceed the ratio that is set forth below as being applicable to
determinations made during the period specified beside such ratio:
Closing Date - 9/30/95 0.50 to 1.00
10/1/95 and thereafter 0.45 to 1.00
(h) Maximum Consolidated Total Debt to Capital Ratio. Giving
Pro-Forma Effect to any Acquisition made or to be made or Indebtedness incurred
or to be incurred as of the date of determination, Borrower shall not, on the
last day of any quarter of Borrower's Fiscal Year, permit the ratio of
Consolidated Total Debt to Capital to exceed the ratio specified below as being
applicable to determinations made during the period set forth beside such
ratio:
Closing Date - 12/31/95 0.70 to 1.00
1/1/96 - 3/31/96 0.685 to 1.00
4/1/96 and thereafter 0.65 to 1.00
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(i) Maximum Consolidated Total Debt to EBITDA Ratio. Giving
Pro-Forma Effect to any Acquisition made or to be made or Indebtedness incurred
or to be incurred as of the date of determination, Borrower shall not, on the
last day of any quarter of Borrower's Fiscal Year, permit the ratio of
Consolidated Total Debt to EBITDA (determined on a consolidated basis for the
Borrower and its Consolidated Subsidiaries for the immediately preceding
consecutive twelve month period) to exceed the ratio specified below as being
applicable to determinations made during the period set forth beside such
ratio:
Closing Date - 6/30/95 5.25 to 1.00
7/1/95 - 9/30/95 5.00 to 1.00
10/1/95 - 12/31/95 4.85 to 1.00
1/1/96 - 3/31/96 4.50 to 1.00
4/1/96 - 6/30/96 4.00 to 1.00
7/1/96 and thereafter 3.75 to 1.00
(j) Maximum Senior Debt to EBITDA Ratio. Giving Pro-Forma Effect
to any Acquisition made or to be made or Indebtedness incurred or to be
incurred as of the date of determination, Borrower shall not, on the last day
of any quarter of Borrower's Fiscal Year, permit the ratio of Senior Debt to
EBITDA (determined on a consolidated basis for the Borrower and its
Consolidated Subsidiaries for the immediately preceding consecutive twelve
month period) to exceed the ratio specified below as being applicable during
the period set forth beside such ratio or, if Borrower has at any time incurred
Permitted Indebtedness of the type described in clause (i) of such definition,
the ratio of 2.50 to 1.00.:
Closing Date - 9/30/95 3.50 to 1.00
10/1/95 and thereafter 3.00 to 1.00
(k) Restricted Payments, etc. Borrower shall not, and shall not
permit any Subsidiary of Borrower to, make any Restricted Payments, except
Restricted Payments payable (i) to Borrower or (ii) to any Eligible
Intermediate Subsidiary or any Eligible Operating Subsidiary by one of its
Subsidiaries.
(l) Acquisitions. Borrower shall not, and shall not permit any
Subsidiary of Borrower to, acquire all or substantially all of the Assets or
Securities of any class of any other Person; provided, however, that Borrower
or a Consolidated Subsidiary may make Permitted Acquisitions and Permitted
Investments and Acquisitions of the type described in Section 6.2(m)(viii)
below, subject to the limitations applicable thereto; provided, further,
however that no such Permitted Acquisitions or Permitted Investments and
Acquisitions may be made if a Potential Default or Event of Default has
occurred and is continuing or would result therefrom.
(m) Loans, Advances and Investments. Borrower shall not, and
shall not permit any Subsidiary of Borrower to, directly or indirectly make any
loan, advance, extension of credit or capital contribution to, make any
investment in, or purchase or commit to purchase any Securities or evidences of
financial obligations of, or interests in, any Person except (i)
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Permitted Investments and Permitted Acquisitions, (ii) trade and customer
accounts receivable which are for goods furnished or services rendered in the
ordinary course of business and are payable in accordance with customary trade
terms, (iii) capital contributions to Subsidiaries which are consistent with
prudent business practices, (iv) capital contributions to any Eligible
Intermediate Subsidiary or Eligible Operating Subsidiary to the extent
necessary to ensure that such Subsidiary remains Solvent, (v) Permitted
Indebtedness which is described in clauses (c) and (g) of the definition of
such term and Permitted Indebtedness which is described on Schedule 6 to the
extent such Indebtedness is owing to the Borrower or a Subsidiary of the
Borrower on the Closing Date, (vi) Indebtedness described in Section
6.2(a)(i)(B), (vii) normal and customary arrangements with physicians and
employees not to exceed $2,000,000 in the aggregate outstanding, (viii)
investments, including Acquisitions, which do not otherwise constitute
Permitted Acquisitions, but which constitute businesses and operations which
are an integral part of the business of an Eligible Operating Subsidiary, (ix)
that certain promissory note dated April 13, 1995 executed by Medical Services
of Salt Lake City, Inc. payable to the order of CHC-Salt Lake City, Inc. in the
original principal amount of $3,545,936, (x) that certain promissory note dated
June 1, 1994 executed by Primary Management Baytown, Inc., (xi) the partnership
interest held by Champion-Fargo in the DHHS Partnership and the DHHS Note;
provided, however, that (A) the Borrower shall not permit the aggregate capital
contributions made subsequent to the Closing Date which are described in clause
(iii) above, to the extent such capital contributions are made to Subsidiaries
of the Borrower which are not either Eligible Intermediate Subsidiaries or
Eligible Operating Subsidiaries, plus the aggregate amount of the Indebtedness
described in clause (vi) above, plus the aggregate amount of loans, advances and
extensions of credit described in clause (vii) above, plus the aggregate value
of the investments described in clause (viii) above whether such investments
were made before or after the Closing Date, plus the aggregate amount of
Indebtedness owed by Psychiatric Healthcare Corporation of Louisiana and/or
Psychiatric Healthcare Corporation of Missouri to CHC/Psychiatric Healthcare
Corporation and/or the Borrower and/or any other Eligible Intermediate
Subsidiary or Eligible Operating Subsidiary (the "Subject Loans, Advances and
Investments") to exceed, at any time, an amount equal to ten percent (10%) of
the book value of the total Assets of the Eligible Operating Subsidiaries
(determined on a consolidated basis), and provided further, the (B) Borrower
shall not permit the aggregate dollar amount of the Subject Loans, Advances and
Investments made by Borrower and its Subsidiaries to any single Person to
exceed, at any time, an amount equal to twenty-five percent (25%), of the
amount which equals ten percent (10%) of the book value of the total Assets of
the Eligible Operating Subsidiaries (determined on a consolidated basis).
(n) Mergers and Dissolutions. Borrower shall not, and shall not
permit any Subsidiary of the Borrower (other than Subsidiaries which are not
Eligible Intermediate Subsidiaries, Eligible Operating Subsidiaries or De
Minimis Subsidiaries and which are not obligated upon any Indebtedness owed to
Borrower or to an Eligible Intermediate Subsidiary or Eligible Operating
Subsidiary or De Minimis Subsidiary) to (i) merge or consolidate with any
Person, or (ii) be dissolved or liquidated except CHC-A of Midland, Inc. may be
dissolved or liquidated upon completion of the Hospital being constructed by
CHC-B of Midland, Inc., and ASSISI Properties, Inc., FM Radiology Center, Inc.
and Psychiatric Healthcare Corporation of Texas may be dissolved so long as the
material Assets of such Subsidiary (other than Psychiatric
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Healthcare Corporation of Texas) (or, if such Subsidiary is not wholly-owned,
the percentage of its material Assets owned by the parent corporation) are
transferred to Borrower or a Consolidated Subsidiary and Agent retains a
perfected, first priority Lien on all of such Assets.
(o) No Sales of Assets, Negative Pledge, No Negative Pledge in
Favor of Other Lenders. Borrower shall not, and shall not permit any
Subsidiary of Borrower, to directly or indirectly, sell, transfer, assign,
encumber or otherwise dispose of, or create, or allow to be created or to
otherwise exist, any Lien upon, any of its Assets except for Permitted Liens
and except for sales of Assets for full and fair consideration made in the
ordinary course of business or otherwise consistent with prudent business
practices provided that the aggregate book value of such Assets which may be
sold subsequent to the Closing Date shall not exceed an amount equal to five
percent (5%) of the book value of the total Assets of the Eligible Operating
Subsidiaries determined on a consolidated basis as of the Closing Date;
provided, however, that without the prior written consent of Banks, neither the
Borrower nor any of its Subsidiaries may sell the Securities of any Subsidiary
of Borrower or any material portion of the Assets of any Eligible Operating
Subsidiary (or otherwise liquidate the Assets of any Eligible Operating
Subsidiary), and neither Borrower nor any Subsidiary of Borrower may sell its
Receivables or any Hospital, Health Care Facility or Health Care Service
Business owned by it. Except as set forth in this Section 6.2(o) or the other
Loan Papers in favor of Agent and Banks, Borrower shall not, and shall not
permit any Subsidiary of Borrower to, (i) covenant or agree, with any other
lender(s) or other Person(s), not to create, or not to allow to be created or
otherwise exist, any Lien upon any Asset, or (ii) covenant or agree, with any
other lender(s) or other Person(s), to any other arrangement that is
functionally equivalent or similar to a negative pledge (provided, however,
that such a negative pledge or the functional equivalent thereof may be created
or otherwise exist in favor of other lender(s) or other Person(s) to the same
extent that Permitted Liens, other than Permitted Liens in favor of Agent and
Banks and Permitted Liens securing Intercompany Notes, are permitted to be
created or otherwise exist pursuant to this Agreement) in favor of such other
lender(s) or other Person(s) with respect to any of its Assets. Without the
prior written consent of Required Banks, which consent shall not be
unreasonably withheld, Borrower shall not cause, permit or consent to the
issuance of any Securities of any Subsidiary. Notwithstanding the foregoing,
Subsidiaries of the Borrower which are not Eligible Intermediate Subsidiaries
or Eligible Operating Subsidiaries, shall have the right, without the prior
consent of the Agent or any Bank, to, directly and indirectly, sell, transfer,
assign, encumber and otherwise dispose of and create and allow to be created
and to otherwise exist Liens upon all or any portion of its Assets unless such
Assets constitute Receivables or the proceeds thereof which are required under
the terms of this Agreement to be pledged as security for the Obligations or an
Intercompany Note, and such Subsidiary may, so long as no Indebtedness is owing
by such Subsidiary to Borrower or to an Eligible Intermediate Subsidiary or
Eligible Operating Subsidiary, sell the Securities issued by any of its
Subsidiaries (and the Securities issued by it may also be sold), and such
Subsidiary may, so long as it has not incurred any Indebtedness to the Borrower
or any Eligible Intermediate Subsidiary or Eligible Operating Subsidiary,
become a party to or otherwise be and become bound by agreements of the nature
described in clauses 6) and (ii) above.
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(p) Fiscal Year. Borrower shall not and shall not permit any
Subsidiary of Borrower to change its Fiscal Year from that in effect on the
Closing Date.
(q) Plans. Borrower shall not, and shall not permit any
other Person, to take any action that will cause any representation or
warranty contained in Section 5.12, if made on and again as of any date on
or after the date of this Agreement, to not be true.
(r) Transactions with Affiliates. Borrower shall not, and shall
not permit any Subsidiary of Borrower to, enter into any transactions with any
Affiliate of Borrower or such Subsidiary except pursuant to the reasonable
requirements of such Person's business and upon fair and reasonable terms no
less favorable to such Person than would result in a comparable arms' length
transaction with a Person who is not an Affiliate. Except as permitted
pursuant to Sections 6.2(k), 6.2(l), 6.2(m) or 6.2(n) neither Borrower nor any
Eligible Intermediate Subsidiary or Eligible Operating Subsidiary shall,
directly or indirectly, make any payments to any Affiliate or Affiliates (other
than compensation paid to individuals for services rendered who are officers or
directors of Borrower or any Subsidiary and amounts paid to Management
Prescriptives, Inc. for services rendered) exceeding $500,000 in aggregate
amount (as to Borrower and all Consolidated Subsidiaries collectively) during
any Fiscal Year of the Borrower.
(s) Change of Chief Executive Offices, Etc. Borrower shall not,
and shall not permit any Subsidiary of Borrower to, change the location of its
chief executive office or principal places of business or change the
location(s) where it keeps its books and records with respect to any Collateral
owned by it or where it keeps any tangible Collateral unless (i) Borrower has
given Agent sixty (60) days' prior written notice of any such change, and (ii)
Borrower and each such Subsidiary of Borrower has executed and delivered to
Agent, and Agent has filed and recorded, to the extent it deems necessary or
appropriate, any and all financing statements and other Security Documents as,
in the judgment of Agent, may be necessary or appropriate to ensure that the
Liens which secure or purport to secure the Obligations or any portion thereof
are valid and subsisting Liens which are fully perfected and are prior to all
Liens other than those Permitted Liens, if any, which are stipulated on
Schedule 6 to be prior Liens or which are otherwise agreed to by Banks in
writing subsequent to the Closing Date.
(t) Intercompany Notes and Intercompany Acquisition Notes, etc.
Borrower shall not, without the prior written consent of the Required Banks,
call or otherwise demand payment of any Intercompany Note or Intercompany
Acquisition Note or permit any of its Subsidiaries to call a demand payment
thereon, and Borrower shall not amend, modify or terminate, or permit the
amendment, modification or termination of, any Intercompany Note, Intercompany
Acquisition Note or other Intercompany Loan Document or take
any action to release any Person from liability thereon or to release any Lien
or collateral securing the same (unless such release is given in connection
with an Asset disposition permitted by Section 6.2(o) above) or to otherwise
impair or adversely affect the validity or enforceability thereof or any right,
power or benefit arising thereunder or with respect thereto. Without limiting
the generality of the foregoing, the Intercompany Notes and Intercompany
Acquisition Notes shall at all times remain expressly subordinate to the
payment of the Obligations (including, without limitation, all Guaranties of
the Obligations by Borrower's Subsidiaries) pursuant to the subordination terms
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and provisions currently contained therein. Any and all Indebtedness (if any,
whether now in existence or hereafter incurred) of any of Borrower's
Subsidiaries to Borrower or of any such Subsidiary to another Subsidiary of
Borrower of the same type as or a similar type to (in terms of function or
purpose) the Indebtedness evidenced by the Intercompany Notes or Intercompany
Acquisition Notes shall be evidenced by a promissory note(s) containing terms
and provisions similar to the terms and provisions contained in the forms of
the Intercompany Notes and Intercompany Acquisition Note attached as Exhibits
K-1, K-2 and K-3 and shall at all times remain expressly subordinate to the
payment of the Obligations (including without limitation, all Guaranties of
the Obligations by Borrower's Subsidiaries) pursuant to subordination terms and
provisions essentially identical to those currently contained in the forms of
the Intercompany Notes and Intercompany Acquisition Note attached as Exhibits
K-1, K-2 and K-3. Borrower shall not, and shall not permit any of Borrower's
Subsidiaries to, sell, transfer, assign, encumber or otherwise dispose of, or
create, or allow to be created or to otherwise exist, any Lien (other than in
favor of the Agent as security for the Obligations) upon any Intercompany Note
or Intercompany Acquisition Note or any other Indebtedness (if any, whether now
in existence or hereafter incurred) of any of Borrower's Subsidiaries to
Borrower or of any such Subsidiary to another Subsidiary of Borrower of the
same type as or a similar type to (in terms of function or purpose) the
Indebtedness evidenced by the Intercompany Notes or Intercompany Acquisition
Notes.
(u) Exceptions to Covenants. Borrower shall not, and shall not
permit any of its Subsidiaries to, take any action or fail to take any action
which is permitted by any of the covenants contained in this Agreement if such
action or omission would result in the breach of any other covenant contained
in this Agreement or another Loan Paper.
(v) Subordinated Debt. Borrower will not make any payments with
regard to Subordinated Debt or Additional Subordinated Debt except (i)
regularly scheduled payments of interest, which may be made only when no Event
of Default or Potential Event of Default exists and then only if making such
payment would not create a Potential Default or Event of Default, and (ii)
repayment of Subordinated Debt with the proceeds of the sale of equity
Securities of Borrower, which repayments may be made only when no Event of
Default or Potential Default exists and then only if making such repayments
would not create a Potential Default or Event of Default. Borrower will not
amend or modify the Subordinated Debt or any agreement, document or instrument
relating thereto without the prior written consent of Required Banks if such
amendment or modification (including waivers of default and events of default)
(A) would have the effect of changing any of the payment terms (including the
maturity date of such Subordinated Debt or any portion thereof); (B) would
alter the rate of interest or any fees or other compensation payable with
respect to such Subordinated Debt to the holders thereof; (C) would impair or
otherwise adversely affect the priority of such Subordinated Debt or any term,
provision or agreement relating to the subordination thereof; (D) would
increase the likelihood of any future default or event of default thereunder or
with respect thereto; or (E) would, in any manner, strengthen the collection or
enforcement rights of the holders of such Subordinated Debt. Whether or not
Borrower is required to obtain the prior written consent of the Required Banks
with respect to any amendment or modification of the Subordinated Debt or any
waiver of any covenant or provision applicable thereto, Borrower shall,
immediately prior to the
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effective date thereof, provide the Agent and Banks with copies of all such
amendments, modifications and waivers.
(w) Intercompany Loans to DHHS Partnership. The restrictions on
the aggregate amount of Indebtedness owed by an Eligible Intermediate
Subsidiary or an Eligible Operating Subsidiary, as set forth in clause (g) of
the definition of Permitted Indebtedness, shall not be applicable to
Indebtedness owed by DHHS Partnership to Champion-Fargo or from Champion-Fargo
to the Borrower, but neither the Borrower nor any other Subsidiary of Borrower
shall, directly or indirectly, make loans or advances to DHHS Partnership if
the aggregate principal amount outstanding at any time would exceed
$25,000,000. Furthermore, such loans and advances may only be made so long as
Dakota has guaranteed repayment of at least a percentage of the amounts
outstanding under the DHHS Note which are equal to the ownership percentage of
Dakota in DHHS Partnership and DHHS Partnership has (i) granted to the Agent,
for the ratable benefit of the Banks, a perfected, first priority Lien upon its
Receivables pursuant to such Security Documents as the Agent may deem necessary
or appropriate and which are in form and substance satisfactory to the Agent,
(ii) agreed not to permit any Liens (other than those in favor of the Agent and
those securing Capital Leases, to the extent that such Liens attach only to the
Assets leased and such Capital Leases are permitted under the terms of this
Agreement) to attach to any of the DHHS Partnership Assets, (iii) agreed not to
enter into a negative pledge in favor of any Person other than the Agent and
the Banks, and (iv) agreed not to incur any Indebtedness other than that
evidenced by the DHHS Note and Capital Leases of Assets existing at the time of
the formation of DHHS Partnership when such Assets were contributed to DHHS
Partnership. Furthermore, working capital advances made by the Borrower,
Champion-Fargo and/or other Subsidiaries of the Borrower to DHHS Partnership,
whether directly or indirectly, shall not exceed the lesser of $10,000,000 or
75% of the Eligible Receivables of DHHS Partnership. If, however, DHHS
Partnership grants to the Agent, for the ratable benefit of the Banks, a
perfected, first priority Lien upon all of its Assets, pursuant to Security
Documents deemed necessary or appropriate by the Agent and which are in form
and substance acceptable to the Agent and agrees not to permit any Liens (other
than those which secure the Obligations, including, without limitation, any
Guaranty of the Obligations by a Subsidiary of Borrower, and those securing
Capital Leases, to the extent that such Liens attach only to the Assets leased
and such Capital Leases are permitted under this Agreement to attach to its
Assets) and agrees not to incur any Indebtedness other than that evidenced by
the DHHS Note and Capital Leases of Assets existing at the time of the
formation of DHHS Partnership when such Assets were contributed to DHHS
Partnership and agrees not to enter into a negative pledge in favor of any
Person other than the Agent and the Banks, then Champion-Fargo may make
advances (not to exceed $10,000,000 for working capital advances and not to
exceed $15,000,000 in advances for other capital purposes) to DHHS Partnership
in an amount up to the sum of (A) the lesser of $10,000,000 or 75% of the
Eligible Receivables of DHHS Partnership plus (B) $15,000,000. Notwithstanding
anything to the contrary contained in this Section 6.2(x), no loans or advances
may be made by the Borrower, Champion-Fargo or any other Subsidiary of
Borrower, directly or indirectly, to DHHS Partnership while a default exists
under the DHHS Note or the other documents evidencing or securing the loan
evidenced by the DHHS Note. Except as expressly contemplated above,
notwithstanding anything to the contrary contained herein or any other Loan
Paper, DHHS Partnership shall incur no Indebtedness other than that described
above and that
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described in clauses (b), (c), (d), (f) and (k) of the definition of the term
Permitted Indebtedness, as set forth in this Agreement.
(x) Agreements Regarding Operations. Borrower shall not, and
shall not permit any of its Subsidiaries to amend, modify or terminate the DHHS
Partnership Agreement, DHHS Operating Agreement, MHLP Agreement or any other
agreement which permits or otherwise affects the ability of the Borrower or an
Eligible Intermediate Subsidiary to appoint or elect a majority of the
directors of an Eligible Operating Subsidiary or to otherwise control the
business or affairs of any such Eligible Operating Subsidiary, and neither the
Borrower nor any of its Subsidiaries shall take any action, without the prior
written consent of the Required Banks, which could dilute, impair or otherwise
adversely affect the ability of the Borrower or Eligible Intermediate
Subsidiary, as applicable, to control the business and affairs of an Eligible
Operating Subsidiary.
(y) De Minimis Subsidiaries. Borrower shall not, at any time,
permit the aggregate book value of the total Assets of all De Minimis
Subsidiaries of the Borrower to exceed five percent (5%) of the book value of
the total Assets of the Borrower and its Consolidated Subsidiaries.
Furthermore, Borrower shall not, at any time, permit the aggregate EBITDA for
all De Minimis Subsidiaries of the Borrower to exceed five percent (5%) of the
EBITDA of the Borrower and its Consolidated Subsidiaries.
6.3 Reporting Requirements. So long as any portion of the
Obligations remains unpaid or any Bank is committed to make any Loan hereunder,
Borrower shall furnish to Agent and each Bank the following:
(a) EBITDA Certificate, Schedules and Financial Statements. As soon as
available and in any event on or before the expiration of forty-five (45) days
after the end of each month commencing with the first of such dates to occur
after the Closing Date, an EBITDA Certificate, appropriately completed, in each
case as of the last day of the applicable month in reasonable detail and
certified as to accuracy by a Financial Officer of Borrower and all Eligible
Operating Subsidiaries. Borrower and the Eligible Operating Subsidiaries may,
in addition to providing the monthly EBITDA Certificate required pursuant to
this Section 6.3(a), provide an EBITDA Certificate to Agent at any time. As
soon as available, and in any event within forty-five (45) days after the end
of each month during each Fiscal Year, consolidated statements of cash flows of
Borrower for such month and for the period from the beginning of the respective
Fiscal Year to the end of such month, and, on a consolidated and consolidating
basis, the related statement of income and balance sheet prepared as of the end
of such period and operating statistics of the Borrower and its Consolidated
Subsidiaries during such period. Notwithstanding the foregoing, from and after
the first anniversary of the Closing Date, so long as no Potential Default or
Event of Default shall then be existing, the EBITDA Certificate and other
information and reports specified above shall only be required to be delivered
on a quarterly basis contemporaneously with the quarterly financial reports and
annual financial reports required by Sections 6.3(b) and (c) below.
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(b) Quarterly Financial Reports. As soon as available and in any
event within forty-five (45) days after the end of each of the first three
fiscal quarterly periods of each of Borrower's Fiscal Years, consolidated and
consolidating statements of income, stockholders' equity and cash flows of the
Borrower for such period and for the period from the beginning of the
respective Fiscal Year of the Borrower to the end of such period, and the
related balance sheet as at the end of such period, setting forth in each case
in comparative form the corresponding figures for the corresponding period in
the preceding Fiscal Year of the Borrower, accompanied by the certificate of a
Financial Officer of the Borrower, which certificate shall state that such
Financial Statements fairly present the financial condition and results of
operations of Borrower and its Consolidated Subsidiaries in accordance with
GAAP, as at the end of, and for, such period (subject to normal year-end audit
adjustments).
(c) Annual Financial Reports. As soon as available and in any
event within one hundred-twenty (120) days after the end of each Fiscal Year of
the Borrower, the audited consolidated statements of income, stockholders'
equity and cash flows of Borrower, and the related balance sheet of the
Borrower and its Consolidated Subsidiaries as at the end of such Fiscal Year of
the Borrower, setting forth in each case in comparative form the corresponding
figures for the preceding Fiscal Year of the Borrower, and accompanied by the
related opinion of independent public accountants of recognized national
standing acceptable to the Agent and Banks which opinion shall state that said
Financial Statements fairly present the financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries as at the end of,
and for, such Fiscal Year, and that such Financial Statements have been
prepared in accordance with GAAP, and a certificate of such accountants stating
that their audit has not disclosed, except as specifically stated, the
existence of any condition which constitutes an Event of Default. In
conjunction with each delivery of Financial Statements required by this Section
6.3(c) said independent public accountants shall further certify that, in
making the audit necessary to the certification of such Financial Statements,
they have obtained no knowledge of any failure to comply with any covenants set
forth in this Agreement or, if any such knowledge exists, specifying the nature
and period of existence thereof.
(d) Compliance Certificates. Concurrently with the Financial
Statements required pursuant to Sections 6.3(b) and (c), a Compliance
Certificate substantially in the form of Exhibit I hereto, appropriately
completed.
(e) Notice of Default under this Agreement. Promptly upon becoming
aware of the occurrence thereof, notification of any Potential Default or
Event of Default, specifying in connection with such notification all actions
taken or proposed to be taken in order to remedy such circumstance.
(f) Notice of Defaults under other Documents. Within three (3)
Business Days after Borrower becomes aware of the occurrence thereof,
notification of Borrower's or any of its Subsidiaries' default or potential
default under any instrument, agreement or other document evidencing or
otherwise relating to any Subordinated Debt and under any material agreement,
document, instrument or certificate to which such Person is a party or by which
such Person or its Assets is bound or affected which could have a Material
Adverse Effect.
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(g) Change in Location of Collateral or Office. Promptly upon the
occurrence thereof, notification of (i) any change in the location of any
tangible Collateral or any books or records pertaining to any of the Collateral
if different from the location of such tangible Collateral or books or records
described on Schedule 10, (ii) any change in Borrower's or any Subsidiary's
chief executive office or other office location or corporate, trade or other
name, and (iii) any additional trade or other name(s) under which Borrower or
any Subsidiary of Borrower transacts business.
(h) Notice of Legal Proceedings. Promptly upon becoming aware of
the existence thereof, notification of the institution of any investigation,
action, suit, proceeding, order, injunction or dispute with any Person or
Tribunal and involving Borrower or any Subsidiary or any of their respective
Assets or any other Collateral which could have a Material Adverse Effect.
(i) ERISA. Promptly after such failure, notification of any
failure of any Group Member to make a required installment or any other
required payment under Section 412 of the Code on or before the due date for
such installment or payment which would give rise to the assessment of a Lien
under such Section 302 of ERISA; and promptly after becoming aware of the
occurrence of any event or condition which has the result that any
representation or warranty contained in Section 5.12, if made on and again as
of any date on or after the date of this Agreement, ceases to be true, a
notification specifying the nature of such event or condition; provided,
further, that, where such event or condition would be reasonably expected to
have a Material Adverse Effect, such notification shall include a description
of what action Borrower or any Group Member is taking or proposes to take with
respect thereto and, when known, any action taken by the Internal Revenue
Service or the Department of Labor with respect thereto.
(j) Burdensome Contracts; Certain Contracts with Account Debtors.
Within thirty days after any agreement or contract of any type described in
Section 5.21 comes into existence (except to the extent that such agreement or
contract is described on Schedule 10), notification of the existence of such
agreement or contract and such other information relating thereto as Agent may
reasonably request.
(k) Proprietary Rights. Promptly upon the coming into existence
thereof, notification of any Proprietary Rights of Borrower or any Consolidated
Subsidiary (except to the extent that such Proprietary Rights are expressly
identified on Schedule 10 as relating thereto or used in connection therewith).
(l) Reports and Information. Such information (not otherwise required
to be furnished under the Loan Papers) respecting Borrower's or Subsidiary's
businesses, affairs, books, material Assets, or liabilities or any of the
Collateral, and such opinions, agreements, documents, instruments, certificates
and outside audits in addition to those mentioned in this Agreement, as Agent
(or any Bank through Agent) may reasonably request from time to time, including,
without limitation, information regarding the subject matter of the information
disclosed on Schedule 10 hereto.
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(m) Public Reports. Promptly upon their becoming available, to
the extent that the stock of any of the Borrower or its Subsidiaries, becomes
publicly traded, one copy of each financial statement, report, notice or proxy
statement sent by the Borrower or any Subsidiary of Borrower to stockholders
generally, and of each Form 10K, Form 10Q, Form 8K and registration statement
or prospectus filed by the Borrower or any Subsidiary of Borrower, with any
securities exchange or the Securities and Exchange Commission or any successor
agency.
(n) Annual Budgets. As soon as available but in no event later
than forty-five (45) days following the end of each Fiscal Year of Borrower,
the annual budget of the Borrower for the following Fiscal Year, which budget
shall have been presented to and reviewed and approved by the board of
directors of the Borrower and which is subject to year-end adjustments.
(o) Management Letters. Promptly after the Borrower or any
Subsidiary receives the same, a copy of any management letter prepared for or
submitted to the Borrower or any Subsidiary by its accountants.
(p) Borrowing Base Certificate. So long as any Indebtedness of
the type described in Section 6.2(a)(i)(B) remains outstanding, as soon as
available and in any event on or before the forty-fifth (45th) day following
the last day of each month commencing with the first of such dates to occur
after the Closing Date, the Borrower shall furnish to the Agent and to each
Bank a Borrowing Base Certificate appropriately completed, in each case, as of
the last day of the applicable month, in reasonable detail and certified as to
accuracy by a Financial Officer of the Borrower and the Subsidiary which is
obligated for the payment of such Indebtedness.
ARTICLE VII
CERTAIN RIGHTS OF AGENT AND BANKS
7.1 Protection of Collateral. Agent, and/or any Bank with the consent
of Agent, may at any time take such steps as they deem necessary or appropriate
to protect their interest in and to preserve the Collateral or the Liens which
secure all or any part of the Obligations, all at the expense of Borrower
(unless such actions become necessary or appropriate primarily or exclusively
due to the gross negligence or wilful misconduct of Agent or any Bank).
Borrower agrees to cooperate fully with any and all of Agent's and Banks'
efforts to preserve the Collateral or any such Liens and Agent's and Banks'
interests therein and will take such actions to preserve the Collateral or any
such Liens and Agent's and Banks' interests therein as Agent may reasonably
direct. All of Agent's and Banks' expenses of preserving the Collateral or any
such Liens and their interests therein, including any expenses relating to the
compensation and bonding of a custodian, shall be charged to Borrower and added
to the Obligations. Additionally, following the occurrence of an Event of
Default, Agent or any Bank with the consent of Agent, may take further
protective measures, including, but not limited to, the hiring of such security
guards or the placing of other security protection measures as they may deem
appropriate, the employment and maintenance at Borrower's or any of Borrower's
Subsidiaries' premises of a custodian who shall have full authority to do all
acts necessary to protect the Collateral or the Liens which secure all or any
part of the Obligations and Agent's and Banks'
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interests therein, and the leasing of warehouse facilities to which all or part
of the Collateral may be moved.
7.2 Use of Equipment. Following the occurrence of an Event of
Default and during the continuance thereof, subject to the rights of patients
to maintain the confidentiality of their medical records, Agent, or any Bank
with the consent of Agent, (a) may use Borrower's or any of Borrower's
Subsidiaries' owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral or books and records
pertaining thereto, and (b) shall have, and are hereby irrevocably granted, a
right of ingress and egress to the places where the Collateral and the books
and records relating thereto are located, and may proceed over and through
Borrower's or any of Borrower's Subsidiaries' owned or leased property.
7.3 Collection of Receivables. Following the occurrence of an
Event of Default and until Borrower's authority to do so is terminated by Agent
(which may occur at any time when Agent, in its sole discretion, may deem it to
be in Banks' best interest to terminate such authority), Borrower shall, at its
sole cost and expense, but on Banks' behalf and for Banks' account, collect as
Banks' property and in trust for Banks all amounts unpaid on the Receivables,
and shall not commingle such collections with Borrower's or any of Borrower's
Subsidiaries' funds or use the same except to pay the Obligations. At any time
following the occurrence of an Event of Default, without notice to Borrower or
any Subsidiary of Borrower, Agent shall have the right to send notice of
Agent's Lien in the Receivables to any third party holding or otherwise
concerned with any of the Collateral, and shall have, at its option, the sole
and exclusive right to collect the Receivables (to the extent of Banks' Lien
therein) and take possession of the Collateral. Any of Agent's or Banks'
collection expenses, including, but not limited to, stationery and postage,
telephone, telegraph, facsimile, secretarial and clerical expenses and the
salaries of any collection personnel used for any such collections, shall be
charged to Borrower and added to the Obligations.
7.4 Appointment of Agent. Following the occurrence of an Event of
Default, Agent shall have the right to receive, endorse, assign and/or deliver
in the name of Agent, any Bank, or Borrower any check, draft or other
instrument for the payment of money relating to any Collateral, and Borrower
hereby waives notice of presentment, protest and non-payment of any instrument
so endorsed. Following the occurrence of an Event of Default, Borrower hereby
irrevocably appoints Agent and/or Agent's designee as Borrower's
attorney-in-fact (which appointment shall be irrevocable and deemed coupled
with an interest) with full power and authority, in the place and stead of
Borrower, from time to time: to endorse Borrower's name upon any notes,
acceptances, checks (except to the extent that Agent is prohibited by
applicable Governmental Requirements from endorsing Medicare or Medicaid
payments), drafts, money orders or other evidences of payment of Collateral
that may come into Agent's or any Bank's possession; to sign Borrower's name on
any agreements, documents, instruments or certificates relating to any
Collateral; to sign Borrower's name on all financing statements, endorsements,
or any other agreements, documents, instruments or certificates deemed
necessary or appropriate by Agent to preserve, protect or perfect Agent's and
Banks' interests in the Collateral and to file the same; to obtain and adjust
insurance relating to any Collateral; to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to
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become due under or in respect of any Collateral; to receive, endorse and
collect drafts or other instruments, documents and chattel paper relating to
any Collateral; to file any claims and to take any action or to initiate any
proceeding which Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Agent with respect
to any Collateral; and to do all other acts and things necessary to carry out
this Agreement. ALL ACTS OF AGENT OR ITS DESIGNEE ARE HEREBY AUTHORIZED AND
NEITHER SHALL BE LIABLE FOR ANY ACT OF OMISSION OR COMMISSION, OR FOR ANY ERROR
OF JUDGMENT OR MISTAKE OF FACT OR LAW (INCLUDING ITS OWN NEGLIGENCE OR
INADVERTENCE), UNLESS DONE MALICIOUSLY OR RESULTING FROM AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT; THIS POWER BEING COUPLED WITH AN INTEREST IS
IRREVOCABLE WHILE ANY OF THE OBLIGATIONS REMAIN UNPAID OR ANY OF THE
COMMITMENTS ARE IN EFFECT.
7.5 No Liability. AGENT AND BANKS SHALL NOT, UNDER ANY
CIRCUMSTANCES OR IN ANY EVENT WHATSOEVER, HAVE ANY LIABILITY FOR ANY ERROR OR
OMISSION OR DELAY OF ANY KIND OCCURRING IN CONNECTION WITH THE MAINTENANCE OR
DISPOSITION OF ANY COLLATERAL (SPECIFICALLY INCLUDING THAT RESULTING FROM ITS
NEGLIGENCE OR INADVERTENCE), EXCEPT FOR LIABILITY TO THE EXTENT RESULTING FROM
ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Following the occurrence of any
Event of Default, Agent may, without notice to or consent from Borrower or any
Subsidiary of Borrower, sue upon or otherwise collect, extend the time of
payment of, or compromise upon any terms, any of the Receivables or other
Collateral or any security, instrument or insurance applicable thereto and/or
release the obligor thereon.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 Nature of Events. An "Event of Default" shall exist if any one or
more of the following shall occur and be continuing:
(a) Payments. Borrower or any Subsidiary of Borrower or any other
Loan Party shall fail to make any payment or mandatory prepayment of principal,
interest, fees, costs, expenses or other amounts with respect to the
Obligations on or before the date such payment or prepayment is due and such
failure continues for more than five (5) days;
(b) Covenant Defaults. Borrower shall fail to observe or perform,
or to cause any of its Subsidiaries to observe and perform, any covenant or
agreement contained in Section 6.1, Section 6.2 or Section 6.3 of this
Agreement; or Borrower, any Subsidiary of the Borrower or any other Loan Party
shall fail to observe or perform any other covenant or agreement contained in
the Loan Papers (other than covenants and agreements pertaining to payment of
the Obligations which shall be governed by Section 8.1(a) and such failure
shall continue for a period of thirty (30) days following Borrower's receipt of
notice thereof from Agent;
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(c) Representations or Warranties. Any representation, warranty or
other statement made or deemed made by or on behalf of Borrower, any Subsidiary
of Borrower or any other Loan Party and contained in the Loan Papers or
in any agreement, document, instrument or certificate furnished in compliance
or connection with the Loan Papers is false, misleading or incorrect in any
material respect as of the date made or deemed made;
(d) Enforceability of Liens. Any Lien (other than a Lien
expressly and voluntarily released by Agent and Banks) which secures or
purports to secure the Obligations or any portion thereof of is or becomes
invalid or unenforceable or is not, or ceases to be, a fully perfected in favor
of Agent and Banks encumbering the Asset intended to be encumbered, or is or
becomes equal or subordinate in terms of priority to any other Lien except
those Liens, if any, stipulated on Schedule 6 to be prior or otherwise agreed
to by the Required Banks in writing subsequent to the Closing Date;
(e) Other Debt. Any event or condition exists with respect to
Indebtedness having an outstanding principal amount aggregating in excess of
$2,000,000 (at any time outstanding) of Borrower or any Subsidiary of Borrower,
the effect of which is (i) to cause or to permit any holder of such
Indebtedness to cause the same, or a material portion thereof, to become due
prior to its stated maturity or prior to its regularly scheduled date(s) of
payment and such right of acceleration is not waived by the holder (whether or
not such acceleration occurs), (ii) that all or any portion of any such
Indebtedness is declared to be due and payable, or required to be prepaid
(other than by regularly scheduled payment) prior to the scheduled maturity
thereof, or (iii) that all or any portion of any such Indebtedness is not paid,
renewed or rearranged when due;
(f) Involuntary Proceedings. A case or proceeding is commenced
or petition or complaint is filed against Borrower, any Subsidiary of Borrower
or any other Loan Party under any Debtor Relief Law and such case, petition,
proceeding or complaint remains in effect for more than 30 days; a receiver,
liquidator or trustee of Borrower, any Subsidiary of Borrower or any other Loan
Party, or of any material Asset of Borrower or any Subsidiary of Borrower or
any of the Collateral, is appointed by court order and such order remains in
effect for more than 60 days; or any material Asset of Borrower or any
Subsidiary of Borrower or any of the Collateral is sequestered by court order
and such order remains in effect for more than 60 days;
(g) Voluntary Proceedings. Borrower, any Subsidiary of Borrower
or any other Loan Party voluntarily seeks, consents to, or acquiesces in the
benefit of any provision of any Debtor Relief Law; consents to the filing of
any petition against it under any Debtor Relief Law; makes an assignment for
the benefit of its creditors; admits in writing its inability to pay its debts
generally as they become due; or consents to the appointment of a receiver,
trustee, liquidator or conservator for it or any part of its Assets;
(h) Undischarged Judgments. Any judgment(s), decree(s) or order(s)
for the payment of money aggregating in excess of $1,000,000 (at any time
outstanding) shall be rendered against Borrower, any Subsidiary of Borrower or
any other Loan Party and such judgment(s), decree(s)
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or order(s) shall not be satisfied and shall be in effect for any period of 45
consecutive days without being vacated, discharged, satisfied or stayed or
bonded pending appeal;
(i) Attachment. The failure to have discharged, within a period
of 45 days after the commencement thereof, any attachment, sequestration or
similar proceeding against any Collateral;
(j) Reportable Event. The occurrence of a Reportable Event
described in Section 4043(b)(1), (5), (6) or (9) of ERISA with respect to any
Plan (except that with respect to a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Borrower must have knowledge of such Reportable Event), or
any proceedings occur or are instituted which shall have a material possibility
of resulting in the termination of a Plan subject to the provisions of Title IV
of ERISA, or the incurrence of a withdrawal liability under Section 4201 of
ERISA, provided, in each case, that the aggregate liability which is incurred
by Borrower and/or any Subsidiary of Borrower as a result of such event or
events, individually or collectively, shall exceed $1,000,000;
(k) Change of Control. The occurrence of any Change of Control;
(l) Material Adverse Effect. The occurrence of any event or
events and/or the existence of any circumstance or circumstances which,
individually or collectively, has or have a Material Adverse Effect; or
(m) Other Indebtedness Secured by Liens. The occurrence of any
event of default or any event which, with giving of notice or the passage of
time or both, would constitute an event of default with respect to any
Indebtedness of Borrower or any Subsidiary of Borrower (other than the
Obligations which shall be governed by Section 8.1(a) above) which is secured
by a Lien on any Asset of Borrower or any Subsidiary of Borrower.
8.2 Concurrent Acceleration. In the event of the occurrence of an
Event of Default specified in Sections 8.1(f) or 8.1(g), the aggregate
unpaid amount of the Obligations shall immediately, and concurrently with the
occurrence of such Event of Default, become due and payable in full without any
action or notification of any kind required by Agent or any Bank, including,
without limitation, presentment, demand, protest or notice of protest,
dishonor, notice of intention to accelerate and notice of acceleration, all of
which are expressly hereby waived by Borrower.
8.3 Certain Rights of Banks.
(a) Remedies Upon Default. Should an Event of Default occur,
Agent may, at its discretion, and, at the request of Required Banks, Agent
shall, take any one or more of the following actions:
(i) Acceleration. Without demand or notice of any nature
whatsoever, declare the unpaid balance of the Obligations, or any part
thereof, immediately due and
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payable, whereupon the same shall be due and payable (unless accelerated
automatically pursuant to Section 8.2);
(ii) Termination. Terminate any Commitment in its entirety or
as to any portion thereof, to the extent Agent or Required Banks shall
deem appropriate;
(iii) Judgment. Reduce any claim to judgment;
(iv) Setoff. Exercise the rights of setoff and/or banker's
Lien against any Collateral including, without limitation, the interests
of Borrower or any Subsidiary of Borrower which is a Guarantor (to the
extent of its Guaranty) in and to every account and other Assets of
Borrower or any such Subsidiary of Borrower which are in the possession
of Agent or any Bank to the extent of the full amount of the
Obligations;
(v) Foreclosure. Foreclose any or all Liens which secure the
Obligations or any portion thereof or otherwise realize upon any and all
of the rights Agent or any Bank may have in and to the Collateral, or
any part thereof;
(vi) Letters of Credit. If any Letter of Credit shall then be
outstanding, (A) make demand upon Borrower to, and promptly upon such
demand Borrower shall, or (B) with respect to any Event of Default under
Section 8.1(f) or Borrower shall promptly without demand by Agent, pay
to Agent in immediately available funds at the office of Agent, for
deposit in the Cash Collateral Account, an amount equal to 110 % of
the maximum amount available to be drawn under the outstanding Letters
of Credit; and
(vii) Exercise of Rights. Exercise any and all other rights or
remedies afforded by any applicable laws or by the Loan Papers, at law,
in equity, or otherwise, as Agent or Required Banks shall deem
appropriate, including, but not limited to, the right to bring suit or
other proceeding before any Tribunal, either for specific performance of
any covenant or condition contained in the Loan Papers or in aid of the
exercise of any right or remedy granted to Agent or any Bank in the Loan
Papers.
(b) Performance by Agent. Should any covenant, duty or agreement
of Borrower or any Subsidiary of Borrower or any other Loan Party fail to be
performed in accordance with the terms of the Loan Papers, Agent may, at its
discretion, perform or attempt to perform, such covenant, duty or agreement on
behalf of Borrower, such Subsidiary or such Loan Party. In such event,
Borrower shall, at the request of Agent, promptly pay to Agent any amount
expended by Agent in such performance or attempted performance, together with
interest accrued thereon at the Default Rate until Agent is reimbursed
therefor. Notwithstanding the foregoing, it is expressly understood that Agent
does not assume and shall never have any liability or responsibility for the
performance of any covenant, duty or agreement of Borrower, any Subsidiary of
Borrower or any other Loan Party under the Loan Papers.
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(c) Duties and Rights. Agent and Banks may execute any of their
duties and/or exercise any of their rights or remedies by or in the name of
Agent or any Bank and by or through any of their officers, directors,
employees, attorneys, agents or other representatives.
(d) Banks Not in Control. Borrower acknowledges that none of the
covenants or other provisions contained in this Agreement or any other Loan
Paper shall give Agent or any Bank the right or power to exercise control over
the affairs and/or management of Borrower, any Subsidiary of Borrower or any
other Loan Party.
(e) Waivers. The acceptance by Agent or any Bank at any time and
from time to time of partial payment of the Obligations shall not be deemed to
be a waiver of any Event of Default or Potential Default then existing. No
waiver by Agent or any Bank of any Event of Default or Potential Default shall
be deemed to be a waiver of any other or subsequent Event of Default or
Potential Default. No delay or omission by Agent or any Bank in exercising any
right or remedy shall impair such right or remedy or be construed as a waiver
thereof or an acquiescence therein, and no single or partial exercise of any
such right or remedy shall preclude other or further exercise thereof, or the
exercise of any other right or remedy under the Loan Papers or otherwise.
Except as otherwise provided in this Agreement or by applicable law, Borrower
and each surety, endorser, guarantor and other party liable for the payment or
performance of all or any portion of the Obligations severally waive
presentment and demand for payment, protest, and notice of protest, notice of
intention to accelerate, acceleration and nonpayment, and agree that their
liability shall not be affected by any renewal or extension in the time of
payment of any Obligation, or by any release or change in any security for the
payment or performance of the Obligations, regardless of the number of such
renewals, extensions, releases or changes.
(f) Cumulative Rights. All rights and remedies available to Agent
and/or any Bank under the Loan Papers shall be cumulative of and in addition to
all other rights and remedies granted to Agent and/or any Bank at law or in
equity, whether or not the Obligations are due and payable and whether or not
Agent and/or any Bank shall have instituted any suit for collection or other
action in connection with the Loan Papers.
(g) Expenditures by Banks. Any sums expended by or on behalf of Agent
or any Bank pursuant to the exercise of any right or remedy shall, to the
extent the same are required to be paid or reimbursed by Borrower pursuant to
Section 6.1(i), become part of the Obligations and shall bear interest at the
Default Rate, from the date of such expenditure until the date repaid.
(h) DIMINUTION IN VALUE OF COLLATERAL. NEITHER AGENT NOR ANY BANK
SHALL HAVE ANY LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY DIMINUTION OR
LOSS IN VALUE OF ANY COLLATERAL (SPECIFICALLY INCLUDING THAT WHICH MAY ARISE
FROM AGENT OR ANY BANK'S NEGLIGENCE OR INADVERTENCE, WHETHER SUCH NEGLIGENCE OR
INADVERTENCE IS THE SOLE OR CONCURRING CAUSE OF ANY DAMAGE),
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EXCEPT THAT ARISING IN CONNECTION WITH AGENT'S OR ANY BANK'S GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT.
(i) INDEMNIFICATION OF AGENT AND BANKS. BORROWER AGREES TO INDEMNIFY
AGENT, EACH BANK AND AGENT'S AND EACH BANK'S DIRECTORS, OFFICERS, EMPLOYEES,
ATTORNEYS AND AGENTS (AGENT, EACH BANK AND EACH SUCH OTHER PERSON IS
HEREINAFTER CALLED AN "INDEMNITEE") AND HOLD THEM AND EACH OF THEM HARMLESS
FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS
(COLLECTIVELY "CLAIMS") OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, IN ANY WAY RELATING TO OR
ARISING OUT OF THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN
(INCLUDING, WITHOUT LIMITATION, ANY CLAIMS RELATING TO OR ARISING OUT OF THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN PAPER, THE
PERFORMANCE OF THE TERMS AND PROVISIONS HEREOF AND THEREOF AND THE OBLIGATIONS
THEREUNDER, AND THE USE OF THE PROCEEDS OF THE LOANS) OR ANY ENVIRONMENTAL LAW,
NO MATTER HOW SUCH CLAIMS ARISE OR RESULT, AND INCLUDING, WITHOUT LIMITATION,
THOSE CLAIMS THAT MAY ARISE OR RESULT FROM ANY INDEMNITEE'S SOLE OR
CONTRIBUTORY NEGLIGENCE OR INADVERTENCE; PROVIDED, HOWEVER, THAT NO INDEMNITEE
SHALL HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER (i) TO THE EXTENT THAT SUCH
CLAIMS DIRECTLY RELATE TO OR ARISE OUT OF ANY BREACH BY SUCH INDEMNITEE OF ITS
OBLIGATIONS UNDER THE LOAN PAPERS, (ii) TO THE EXTENT THAT SUCH CLAIMS DIRECTLY
RELATE TO OR ARISE OUT OF THE RELATIONSHIP BETWEEN (A) AN ASSIGNOR BANK AND AN
ASSIGNEE BANK UNDER THIS AGREEMENT, OR (B) A BANK AND A PARTICIPANT OF SUCH
BANK UNDER THIS AGREEMENT, OR (iii) TO THE EXTENT THAT THE CLAIMS AS TO WHICH
SUCH INDEMNITEE IS SEEKING INDEMNIFICATION ARE DETERMINED BY A COURT OF
COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE ORDER OR JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
SUCH INDEMNIFICATION SHALL NOT GIVE BORROWER ANY RIGHT TO PARTICIPATE IN THE
SELECTION OF COUNSEL FOR ANY INDEMNITEE OR THE CONDUCT OF ANY DISPUTE OR
PROCEEDING FOR WHICH INDEMNIFICATION MAY BE CLAIMED.
(j) Right of Setoff. If an Event of Default exists, then each
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by applicable law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by such Bank to or for the credit or
account of Borrower or any Guarantor against any or all of the Obligations now
or hereafter existing and held by such Bank, irrespective of whether or not
such Bank shall have
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made any demand under this Agreement or any other Loan Paper and whether or not
such Obligations shall be matured or unmatured.
ARTICLE IX
THE AGENT
9.1 Appointment and Authorization, Administration, Duties.
(a) General. Each Bank hereby appoints and authorizes the Agent
to act as its Agent hereunder and under the other Loan Papers with such powers
as are specifically delegated to the Agent by the terms of this Agreement and
the other Loan Papers, together with such other powers as are reasonably
incidental thereto. The general administration of the Loan Papers and any
other documents contemplated by this Agreement shall be performed by Agent or
its designees. Agent shall not be required to exercise any right or remedy
with respect to any Event of Default except as may be expressly directed by
Required Banks. In the event Required Banks direct Agent to exercise any right
or remedy available hereunder, Agent agrees to commence taking action with
respect to such right or remedy within a reasonable period of time and to
diligently pursue such action or to submit its resignation pursuant to Section
9.10. Except as otherwise provided herein or otherwise agreed to by Agent and
Banks in writing, each Bank hereby irrevocably authorizes Agent, at Agent's
discretion, to take or refrain from taking such actions as Agent on such Bank's
behalf and to exercise or refrain from exercising such powers, rights and
remedies under the Loan Papers and any other documents contemplated by this
Agreement as are delegated by the terms hereof or thereof, as appropriate,
together with all powers, rights and remedies reasonably incidental thereto.
Notwithstanding the foregoing or any term or provision of this Agreement, Agent
shall have no duties or responsibilities except as expressly set forth in this
Agreement or the other Loan Papers. Unless otherwise expressly stated in this
Agreement or in the other Loan Papers to the contrary, all references in this
Agreement and the other Loan Papers to Agent shall be deemed to be references
to Agent in its capacity as agent for and on behalf of Banks pursuant to this
Agreement and the other Loan Papers.
(b) Collateral. Each Bank irrevocably appoints and authorizes
Agent to hold the Collateral and enforce the Liens granted as security for the
Obligations and to take such action as Agent on its behalf and to exercise such
powers, rights and remedies under this Agreement and the other Loan Papers or
otherwise as are delegated to Agent by the terms hereof or thereof, together
with all such powers, rights and remedies as are reasonably incidental thereto,
provided, however, that, as between and among Banks, Agent will not prosecute,
settle or compromise any claim against Borrower or any Subsidiary of Borrower
or any other Loan Party or release or institute enforcement or foreclosure
proceedings against any Collateral or Guaranty securing the Obligations or any
part thereof, except with the consent of Required Banks or, if and to the
extent required pursuant to Section 10.7, all Banks. Without limiting the
generality of the foregoing, each Bank authorizes Agent to (i) enter into any
Loan Papers securing payment of the Obligations in the capacity
of agent for and on behalf of Banks, and (ii) to administer all of the
Collateral and to enforce the interests of Banks therein in accordance with the
Loan Papers.
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Any action for enforcement of the interests of Banks under the Loan Papers
shall be taken either as Agent for Banks or directly in the respective names of
Banks, as counsel to Agent may at the time advise. Subject to Section 10.7,
Banks consent and agree that any action taken by Agent with the consent or at
the direction of Required Banks as provided herein shall be taken for and on
behalf of all Banks, including those which may not have so consented or
directed, in order to protect or enforce the Liens securing the Obligations;
provided, however, that any Bank may direct Agent not to act for or on its
behalf in any such proceeding if such Bank executes in favor of Agent a release
of its rights to share in the benefits of any such action and a release of its
legal and beneficial interest in the Lien created by the Loan Papers on the
Collateral which is the subject of such action. Banks and Borrower agree that
Agent is not a fiduciary for Banks, Borrower, any Subsidiary of Borrower, any
Loan Party or any other Person but simply is acting in the capacity described
herein to alleviate administrative burdens for all parties hereto and that
Agent has no duties or responsibilities to Banks, Borrower, any Subsidiary of
Borrower, any Loan Party or any other Person except those (if any) expressly
set forth herein.
(c) Sub-Agents. Each Bank hereby authorizes Agent (in its sole
discretion) (i) to appoint sub-agents (including any Banks) to be the holders
of record of any Lien to be granted to Agent (for its benefit and the benefit
of Banks) or Banks or to hold on behalf of Agent any Collateral or instruments
relating thereto, and (ii) so long as an Event of Default shall not have
occurred and be continuing, to release a Lien granted to it (for its benefit
and the benefit of Banks) on any Asset sold or otherwise disposed of and
permitted to be sold or otherwise disposed of in accordance with the terms
hereof or the other Loan Papers.
9.2 Advances and Payments. On the date of each Advance, Agent
shall be authorized, but not obligated, to advance, for the account of each
Bank making such Advance, the amount of the Advance to be made by it in
accordance with its Commitment hereunder if and to the extent that such Bank
does not make such amount timely available to Agent for advance to Borrower
pursuant to this Agreement. Each Bank agrees to immediately reimburse Agent in
immediately available funds for any amount so advanced on its behalf by Agent.
If any such reimbursement is not made in immediately available funds on the
same day on which Agent shall have made any such amount available on behalf of
any Bank, such Bank shall pay interest to Agent at the Federal Funds Rate until
such reimbursement is made. All amounts to be paid to Banks by Agent shall be
credited to Banks, forthwith after collection by Agent, in immediately
available funds, in such manner as Banks and Agent shall from time to time
agree.
9.3 Sharing of Payments. Each Bank agrees that if it shall obtain
any payment (whether voluntarily, involuntarily through the exercise of a right
of banker's Lien, setoff or counterclaim, including, without limitation, a
secured claim under the Bankruptcy Code or other Lien arising with respect to
or in lieu of such secured claim and received by such Bank under any Debtor
Relief Law, or otherwise) in respect of any obligation owing to such Bank as a
result of which the unpaid portion of its Loans is proportionately less than
the unpaid portion of the Loans of other Banks (based upon the respective Pro
Rata Shares of the Banks), (a) it shall promptly purchase at par from such
other Banks a participation in the Loans of such other Banks, so that the
aggregate unpaid principal amount of the Loans of each Bank shall be in
accordance with their respective Pro Rata Shares, (b) it shall pay interest
calculated at the
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Federal Funds Rate to such other Banks on the amount purchased from the date it
received the disproportionate payment until the date of the purchase of such
participation, and (c) such other adjustments shall be made from time to time
as shall be equitable to ensure that Banks share such payment pro rata based
upon their respective Pro Rata Shares. Notwithstanding anything to the
contrary contained herein, if a Bank shall obtain payment under any
circumstances contemplated herein while any Obligations shall remain
outstanding, such Bank shall promptly turn over such payment to Agent for
distribution, as appropriate, to Banks on account of the Obligations as
provided herein. Borrower expressly consents to the foregoing arrangements and
agrees that any Bank or Banks holding (or deemed to be holding) a participation
in any of the Loans or other Obligations may exercise any and all rights of
payment (including, without limitation, rights of banker's lien, setoff and
counterclaim) with respect to such participation as fully as if such Bank were
the direct creditor of Borrower in the amount of such participation.
9.4 Distribution of Information. Agent will forward to all Banks
copies of all Financial Statements and reports of a material nature furnished
to it hereunder by Borrower other than those which are by the terms hereof to
be distributed by Borrower directly to Banks; provided, however, that any
failure by Agent to do so shall not result in any liability to Agent.
9.5 Notice to Banks. Except as otherwise provided in this Agreement
or except with respect to communications or notices to be provided directly to
Banks by Borrower or any Subsidiary of Borrower or other Loan Party pursuant to
this Agreement or any other Loan Paper, upon receipt by Agent from Borrower or
any such other Person of any communication calling for an action on the part of
Banks, or upon notice to Agent of any Event of Default, Agent will, in a
reasonably prompt fashion, give to Banks notice of the nature of such
communication or Event of Default, as the case may be; PROVIDED, HOWEVER, THAT
ANY FAILURE BY AGENT TO GIVE ANY SUCH NOTICE SHALL NOT RESULT IN ANY LIABILITY
TO AGENT UNLESS SUCH FAILURE CONSTITUTES GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
9.6 Liability of Agent.
(a) OTHER AGENTS. AGENT, WHEN ACTING ON BEHALF OF BANKS,
MAY EXECUTE ANY OF ITS RESPONSIBILITIES OR DUTIES UNDER THIS AGREEMENT BY OR
THROUGH ITS, OR ANY BANK'S, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR
AGENTS. ALL SUCH OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS, WHEN
EXERCISING THE RIGHTS OR PERFORMING THE DUTIES OF AGENT, SHALL BE DEEMED TO BE
INCLUDED IN THE TERM "AGENT." NEITHER AGENT NOR ITS OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS OR AGENTS SHALL BE LIABLE TO BANKS OR ANY OF THEM FOR ANY
ACTION TAKEN OR OMITTED TO BE TAKEN IN GOOD FAITH, OR BE RESPONSIBLE TO BANKS
OR TO ANY OF THEM FOR THE CONSEQUENCES OF ANY OVERSIGHT OR ERROR OF JUDGMENT,
OR FOR ANY LOSS, UNLESS THE SAME SHALL HAPPEN THROUGH ITS GROSS NEGLIGENCE OR
WILFUL MISCONDUCT. AGENT AND ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
AGENTS SHALL IN NO EVENT BE LIABLE TO
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BANKS OR TO ANY OF THEM FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY ANY OF
THEM PURSUANT TO INSTRUCTIONS RECEIVED FROM THE BANKS (OR, IF APPLICABLE, THE
REQUIRED BANKS) OR IN RELIANCE UPON THE ADVICE OF COUNSEL SELECTED BY ANY OF
THEM. WITHOUT LIMITING THE FOREGOING, NEITHER AGENT NOR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS SHALL BE RESPONSIBLE TO ANY OF BANKS
FOR THE DUE EXECUTION, VALIDITY, GENUINENESS, EFFECTIVENESS, SUFFICIENCY OR
ENFORCEABILITY OF, OR FOR ANY STATEMENT, WARRANTY OR REPRESENTATION IN, OR FOR
THE PERFECTION OR PRIORITY OF ANY LIEN CONTEMPLATED BY THIS AGREEMENT OR ANY
OTHER LOAN PAPER, OR SHALL BE REQUIRED TO ASCERTAIN OR TO MAKE ANY INQUIRY
CONCERNING THE PERFORMANCE OR OBSERVANCE BY BORROWER, ANY SUBSIDIARY OF
BORROWER OR ANY OTHER LOAN PARTY OF ANY OF THE TERMS, CONDITIONS, COVENANTS OR
AGREEMENTS OF THIS AGREEMENT OR ANY OTHER LOAN PAPER.
(b) NO RESPONSIBILITY FOR FAILURE OF PERFORMANCE. NEITHER AGENT
NOR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS (WHEN ACTING
IN ITS OR THEIR CAPACITIES AS OR ON BEHALF OF AGENT HEREUNDER) SHALL HAVE ANY
RESPONSIBILITY TO BORROWER, ANY SUBSIDIARY OF BORROWER OR ANY OTHER LOAN PARTY
ON ACCOUNT OF THE FAILURE OR DELAY IN PERFORMANCE OR BREACH BY ANY OF BORROWER,
ANY SUBSIDIARY OR ANY OTHER LOAN PARTY OR BANK OF ANY OF THEIR RESPECTIVE
OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER LOAN PAPER.
(c) Communications. Agent, as agent hereunder, shall be entitled
to rely on any communication, instrument or document reasonably believed by it
to be genuine or correct and to have been signed or sent by a Person or Persons
believed by it to the proper Person or Persons, and it shall be entitled to
rely on advice of legal counsel, independent public accountants and other
professional advisers and experts selected by it.
9.7 REIMBURSEMENT AND INDEMNIFICATION. EACH BANK AGREES (A) IF AND TO
THE EXTENT NOT PROMPTLY REIMBURSED BY BORROWER, TO REIMBURSE AGENT, IN
ACCORDANCE WITH SUCH BANK'S PRO RATA SHARE (EXCEPT AS PROVIDED BELOW IN THIS
SECTION 9.7, ON DEMAND, FOR ALL FEES, COSTS AND EXPENSES INCURRED BY AGENT
UNDER THE LOAN PAPERS, INCLUDING, WITHOUT LIMITATION, REASONABLE COUNSEL FEES
AND COMPENSATION OF AGENTS PAID FOR SERVICES RENDERED ON BEHALF OF BANKS, AND
ANY OTHER EXPENSE INCURRED IN CONNECTION WITH THE PREPARATION, EXECUTION,
ADMINISTRATION, OR ENFORCEMENT THEREOF, (B) IF AND TO THE EXTENT NOT PROMPTLY
REIMBURSED OR INDEMNIFIED BY BORROWER, TO REIMBURSE, INDEMNIFY AND HOLD
HARMLESS AGENT AND ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR
AGENTS, IN ACCORDANCE WITH SUCH BANK'S PRO RATA SHARE (EXCEPT AS PROVIDED
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BELOW IN THIS SECTION 9.7), ON DEMAND, FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST IT OR ANY OF THEM IN ANY
WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN PAPER OR ANY
ACTION TAKEN OR OMITTED BY IT OR ANY OF THEM UNDER THIS AGREEMENT OR ANY OTHER
LOAN PAPER (EXCEPT SUCH AS SHALL RESULT FROM THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF AGENT OR ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR
AGENTS), AND (C) THAT AGENT MAY OFFSET DISTRIBUTIONS OF PRINCIPAL, INTEREST AND
FEES DUE TO A BANK BY THE AMOUNT OF UNREIMBURSED AMOUNTS DUE AND OWING IN
ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 9.7 IF SUCH BANK HAS NOT
REIMBURSED OR INDEMNIFIED AGENT UPON A WRITTEN REQUEST BY AGENT FOR
REIMBURSEMENT OR INDEMNIFICATION. IF AND TO THE EXTENT THAT AGENT, IN ITS
DISCRETION, DETERMINES THAT ANY AMOUNT TO BE REIMBURSED OR INDEMNIFIED PURSUANT
TO THIS SECTION 9.7 DOES NOT RELATE TO ANY PARTICULAR COMMITMENT (OR LOAN MADE
PURSUANT TO ANY PARTICULAR COMMITMENT), THEN SUCH REIMBURSEMENT OR
INDEMNIFICATION, AS THE CASE MAY BE, SHALL BE MADE IN ACCORDANCE WITH SUCH
BANK'S PRO RATA SHARE OF THE AGGREGATE COMMITMENTS.
9.8 Rights of Agent. It is understood and agreed that Banque Paribas
shall have the same powers, rights, remedies and obligations hereunder
(including the right to give such instructions) as the other Banks and may
exercise such powers, rights and remedies, as well as its powers, rights and
remedies under other agreements, documents, instruments and certificates to
which it is or may be party, and engage in other transactions with Borrower, any
Subsidiary of the Borrower, any Affiliate of Borrower or any other Loan Party,
as though it were not the Agent under this Agreement.
9.9 Independent Investigation and Credit Decision by Banks. Each
Bank acknowledges and agrees that it has decided to enter into this Agreement
and to make Loans hereunder based on its own analysis of (a) the transactions
contemplated hereby, (b) the creditworthiness of Borrower, Subsidiaries of the
Borrower and any other Loan Parties, (c) this Agreement. and the other Loan
Papers, and (d) the business, legal and other issues relating thereto, and
further acknowledges and agrees that neither Banque Paribas nor Agent shall
bear any responsibility therefor. Each Bank acknowledges and agrees that it
will, independently and without reliance upon Agent, or any other Bank,
continue to make its own credit decisions and other decisions regarding the
taking or not taking of any action under this Agreement or the other Loan
Papers.
9.10 Successor Agent. Agent may resign at any time by giving at
least five (5) Business Days' prior notice thereof to Banks and Borrower, and
the Retiring Agent shall be discharged from its responsibilities, duties and
obligations under this Agreement. Upon any such resignation, within five (5)
days after the retiring Agent's giving of notice of resignation,
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Required Banks shall appoint a successor Agent from among Banks and such Bank
appointed by Required Banks as such shall thereupon become successor Agent
(unless such Bank shall decline to accept such appointment). If no successor
Agent shall have been so appointed by Required Banks and shall have accepted
such appointment, within five (5) days after the retiring Agent's giving of
notice of resignation, the retiring Agent may, on behalf of Banks, appoint a
successor Agent which shall either be a Bank or a commercial bank reasonably
acceptable to Borrower constituting an Eligible Assignee and having capital and
surplus of at least $750,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the powers, rights, remedies, privileges,
responsibilities and duties of the retiring Agent. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article IX shall inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Agent under this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Unless otherwise expressly provided in this
Agreement, all notices or other communications required or permitted to be
given under this Agreement shall be in writing and may be personally served,
telecopied, telefaxed, telexed or sent by facsimile, courier or first class
prepaid mail (airmail if to an address in a foreign country from the party
delivering such notice or communication) and shall be deemed to have been given
and received when delivered in person or by courier service, upon transmission
of a facsimile, telecopy, telefax or telex or four days after deposit in the
mail (certified or registered, return receipt requested, with postage prepaid
and properly addressed). Notices or other communications by Borrower to Agent
or any Bank shall not be effective until given and actually received. For
purposes of this Agreement, the addresses of the parties to this Agreement
(until 15 days' prior notice of a change thereof is delivered as provided in
this Section 10. 1) shall be as set forth below each party's name on the
signature pages hereof. A photocopy of any notice or other communication sent
to the Agent or any Bank shall be sent to Jenkens & Gilchrist, a Professional
Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202, Attention:
William P. Durbin, and a copy of any notice or other communication sent to the
Borrower shall be sent to Michener, Larimore, Swindle, Whitaker, Flowers,
Sawyer, Reynolds & Chalk, L.L.P., 301 Commerce Street, Suite 3500, Fort Worth,
Texas 76102, Attention Wayne M. Whitaker.
10.2 Survival. All representations, warranties, covenants, and
agreements made by Borrower, any Subsidiary of Borrower or any other Loan Party
herein or in any other Loan Paper shall be considered to have been relied upon
by Agent and Banks and shall survive the delivery of the Loan Papers, the
making of Loans and the creation and extension of the Obligations, regardless
of any investigation made by or on behalf of Agent or any Bank. All covenants
and agreements made by Borrower, any Subsidiary of Borrower or any other Loan
Party herein or in any other Loan Paper regarding the payment of principal,
interest, fees, taxes, costs or expenses, and all covenants and agreements made
(a) by Borrower, any Subsidiary of Borrower or any other Loan Party or (b) by
Banks herein, (i) to or in favor of any one or more
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of Agent and Banks, or (ii) to or in favor of Agent, respectively, regarding
any indemnification or reimbursement or disclaimer of liability (including,
without limitation, the provisions of Sections 2.10, 2.13, 8.3(h) and (i), 9.7
and 10.14 hereof), shall survive the termination of this Agreement and the
other Loan Papers.
10.3 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN PAPERS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
AND APPLICABLE U.S. FEDERAL LAWS.
10.4 Maximum Interest. The following provisions shall control this
Agreement, the Notes and the other Loan Papers notwithstanding any term or
provision contained in this Agreement or any other Loan Paper to the contrary:
(a) No agreements, conditions, provisions or stipulations contained in
this Agreement or in any other Loan Paper, or the occurrence of a Potential
Default or an Event of Default, or the exercise by the Banks of the right to
accelerate the payment of the maturity of principal or interest, or to exercise
any option whatsoever contained in this Agreement or any other Loan Paper, or
the arising of any contingency whatsoever, shall be construed to permit or
shall entitle the Banks or any Bank to contract for, charge or receive, in any
event, interest exceeding the maximum amount allowed from time to time by
applicable state or federal laws as now or as may hereinafter be in effect (the
"Maximum Amount"), and in no event shall Borrower or any other Loan Party be
obligated by contract or otherwise to pay interest exceeding the Maximum
Amount. All agreements, conditions, provisions or stipulations contained in
this Agreement or any other Loan Paper, if any, which (in the absence of this
Section 10.4) may in any event or contingency whatsoever operate to bind,
obligate or compel Borrower or any other Loan Party to pay interest exceeding
the Maximum Amount shall be without binding force or effect, at law or in
equity, and shall, as a matter of consensual contract between and among the
parties thereto, be deemed to not have been contracted for, charged or
received, in each case to the extent only of the excess of interest over such
Maximum Amount and shall, as a matter of consensual contract between and among
the parties, be automatically limited to the Maximum Amount. Furthermore, in
the event any interest is contracted for, charged or received in excess of the
Maximum Amount (the "Excess"), Borrower and each other Loan Party acknowledge,
agree and stipulate that any such amount shall be the result of an accidental
and bona fide error, and any such contract, charge or receipt shall be canceled
to the extent of such Excess, and any such Excess that is received shall be,
first, applied to reduce the principal of any Obligations due, and second,
returned to Borrower or to such other Person who may be entitled thereto by
law, it being the intention of the parties hereto not to enter at any time into
an usurious or otherwise illegal relationship. The parties hereto and each
other Loan Party recognize that with fluctuations in the Revolving Credit
Contract Rate and Default Rate, from time to time, an unintentional result
could inadvertently occur. BY THE EXECUTION OF THIS AGREEMENT, BORROWER AND
EACH OTHER LOAN PARTY COVENANT THAT (i) THE CANCELLATION, CREDIT OR RETURN OF
ANY EXCESS SHALL CONSTITUTE ACCEPTANCE OF SUCH EXCESS, AND (ii) NEITHER
BORROWER NOR ANY OTHER LOAN PARTY SHALL SEEK OR PURSUE ANY OTHER REMEDY, LEGAL
OR EQUITABLE, AGAINST AGENT OR ANY BANK BASED, IN WHOLE OR
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IN PART, UPON THE CONTRACTING FOR, CHARGING OR RECEIVING OF ANY INTEREST IN
EXCESS OF THE MAXIMUM AMOUNT. For the purpose of determining whether or not
any Excess has been contracted for, charged or received by Agent or any Bank,
all interest at any time contracted for, charged or received in connection with
Borrower's obligations or any other Loan Party's obligations shall be
amortized, prorated, allocated and spread in equal parts (or as otherwise may
be appropriate to reflect variations in the maximum lawful rate) during the
entire term of this Agreement and the other Loan Papers.
(b) The provisions of Section 10.4(a) shall be deemed to be
incorporated into every Loan Paper or communication relating to the
Obligations, whether or not any provision of Section 10.4(a) is referred to
therein. All such documents and communications and all figures set forth
therein shall, for the sole purpose of computing the extent of the obligations
asserted by the Banks thereunder, be automatically recomputed by the Borrower
or any other Loan Party, and by any court considering the same, to give effect
to the adjustments or credits required by Section 10.4(a).
(c) If the applicable state or federal law is amended in the future to
allow a greater amount of interest to be charged under this Agreement or any
other Loan Paper than is presently allowed by applicable state or federal law,
then the limitations on interest hereunder and thereunder shall be increased to
the maximum allowed by applicable state or federal law, as amended, which
increase shall be effective hereunder on the effective date of such amendment,
and all interest charges owing to the Agent or any Bank by reason thereof shall
be payable upon demand.
10.5 Invalid Provisions. If any provision of this Agreement or any
of the other Loan Papers is held by a court of competent jurisdiction to be
illegal, invalid or unenforceable under present or future laws effective during
the term thereof, such provision shall be fully severable, this Agreement and
the Loan Papers shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof or thereof, and the
remaining provisions hereof or thereof shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance therefrom. Furthermore, in lieu of such illegal, invalid
or unenforceable provision there shall be added automatically as a part of this
Agreement or the other Loan Papers (as the case may be) a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.
10.6 Successors and Assigns.
(a) Interested Parties; Prohibition Regarding Assignment by
Borrower. This Agreement and the other Loan Papers shall be binding upon and
inure to the benefit of Borrower, Banks, and Agent and their respective
successors and assigns; provided, however, that neither Borrower nor any other
Loan Party may assign, transfer or delegate any of its rights, duties or
obligations under this Agreement or the other Loan Papers without the prior
written consent of Agent and Banks. Banks may assign, sell and transfer their
interests, rights
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and obligations under this Agreement and the other Loan Papers only in
accordance with this Section 10.6.
(b) Assignment by Banks. Any Bank may assign to one or more Eligible
Assignees all, or a proportionate part of all, of its interests, rights and
obligations under this Agreement and the other Loan Papers; provided, however,
that (i) each such assignment shall be of a constant, and not a varying,
percentage of all of the assigning Bank's interests, rights and obligations
under this Agreement, (ii) the amount of each such assignment (determined as of
the "Effective Date" specified in the Assignment and Acceptance) shall not be
less than the lesser of the entire amount of such Bank's Loans or the principal
amount of $1,000,000 or an integral multiple of $100,000 in excess thereof, and
(iii) the parties to each such assignment shall execute and deliver to Agent,
for its acceptance and recording in the Register, an Assignment and Acceptance,
together with the Notes subject to such assignment, and a processing and
recordation fee of $2,500 payable to Agent. Upon such execution, delivery,
acceptance and recording, from and after the "Effective Date" specified in the
Assignment and Acceptance, which "Effective Date", unless Agent otherwise
agrees, shall not be earlier than five (5) Business Days after the date of
acceptance and recording by Agent (provided, however, that, as between the
assigning Bank and the assignee thereunder only, the effective date may be the
effective date of execution and delivery as between such Persons or as
otherwise specified in the Assignment and Acceptance or agreed to by such
Persons), (A) the assignee thereunder shall be a Bank under this Agreement and,
to the extent provided in such Assignment and Acceptance, shall have the
interests, rights and obligations of a Bank hereunder, and (B) the assigning
Bank thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its contractual obligations under this Agreement,
and (C) in the case of an Assignment and Acceptance covering all or the
remaining portion of the assigning Bank's interests, rights and obligations
under this Agreement, such assigning Bank shall cease to be a Bank under this
Agreement. Each Bank shall, in a reasonably prompt fashion after it has
engaged in any material discussions with an Eligible Assignee that could lead
to an assignment referred to in this Section 10.6(b), notify Borrower of the
identity of such Eligible Assignee unless such Eligible Assignee has expressly
requested that its identity remain confidential; provided, however, that (1)
the failure to give any such notification shall not result in any liability to
such Bank and shall not affect the rights of Banks or the obligations of
Borrower hereunder, and (2) Borrower shall use reasonable efforts to keep the
identity of such Eligible Assignee confidential until such identity is
otherwise made known to Agent.
(c) Effect of Assignment and Acceptance. By executing and delivering
an Assignment and Acceptance, the assigning Bank thereunder and the Eligible
Assignee thereunder shall be deemed to confirm to and agree with each other and
the other parties hereto as follows: (i) such assignee is an Eligible Assignee;
(ii) other than as provided in the Assignment and Acceptance, such assigning
Bank makes no representation or warranty and assumes no responsibility with
respect to any representations, warranties or other statements made in or in
connection with this Agreement or any other Loan Paper or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Loans, this Agreement or any other Loan Paper or any Collateral; (iii) such
assigning Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower, any
Subsidiary of
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the Borrower or any other Loan Party or the performance or observance by
Borrower, any Subsidiary of the Borrower or any other Loan Party of any of its
obligations under this Agreement or any other Loan Paper; (iv) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the most recent Financial Statements delivered pursuant to Sections 6.3(b) and
6.3(c) (or if none of such Financial Statements shall have been delivered, then
copies of the Base Financial Statements) and such other agreements, documents,
instruments, certificates and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance; (v) such assignee will independently and without reliance upon
Agent, such assigning Bank or any other Bank and based on such agreements,
documents, instruments, certificates and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Papers; (vi) such
assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Papers as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; (vii) such assignee agrees that it
will perform, in accordance with their terms, all the obligations which by the
terms of this Agreement and the other Loan Papers are required to be performed
by it as a Bank; and (viii) such assignee makes loans in the ordinary course of
its business.
(d) Register. Agent shall maintain at its offices in Houston,
Texas a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Banks, and the
Commitments of, and principal amount of the Loans owing to each Bank pursuant
to the terms hereof from time to time (the "Register"). The entries in the
Register shall be conclusive in the absence of manifest error, and Borrower,
Subsidiaries of Borrower, each other Loan Party, Agent and Banks may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a
Bank for all purposes of this Agreement and the other Loan Papers. The
Register shall be available for inspection by Borrower, the Subsidiaries of
Borrower and Banks at any reasonable time and from time to time upon reasonable
prior notice.
(e) Acceptance and Recording. Upon its receipt of an Assignment
and Acceptance executed by an assigning Bank and an Eligible Assignee and the
required processing and recordation fee, Agent shall, if such Assignment and
Acceptance is duly completed and is in the required form, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register, and (iii) give prompt notice thereof to Banks and Borrower. Within
five (5) Business Days after its receipt of any such notice from Agent,
Borrower, at its own expense, shall execute and deliver to Agent, in exchange
for the surrendered Note or Notes, a new Note or Notes payable to the order of
such assignee in the appropriate principal amount(s) evidencing such assignee's
assigned Loans and Commitments and, if the assignor Bank has retained a portion
of its Loans and Commitments, a new Note or Notes payable to the order of such
assignor in the appropriate principal amount(s) evidencing such assignor's
Loans and Commitments retained by it. Such new Note(s) shall be dated the date
of the surrendered Note(s) which they replace and shall otherwise be in
substantially the form of the surrendered Notes.
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(f) Participations. Each Bank may, without the consent of
Borrower, any Subsidiary of the Borrower, any other Loan Party or Agent, sell
participations to one or more banks in all or a portion of its interests,
rights and obligations under this Agreement (including all or a portion of its
Loans and Commitments) held by it; provided, however, that (i) such Bank shall
remain a Bank for all purposes of this Agreement and the transferee of such
participation shall not constitute a Bank under this Agreement, (ii) such
Bank's obligations under this Agreement shall remain unchanged, (iii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iv) the participating banks or other entities shall be
entitled to the benefit of the provisions contained in Sections 2.10 and 2.13
to the same extent as if they were Banks, except that no such participant shall
be entitled to receive any greater benefit pursuant to Section 2.10 than its
assignor Bank would have been entitled to receive with respect to the rights
participated, and (v) Borrower, the Subsidiaries of Borrower, each other Loan
Party, Agent and the other Banks shall continue to deal solely and directly
with such Bank in connection with such Bank's interests, rights and obligations
under this Agreement, and such Bank shall retain the sole right to enforce the
obligations of Borrower, the Subsidiaries of Borrower and the other Loan
Parties relating to the Loans and to approve any amendment, modification or
waiver of any provision of this Agreement or, if applicable, any other Loan
Paper, provided that such participation agreement may provide that such Bank
will not agree to any amendment, modification or waiver of this Agreement or
any other Loan Paper, without the consent of such participant, that would (A)
reduce the principal or the rate of interest payable by Borrower on any Loan or
reduce any fees payable by Borrower to or for the benefit of Banks, (B)
postpone any date fixed for the payment of principal of or interest on the
Loans or any fees payable by Borrower to or for the benefit of Banks, (C)
increase any Commitment of any Bank or subject any Bank to any obligation to
make Loans except as expressly provided herein, (D) release any Collateral
securing or any Guaranty guaranteeing any of the Obligations, or (E) amend
Section 10.7 or any other provision of this Agreement requiring the consent or
other action of all Banks.
(g) Disclosure. Any Bank may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 10.6, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower, any Subsidiary of Borrower or
any other Loan Party, the Collateral or any Loan Paper furnished to such Bank
by or on behalf of the Borrower, any Subsidiary of Borrower or any other Loan
Party; provided, however, that, prior to any such disclosure, each such
assignee or participant or proposed assignee or participant shall execute an
agreement whereby such assignee or participant shall agree (subject to
customary exceptions) to preserve the confidentiality of any non-public
information received from such Bank on the same terms and conditions as
contained in Section 10.13.
(h) Substitution of Banks. If (i) any Bank has demanded
compensation under Section 2.10(a) in an aggregate amount exceeding $15,000
during any calendar year, (ii) it becomes unlawful, impossible or impractical
for any Bank to make or continue to maintain Eurodollar Loans pursuant to
Section 2.10(c) and such circumstance is not applicable to Banque Paribas and
Required Banks, or (iii) any Bank is or becomes insolvent or a receiver,
conservator or similar authority is appointed for any Bank, then Agent and/or
Borrower shall each have the
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right, but not the obligation, upon notice to the other and to such Bank, to
designate, with the consent of such assignee, an assignee for any such Bank,
which assignee shall be an Eligible Assignee mutually satisfactory to Agent and
Borrower, to purchase such Bank's Loans and Commitments and to assume such
Bank's obligations; provided, however, that Borrower shall have the right to
designate any assignee for Banque Paribas. Within ten (10) Business Days after
the giving of any such notice, such Bank shall be obligated to sell its Loans
and Commitments, and such assignee shall be obligated to purchase such Loans
and assume such Bank's obligations pursuant to an Assignment and Acceptance.
The purchase price therefor shall be an amount equal to the sum of (A) the
outstanding principal amount of the Loans payable to such Bank, plus (B) all
accrued and unpaid interest on such Loans, plus (C) all accrued and unpaid fees
and other amounts due to such Bank pursuant to this Agreement.
(i) Assignment to Federal Reserve Banks. Notwithstanding anything
to the contrary contained in this Section 10.6, any Bank may at any time or
from time to time assign as collateral all or any portion of its rights under
this Agreement with respect to its Loans, Commitments and Notes to a Federal
Reserve Bank. No such assignment shall release the assigning Bank from its
obligations under this Agreement.
10.7 Entirety and Amendments. This Agreement and the other Loan
Papers embody the entire agreement between or among the parties hereto relating
to the subject matter hereof, supersede all prior commitment letters, term
sheets, discussions, agreements and understandings, if any, relating to the
subject matter hereof, and except as provided below, neither this Agreement nor
any provision hereof or of any other Loan Paper may be waived, amended or
modified except by an agreement in writing executed jointly by Borrower and
Required Banks, and the same may be supplemented only by documents delivered or
to be delivered in accordance with the express terms hereof, provided however,
that, without the prior written consent of all Banks, no such agreement shall
(a) reduce the principal amount of, or extend the maturity of, or extend any
other date for the payment of any principal of or interest on any Loan or waive
or excuse any such payment or any part thereof, or reduce the rate of interest
on any Loan (other than any such change in the rate of interest resulting from
a change in the Revolving Contract Rate or Default Rate in accordance with the
definition of such term), (b) increase the Commitments [as the same shall be
reduced pursuant to Section 2.12(a)] or obligations of any Bank, (c) modify the
provisions of this Section 10.7 or the definition of "Required Banks", (d)
release any Collateral securing or any Guaranty guaranteeing any of the
Obligations, (e) reduce any fee payable hereunder to Agent or any Bank, (f)
increase the amount of the Aggregate Revolving Loan Commitment or the Aggregate
Commitment, or (g) amend any provision which requires the consent of all Banks
or the consent of the Required Banks for any action such that, as a result of
the amendment, fewer Banks are required to consent to such action; provided,
further, that no such agreement shall change or amend or otherwise affect the
powers, rights, remedies or duties of Agent hereunder without the prior written
consent of Agent. Each Bank and each holder of a Note shall be bound by any
waiver, amendment or modification authorized by this Section 10.7 regardless of
whether its Note shall have been marked to make reference thereto, and any
consent by any Bank or holder of a Note pursuant to this Section 10.7 shall
bind any Person subsequently acquiring a Note from it, whether or not such Note
shall have been so marked. Notwithstanding anything contained in this
Agreement to the contrary, the
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Banks understand that CHC-B of Midland, Inc. owns certain real property in
Midland, Texas upon which a hospital and a medical office building are being
constructed and that a portion of the real property has been leased pursuant to
the terms of a ground lease to Westwood Medical Office Building, Ltd. which
will own the portion of the improvements which constitute the medical office
building. The Banks further understand that Westwood Medical Office Building,
Ltd. may obtain interim construction financing and intends to obtain permanent
financing for such office building from sources other than the Loan. CHC-B of
Midland, Inc. previously granted a first priority Lien on the entire
hospital/medical office building project and the real estate upon which it is
situated. At such time as alternate financing is arranged, CHC-B of Midland,
Inc. will request a release or subordination of the Liens upon that portion of
the real estate which is subject to the ground lease and the medical office
building constructed thereon. Banks hereby authorize Agent, in its discretion,
to release or subordinate (or to not release or subordinate) the Liens upon
such real estate and medical office building for such purpose without the
further consent or approval of any Bank. Borrower shall not be a third party
beneficiary of the authority hereby granted to Agent or be entitled to any
release or subordination of such Lien unless Agent, in the exercise of its
discretion, determines to grant such release or subordination and, in such
event, on such terms and conditions as Agent may require.
10.8 Counterparts; Effectiveness. This Agreement may be executed
in any number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.9 No Duty. All attorneys, accountants, appraisers, consultants
and other professional Persons retained by Agent or any Bank shall have the
right to act exclusively in the interests of Agent or such Bank, respectively,
and shall have no duty of disclosure, duty of loyalty, duty of care or other
duty or obligation of any type or nature whatsoever to Borrower, any Subsidiary
of the Borrower or any other Loan Party or any of their respective stockholders
or owners or any other Person.
10.10 Banks Not Fiduciaries. The-relationship between (a) Borrower
and (b) Agent and Banks, is solely that of debtor and creditor, and neither
Agent nor any Bank has or shall have any fiduciary or other special
relationship with Borrower, any Subsidiary of the Borrower or any other Loan
Party, and no term or provision of any of the Loan Papers shall be construed so
as to deem such relationship to be other than that of debtor and creditor.
10.11 Article 15.10(b). The parties hereto agree that, except
for Section 15.10(b) thereof, the provisions of Article 5069 - 15.01 et seq.
of the Revised Civil Statutes of Texas, 1925, as amended (regulating certain
revolving credit loans and revolving triparty accounts) shall not apply to the
Loans or the Loan Papers.
10.12 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, TOGETHER WITH
THE OTHER LOAN PAPERS, AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN AND
AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
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<PAGE> 113
UNWRITTEN ORAL AGREEMENTS BETWEEN BORROWER AND AGENT OR ANY BANK.
10.13 Confidentiality. Agent and each Bank agree (on behalf of
itself and each of its Affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with customary procedures for handling confidential information of
the nature involved and in accordance with safe and sound banking practices,
any non-public information supplied to it by Borrower or any Subsidiary of
Borrower pursuant to this Agreement, provided that Agent and each Bank may
disclose (and shall not be required to keep confidential) such non-public
information (a) to the extent authorized by Borrower or any Subsidiary of
Borrower, (b) to the extent required by law, rule, regulation or judicial
process of any Tribunal, (c) to its counsel or agents, (d) to bank examiners,
regulators, auditors or accountants, (e) to Agent or any other Bank, (f) in
connection with any action, suit or proceeding to which it or any one or more
of Banks is a party, (g) to any assignee or participant (or prospective
assignee or participant) or Affiliate of a Bank so long as such assignee or
participant (or prospective assignee or participant) or Affiliate agrees to
preserve the confidentiality of any non-public information to the extent
required of Banks pursuant to this Section 10.13, (h) which has become public
knowledge through no violation of this Agreement, (i) to the extent such
information becomes available through a Person other than Borrower or a
Subsidiary of Borrower without knowledge by Agent or such Bank (as the case may
be) of any requirements of confidentiality, (j) to the extent such information
was already known by, or in the possession of, Agent or such Bank, as the case
may be, without restriction on disclosure thereof at the time such information
was supplied by Borrower or any Subsidiary of Borrower, or (k) to the extent
such information is also furnished to Agent or any Bank by a third party not
having any similar duty of confidentiality to Borrower. Except as otherwise
provided in the immediately preceding sentence, all such non-public
information supplied to Agent or any Bank shall not be copied or distributed to
any Person other Agent and Banks without the prior written consent of Borrower.
The obligations of confidentiality under this Section 10.13 shall supersede
and replace the obligations of Agent and each Bank under any confidentiality
letter or other confidentiality agreement in respect of the transactions
contemplated by this Agreement initially signed and delivered to Borrower prior
to the date hereof.
10.14 Construction of Indemnity and Reimbursement Obligations. IT IS
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT ALL COVENANTS AND AGREEMENTS
MADE BY (a) BORROWER OR (b) BANKS HEREIN TO OR IN FAVOR OF AGENT OR ANY BANK
REGARDING ANY INDEMNIFICATION OR REIMBURSEMENT OR DISCLAIMER OF LIABILITY, TO
THE EXTENT THAT SUCH COVENANTS AND AGREEMENTS PROVIDE (EXPRESSLY OR BY CLEAR
IMPLICATION) THAT THE BENEFICIARY OF SUCH PROVISIONS SHALL BE RESPONSIBLE ONLY
FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR THE LIKE, ARE INTENDED TO
AND SHALL INDEMNIFY, REIMBURSE AND PROTECT SUCH BENEFICIARY PURSUANT TO THE
TERMS THEREOF NOTWITHSTANDING SUCH BENEFICIARY'S OWN NEGLIGENCE (AS OPPOSED TO
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT), WHETHER OR
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<PAGE> 114
NOT THAT NEGLIGENCE IS THE SOLE OR CONCURRING CAUSE OF ANY AMOUNT TO BE
INDEMNIFIED, REIMBURSED OR PROTECTED AGAINST.
10.15 Jurisdiction, Etc.
(a) Jurisdiction. Borrower hereby irrevocably and unconditionally
submits, for itself and its Assets, to the nonexclusive jurisdiction of any
Texas court or Federal court sitting in Houston, Texas, or Dallas, Texas, and
any appellate court thereof, in any suit, action or proceeding arising out of
or relating to this Agreement or any of the other Loan Papers, or for
recognition or enforcement of any order or judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such suit, action or proceeding may be heard and determined in such
court located in Texas, or to the extent permitted by law, in such Federal
court in Harris County, Texas or Dallas County, Texas. Each of the parties
hereto agrees that a final judgment in any such suit, 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 Agreement
shall affect any right that Agent or any Bank may otherwise have to bring any
suit, action or proceeding relating to this Agreement or any of the other Loan
Papers against Borrower or its property in the courts of any jurisdiction.
(b) Venue. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
PAPERS IN ANY TEXAS COURT OR FEDERAL COURT SITTING IN HOUSTON, TEXAS, OR
DALLAS, TEXAS. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT, ACTION OR PROCEEDING IN ANY SUCH COURT.
(c) Service of Process. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS BY PERSONAL SERVICE, COURIER OR MAIL IN THE
MANNER PROVIDED FOR NOTICES IN SECTION 10.1. NOTHING IN THIS AGREEMENT SHALL
AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
10.16 Changes in Accounting Principles. If any changes in the
accounting principles from those in effect on the date hereof are hereafter
adopted which result in a change in the method of calculation of any of the
financial covenants, standards or terms in this Agreement, the parties hereto
agree to enter into negotiations in order to amend such provisions so as to
equitably reflect such changes with the desired result that the criteria for
evaluating the financial condition of Borrower, its Subsidiaries and each other
Person shall be the same after such changes as if such changes had not been
made.
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10.17 References to Schedule 10. Any reference in this Agreement
to Schedule 10 shall be deemed to be a reference only to that portion of
Schedule 10 which specifically relates to the Section of this Agreement in
which such reference is made.
10.18 Renewal, Extension, Amendment and Restatement. This Agreement
is entered into for purposes of renewing and extending the Loans and other
credit accommodations made pursuant to the Original Loan Agreement and for the
purpose of amending and restating the Original Loan Agreement. This Agreement
shall not constitute a novation of all or any portion of the Borrower's, any of
the Borrower's Subsidiaries' or any other Loan Party's indebtedness or
obligations evidenced by or arising under or otherwise existing with respect to
the Original Loan Agreement or any instrument, agreement or other document
executed or delivered in connection therewith (herein collective referred to as
the "Original Loan Papers"). All Indebtedness and Obligations that are owed to
the Agent or any Bank under the Original Loan Agreement or under any Original
Loan Paper shall continue, and all Liens that presently exist as security
therefor shall continue in full force and effect as security for the
Obligations without change in the priority thereof.
10.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN PAPER
OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR THE SUBJECT MATTER OF ANY
OF THE FOREGOING.
IN WITNESS WHEREOF, Borrower, Agent and Banks have caused this Agreement
to be executed and delivered by their duly authorized officers effective as of
the date first above written.
BORROWER:
CHAMPION HEALTHCARE CORPORATION
By: /s/ DEBORAH H. FRANKOVICH
--------------------------
Name: Deborah H. Frankovich
Title: Vice President
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Address and Telecopy for notice purposes
14340 Torrey Chase, Suite 320
Houston, Texas 77014
Attn: Chief Financial Officer
Telecopy No.: (713) 583-5495
AGENT:
BANQUE PARIBAS,
as Agent for Banks
By: /s/ GLENN E. MEALBY
-------------------------------
Name: Glenn E. Mealby
-------------------------------
Title: Vice President
-------------------------------
By: /s/ PATRICK J. MILON
-------------------------------
Name: Patrick J. Milon
-------------------------------
Title: SVP-DEPUTY GENERAL MANAGER
-------------------------------
Address and Telecopy No. for Notice Purposes:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: (713) 659-4811
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BANKS:
-----
BANQUE PARIBAS
By: /s/ GLENN E. MEADY
--------------------------------
Name: Glenn E. Meady
--------------------------------
Title: Vice President
--------------------------------
By: /s/ PATRICK J. MILON
--------------------------------
Name: Patrick J. Milon
--------------------------------
Title: SVP-DEPUTY GENERAL MANAGER
--------------------------------
Address and Telecopy No. for Notice Purposes:
---------------------------------------------
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy No.: (713) 659-4811
-----------------
AMSOUTH BANK OF ALABAMA
By: /s/ WILLIAM P. BARNES
--------------------------------
Name: William P. Barnes
--------------------------------
Title: Vice President
--------------------------------
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Address and Telecopy No. for Notice Purposes:
1900 Fifth Avenue North
7th Floor
Birmingham, Alabama 35203
Attention: Page Barnes
Telecopy No.: (205) 326-5601
Telephone No.: (205) 326-4081
BANK ONE, TEXAS, N.A.
By: /s/ WALTER F. RODGERS III
------------------------------------------
Name: Walter F. Rodgers III
----------------------------------------
Title: Vice President
---------------------------------------
Address and Telecopy No. for Notice Purposes:
---------------------------------------------
910 Travis
Houston, Texas 77002-5860
Attention: Mark E. Story
Telecopy No.: (713) 751-6199
Telephone No.: (713) 751-3829
CORESTATES BANK, N.A.
By: /s/ PAUL HOGAN
------------------------------------------
Name: Paul Hogan
----------------------------------------
Title: Assistant Vice President
---------------------------------------
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Address and Telecopy No. for Notice Purposes:
---------------------------------------------
Philadelphia National Bank
1500 Market Street, West Tower
Philadelphia, PA 19101
Attention: Paul Hogan
Telecopy No.: (215) 786-7721
Telephone No.: (215) 786-4344
NATIONSBANK OF TEXAS, N.A.
By: /s/ FRANK T. HUNDLEY
--------------------------------------------
Name: Frank T. Hundley
------------------------------------------
Title: Senior Vice President
-----------------------------------------
Address and Telecopy No. for Notice Purposes:
---------------------------------------------
700 Louisiana
Houston, Texas 77002
Attention: Frank Hundley
Telecopy No.: (713) 247-6719
Telephone No.: (713) 247-6441
114
<PAGE> 1
Champion Healthcare Corporation
$35,000,000
Series 11% Senior Subordinated Notes Due December 31, 2003
with Warrants to Purchase Common Stock
Series E Note Purchase Agreement
Dated May 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II ISSUE, PURCHASE AND SALE OF NOTES AND WARRANTS . . . . . . . . . . . . . . . . . 8
A. Authorization of Issue of Notes and Warrants . . . . . . . . . . . . . . 8
B. Purchase and Sale of Notes and Warrants . . . . . . . . . . . . . . . . . 8
C. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
D. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
E. Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Optional Prepayment Upon Public Offering . . . . . . . . . . . . . . . . 11
B. Optional Prepayment in Whole or in Part with Premium . . . . . . . . . . 12
C. Mandatory Prepayment at Holders' Option upon Change in
Control Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
D. Notice of Prepayment and Change in Control . . . . . . . . . . . . . . . 13
E. Partial Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
F. Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
G. Application of Notes for Exercise of Warrants . . . . . . . . . . . . . . 14
H. Mandatory Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A. Financial Statements and Other Reports . . . . . . . . . . . . . . . . . 15
B. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. Ratio of EBITDA to Interest Expense . . . . . . . . . . . . . . . . . . . 18
D. Ratio of EBITDA to Total Debt Service . . . . . . . . . . . . . . . . . . 18
E. Ratio of Indebtedness to Stockholders' Equity . . . . . . . . . . . . . . 18
F. Treatment of D/C Partnership. The Company shall, for the
purpose of determining compliance with the financial
covenants contained in this Article V, treat the D/C
Partnership as a consolidated Subsidiary . . . . . . . . . . . . . . . . 19
G. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 19
H. Permanent Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
I Limitation on Funded Indebtedness . . . . . . . . . . . . . . . . . . . . 19
J. Merger, Consolidation, Sale, Lease, Transfer or Other
Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
K. Restricted Investments . . . . . . . . . . . . . . . . . . . . . . . . . 20
L. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
M. Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . 22
N. Corporate Existence, Licenses and permits . . . . . . . . . . . . . . . . 22
O. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
P. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Q Books and Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
R. Notice of Events Involving Securities . . . . . . . . . . . . . . . . . . 23
S. No "Prohibited Transactions" and Employee Benefits . . . . . . . . . . . 23
T. Compliance with Environmental laws . . . . . . . . . . . . . . . . . . . 24
U. Transactions with Affiliates or Officers . . . . . . . . . . . . . . . . 24
V. Issuance of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
W. Board Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . . 25
X. No Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Y. Issuance of Additional Warrants . . . . . . . . . . . . . . . . . . . . . 25
Z. Post Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 26
AA. No Amendment of D Note Agreement . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII REPRESENTATIONS, COVENANTS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 29
A. Organization, Standing, Qualification of Company and
Subsidiaries, and Authorization . . . . . . . . . . . . . . . . . . . . . 29
B. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 30
C. Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
D. Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
E. Title, Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
F. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
G. Burdensome and Conflicting Agreements and Charter
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
H. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
I. Possession of Patents, etc . . . . . . . . . . . . . . . . . . . . . . . 32
J. Offering of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
K. Broker's or Finder's Commissions . . . . . . . . . . . . . . . . . . . . 33
L. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 33
M. Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . 33
N. Holding Company Status . . . . . . . . . . . . . . . . . . . . . . . . . 33
O. Investment Company Status . . . . . . . . . . . . . . . . . . . . . . . . 34
P. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Q. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
R. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
S. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . 35
T. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
U. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII REPRESENTATIONS AND COVENANTS OF THE PURCHASERS . . . . . . . . . . . . . . . . . 37
A. Investment Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
B. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
C. Waiver of Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IX SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
A. Subordination of Notes . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
A. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
B. Notice of Proposed Transfer . . . . . . . . . . . . . . . . . . . . . . . 42
C. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . . . . 43
D. Compliance with Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . 43
E. Non-Applicability of Restrictions on Transfer . . . . . . . . . . . . . . 43
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
A. Note Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
B. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
C. Consent to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 45
D. Notices to Subsequent Holder . . . . . . . . . . . . . . . . . . . . . . 46
E. Form, Registration, Transfer and Exchange of Notes; Lost
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
F. Registration, Transfer and Exchange of Warrants . . . . . . . . . . . . . 46
G. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . 47
H. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
I. Survival of Representations, Warranties and Indemnities . . . . . . . . . 48
J. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 48
K. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
L. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
M. Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . 49
N. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
O. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
P. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Q. Non Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
R. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
LIST OF EXHIBITS
EXHIBIT II-A-1 Form of Notes
EXHIBIT II-A2 Form of Warrants
EXHIBIT III B Form of Opinion of Company Counsel
EXHIBIT III-J Form of Stock Registration Agreement
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
EXHIBIT III-K Form of Addendum Agreement
EXHIBIT V-U Transaction with Affiliates or Officers
EXHIBIT VII-A List of Subsidiaries
EXHIBIT VII-B Financial Statements
EXHIBIT VII-C Actions Pending
EXHIBIT VII-D Certain Indebtedness
EXHIBIT VII-G Burdensome and Conflicting Agreements and Charter
Provisions
EXHIBIT VII-P Retiree Medical or Death Benefits and Other Benefits Payable
after Termination of Employment and Employee Plans
EXHIBIT VII-R Certain Reserved Shares and Owners of 5% or More of
Securities and Holders of Piggy-Back Registration Rights
</TABLE>
<PAGE> 6
SERIES E NOTE PURCHASE AGREEMENT
THIS SERIES E NOTE PURCHASE AGREEMENT, dated May 1, 1995 (herein as the
same may be amended or modified from time to time, called this "Agreement"), by
and among CHAMPION HEALTHCARE CORPORATION, a Delaware corporation (the
"Company"), and the respective purchasers named in Schedule I of this Agreement
(individually, a "Purchaser" and collectively, the "Purchasers").
WITNESSETH:
WHEREAS, the Company desires to issue Thirty-Five Million Dollars
($35,000,000) aggregate principal amount of its Series E 11% Senior
Subordinated Notes due December 31, 2003 (the "Notes") and detachable warrants
(the "Warrants") initially evidencing the right to purchase an aggregate of
525,000 shares of common stock of the Company; and
WHEREAS, the Company desires to sell the Notes and the Warrants to the
Purchasers, and the Purchasers desire to purchase the Notes and the Warrants
from the Company, on the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Addendum Agreement" shall mean the Addendum Agreement dated June 12,
1995 by and between the Purchasers, Champion Healthcare Corporation and the
Stockholders (as defined therein), attached hereto as Exhibit III-K, and shall
also mean the D Stockholders Agreement as amended pursuant to the Addendum
Agreement.
"Affiliate" shall mean, with respect to any Person, any person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Applicable Rate" shall mean with respect to the outstanding principal
amount of the Notes, 11% per annum from the date of issue up to and including
December 31, 2000, and 12% per annum thereafter; provided, however, that in the
event that the Company has not completed a public issuance of debt of the
Company having a maturity of more than one year which shall result in the
receipt by the Company of gross proceeds in a minimum of $100,000,000 prior to
March 31, 1996, the Applicable Rate shall be 11.50% for the period from April
1, 1996 to and including December 31, 2000.
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"Bank Agreement" is defined in paragraph 9A.
"Certificate of Incorporation" shall mean the Company's Certificate of
Incorporation as filed with the Secretary of State of the State of Delaware
effective the Closing Date.
"Change in Control Event" shall mean (i) if (A) Charles R. Miller shall
have beneficial ownership of fewer than 80% of the number of shares of Common
Stock (on a fully diluted basis) beneficially owned by him on the Closing Date,
after taking into account any subdivision or combination of Common Stock, at
any time prior to the first anniversary of completion by the Company of a
Successful Public Offering or (B) at any time prior to the second anniversary
of such Successful Public Offering Charles R. Miller shall have beneficial
ownership of fewer than 40% of the number of shares of Common Stock
beneficially owned by him on the Closing Date, after taking into account any
subdivision or combination of Common Stock, (it being understood that Charles
R. Miller shall be deemed to have beneficial ownership of any shares held by
any member of his immediate family or the trustee of any trust created for the
benefit of any such family member), or (ii) the acquisition in one or more
transactions not involving a public offering of Common Stock by any Person or
group (within the meaning of Section 13(d)(3) of the Exchange Act) together
with any Affiliate of such Person or member of such group of beneficial
ownership, direct or indirect, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding voting
securities, or (iii) the sale, transfer or other disposition in one or more
transactions of all or substantially all of the assets of the Company or (iv)
the merger or consolidation of the Company with or into another Person, other
than a wholly-owned Subsidiary, unless such merger or consolidation does not
result in a reclassification, conversion, exchange or cancellation of any
outstanding shares of Common Stock of the Company, or (v) the Company proceeds
to acquire its Common Stock (or undertakes a corporate reorganization or
recapitalization or other action) if the effect of such acquisition (or other
action) would be either (1) to reduce substantially or to eliminate any public
market for the shares of the Company's Common Stock or (2) to remove the
Company from registration with the Commission under the Exchange Act or (3) to
require the Company to make a filing under Section 13(e) of the Exchange Act or
(4) to cause a delisting of the Company's Common Stock from the National
Association of Securities Dealers, Inc. Automated Quotation System (unless such
stock is delisted as a result of being listed on a national securities
exchange) or to cause a delisting of the Company's Common Stock from a national
securities exchange, or (vi) either the Company and/or one or more Subsidiaries
of the Company is materially or completely liquidated or is the subject of any
voluntary or involuntary dissolution or winding up, except as to any Subsidiary
which may be liquidated, dissolved or wound-up in accordance with the
provisions of paragraph 5(J).
Notwithstanding the conditions set forth in subclause (i) above, a
Change in Control Event shall not be deemed to have occurred with respect to
Charles R. Miller at any time after (1) his termination of employment
(provided, that such termination is not due to a Voluntary Termination or
Involuntary Termination with Cause as such terms are used in the Employment
Agreement between Charles R. Miller and the Company as in effect on the date
hereof), or (2) any permanent disability that prevents his continued employment
or (3) his death.
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<PAGE> 8
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission or any
other governmental authority at the time administering the Securities Act or
the Exchange Act.
"Common Stock" shall mean and include the Company's presently
authorized common stock, $.01 par value per share, as constituted on the
Closing Date, and, when used in Article X hereof or in the Warrants, shall also
mean and include any capital stock of any class of the Company hereafter
authorized which shall not be either (i) limited to a fixed sum or percentage
of par value in respect of the rights of the holders thereof to receive
dividends and to participate in the distribution of assets upon the voluntary
or involuntary liquidation, dissolution or winding-up of the Company, or (ii)
redeemable at any time by the Company, or both; provided, however, that the
shares issuable upon exercise of the Warrants shall include only shares of
capital stock of the Company designated as Common Stock on the Closing Date or,
in case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in 1E of the Warrants, which are not limited
to any such fixed sum or percentage of par value and are not so redeemable by
the Company.
"Consolidated Net Worth" shall mean, as of any date, the consolidated
net worth of the Company and its consolidated Subsidiaries, as determined in
accordance with generally accepted accounting principles consistently applied
as set forth in the most recent quarterly balance sheet of the Company;
provided, however that Redeemable Preferred Stock shall not be treated as a
liability and shall be included as a component of stockholder's equity on such
balance sheet in making such determination.
"Current Indebtedness" shall mean, as of any date, with respect to any
Person, (i) all liabilities for borrowed money and all liabilities secured by
any Lien existing on property owned by such Person whether or not such
liabilities have been assumed and (ii) all such liabilities, as guarantor or in
any similar capacity, with respect to borrowed money, which, as to (i) or (ii),
are payable on demand or within one year from the date of determination, except
any such liabilities which are renewable or extendible at the option of the
debtor to a date more than one year from the date of determination.
"D/C Partnership" shall mean Dakota/Champion Partnership, a North
Dakota partnership.
"D Note Agreement" shall mean the Series D Note and Stock Purchase
Agreement, dated as of December 31, 1993, as amended, between the Company and
the parties listed therein.
"D Stockholders Agreement" shall mean the D Stockholders Agreement
dated December 31, 1993, as amended, by and between the Company, the holders of
Series A Preferred Stock, the holders of Series BB Preferred Stock, the holders
of the Series C Preferred Stock, the holders of the Series D Preferred Stock,
the Purchasers purchasing Warrants pursuant hereto and each of the other
parties signatory thereto.
"E Stock Registration Agreement" shall mean that certain Series E Stock
Registration Agreement dated May 1, 1995 entered into between the Company and
the Purchasers in the form set forth as Exhibit III-K hereto.
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<PAGE> 9
"EBITDA" means, for any period, the sum (determined without duplication
on a consolidated basis in accordance with generally accepted accounting
principles consistently applied) of (a) net income (or net loss) of the Company
on a consolidated basis (calculated before extraordinary items and income
attributable to minority interests in Affiliates which has not been remitted in
cash to the Company on a consolidated basis) plus (b) Interest Expense for such
period deducted in the determination of such net income (or net loss) plus (c)
depreciation and amortization to the extent deducted in determining net income
(or net loss) plus (d) writeoffs of assets subject to amortization prior to the
end of the amortization period to the extent deducted in determining net income
(or net loss) plus (e) all taxes accrued for such period on or measured by
income to the extent deducted in determining such net income (or net loss) plus
(f) expenses incurred in connection with the preparation and execution of this
Agreement and future financing agreements, notes and security instruments to
the extent they were included in operating expenses (in accordance with
generally accepted accounting principles consistently applied) and not included
in (c) or (d) above plus (g) any non-cash compensation expense attributable to
stock option or other equity compensation arrangements to the extent such
non-cash compensation expense was deducted in computing net income (or net
loss) plus (h) the EBITDA allocable to any business acquired (whether by
stock, assets or partnership) less any EBITDA allocable to any assets or
businesses sold, held for sale or otherwise transferred with or as part of the
subject acquisition transaction, as though such acquisition were made on the
first day of the period plus (i) the amount of non-recurring merger or
acquisition charges related to such business acquired.
"Environmental Laws" shall have the meaning set forth in paragraph 7S
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" shall mean any entity required to be aggregated with
the Company or any Subsidiary under Section 414(b), (c), (m) or (o) of the
Code.
"Event of Default" shall mean any of the events specified in Article
VI, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Exercise Price" shall have the meaning set forth in paragraph 1A of
the Warrants.
"Expiration Date" shall mean December 31, 2003.
"Fixed Charges" means, for any period, an amount equal to the sum of
(a) scheduled principal payments made on Indebtedness plus (b) Interest
Expense.
"Funded Indebtedness" shall mean, as of any date, with respect to any
Person, without duplication:
(a) its liabilities for borrowed money other than Current
Indebtedness;
4
<PAGE> 10
(b) liabilities secured by any Lien existing on property
owned by such Person (whether or not such liabilities have been assumed), other
than Current Indebtedness;
(c) obligations other than Current Indebtedness of such
Person, contingently or otherwise, as obligor, guarantor or otherwise, under
any lease of real or personal property or comparable arrangement with respect
to use or title which are required by generally accepted accounting principles
consistently applied to be capitalized;
(d) obligations other than Current Indebtedness of such
Person, contingently or otherwise, as guarantor or otherwise, under any
arrangement with respect to liabilities for borrowed money which, if the
Company were the obligor, would represent Funded Indebtedness or which are
required by generally accepted accounting principles consistently applied to be
capitalized;
(e) any other obligations (other than deferred taxes,
malpractice liability accruals or other estimates of liabilities for which
there is no specific requirement for future payment) which are required by
generally accepted accounting principles consistently applied to be shown as
liabilities on its balance sheet and which are payable or remain unpaid more
than one year from the date of determination thereof; and
(f) but specifically excluding (1) any equity interests
owned by other unrelated parties in businesses or operations of such Person
which are required by generally accepted accounting principles to be reflected
as a liability or otherwise than an asset on the balance sheet; and (2) with
respect to Funded Indebtedness of the Company, the Indebtedness in the
principal amount not exceeding $9,999,750 due April 15, 1996 owed to Wilmington
Savings Fund Society FSB, a federal savings bank.
"Hazardous Substances" shall have the meaning set forth in paragraph 7S
hereof.
"Indebtedness" shall mean Current Indebtedness and Funded Indebtedness.
"Interest Expense" means, for any period, the aggregate amount of
interest expense (excluding amortization of debt issuance costs) accrued during
such period on Indebtedness of the Company on a consolidated basis, in
accordance with generally accepted accounting principles consistently applied.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property, except
any such usual or normal reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases or other title
exceptions or encumbrances affecting property that are not disruptive to the
use of such property in the ordinary course of business. For the purposes of
this Agreement, the Company or a Subsidiary shall be deemed to be the owner of
any property which it has acquired or holds subject to a conditional sale
agreement, financing lease or other arrangement pursuant to which title to the
5
<PAGE> 11
property has been retained by or vested in some other Person for security
purposes.
"Maturity Date" shall mean December 31, 2003.
"Multiemployer Plan" shall mean a plan which is a Multiemployer Plan as
defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean the net income of the Company on a consolidated
basis after the effect of income taxes as reflected on the statement of
operations prepared in accordance with generally accepted accounting principles
consistently applied.
"Net Loss" shall mean the net loss of the Company on a consolidated
basis after the effect of income taxes as reflected on the statement of
operations prepared in accordance with generally accepted accounting principles
consistently applied.
"1993 Notes" shall mean the Series D 11% Senior Subordinated Notes due
December 31, 2003 issued pursuant to the D Note Agreement.
"Officer's Certificate" shall mean a certificate signed in the name of
the Company by its Chairman of the Board, its President, one of its Vice
Presidents or its Treasurer or Chief Financial Officer.
"Permanent Capital" shall mean the sum of (a) the outstanding principal
amount of the Notes, plus (b) the outstanding principal amount of the 1993
Notes, plus (c) Indebtedness subordinated in right to payment to the Notes and
the 1993 Notes (pursuant to subordination provisions substantially identical to
the provisions of Article IX of this Agreement except that the Notes and the
1993 Notes shall be included within the definition of "Senior Indebtedness"
for purposes of such subordination provisions and having a final maturity and
scheduled payments of principal commencing after the final maturity of the
Notes and the 1993 Notes), plus (or if negative, minus) (d) Stockholders'
Equity, determined in accordance with generally accepted accounting principles
consistently applied.
"Person" shall mean and include an individual, a corporation, an
association, a partnership, a trust or estate, a government or any department
or agency thereof.
"Redeemable Preferred Stock" shall mean collectively (i) the Series A
Preferred Stock, (ii) the Series BB Preferred Stock, (iii) the Series C
Preferred Stock, (iv) the Series D Preferred Stock and (v) all other series of
preferred stock of the Company which shall not have mandatory sinking fund or
other scheduled redemption provisions prior to the final maturity of the Notes,
but which may be redeemable upon the occurrence of a "Change in Control Event"
or a "Default Event", as such terms are defined in the Certificate of
Incorporation.
"Responsible Officer" shall mean the Chairman of the Board, the
Treasurer or any Executive Vice President of the Company.
"Restricted Securities" shall mean at any time (a) the Common Stock
previously issued or, unless the context otherwise requires, issuable upon
exercise of the Warrants, and (b) any Common Stock issued subsequent to the
exercise of the Warrants as a dividend or other distribution with respect to,
or in exchange for or in replacement of, the Common Stock issued upon such
exercise; provided, however, that immediately after and throughout the period
during which the restrictions
6
<PAGE> 12
on the transferability of such Common Stock shall have ceased and terminated in
accordance with Article X hereof, the same shall cease to be Restricted
Securities. Where the context so requires, "holders of Restricted Securities"
shall include holders of Warrants exercisable for Restricted Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same may be in effect at the time.
"Senior Indebtedness" shall have the meaning set forth in Article IX
hereof.
"Series A Preferred Stock" shall mean the Series A Convertible
Preferred Stock and Series A-1 Convertible Preferred Stock of the Company
having a preference upon liquidation or dissolution of the Company as set forth
in the Certificate of Incorporation.
"Series BB Preferred Stock" shall mean the Series BB Cumulative
Convertible Preferred Stock of the Company having a preference upon liquidation
or dissolution of the Company as set forth in the Certificate of Incorporation.
"Series C Preferred Stock" shall mean the Series C Cumulative
Convertible Preferred Stock of the Company having a preference upon liquidation
or dissolution of the Company as set forth in the Certificate of Incorporation.
"Series D Preferred Stock" shall mean the Series D Cumulative
Convertible Preferred Stock of the Company having a preference upon liquidation
or dissolution of the Company as set forth in the Certificate of Incorporation.
"Series D Stock Registration Agreement" shall mean that certain Series
D Stock Registration Agreement dated December 31, 1993, as amended, by and
among the Company and the "Purchasers" as defined therein.
"Stockholders' Equity" shall mean at any time stockholders' equity as
set forth on the most recent consolidated balance sheet of the Company and its
consolidated Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied; provided, however, that Redeemable
Preferred Stock shall be included in such calculation.
"Subsidiary" shall mean a corporation of which the Company owns,
directly or indirectly, more than 50% of the shares of stock entitled to vote
in the election of directors (excluding shares so entitled to vote only upon a
failure to pay dividends or other contingencies).
"Successful Public Offering" shall mean the first public offering of
Common Stock after December 6, 1994 which shall have resulted in both (i) gross
proceeds of at least $25,000,000 and (ii) the receipt by the Company of gross
proceeds of at least $15,000,000.
"Total Assets" shall mean and include all of the assets of the Company
and its consolidated Subsidiaries, determined in accordance with generally
accepted accounting principles consistently applied.
"Total Debt Service" shall mean for any fiscal period, as of the end of
any fiscal period of the Company and its consolidated Subsidiaries, the sum of
(i) Interest Expense on all Indebtedness
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<PAGE> 13
and (ii) all scheduled principal payments due on all Indebtedness during such
fiscal period, all computed with respect to the Company and its Subsidiaries on
a consolidated basis, in accordance with generally accepted accounting
principles consistently applied.
"Warrant" or "Warrants" shall have the meaning set forth in paragraph
2A hereof.
ARTICLE II
ISSUE, PURCHASE AND SALE OF NOTES AND WARRANTS
A. Authorization of Issue of Notes and Warrants. The Company has
authorized the issue of its Notes in the aggregate principal amount of
$35,000,000 and the issue of Warrants initially evidencing the right to
purchase an aggregate of 525,000 shares of Common Stock of the Company to be
sold together with but detachable from the Notes. The Notes shall be dated the
date of issue, shall mature on the Maturity Date, shall bear interest on the
unpaid balance thereof from the date thereof until the principal thereof shall
have become due and payable in cash at the Applicable Rate, payable quarterly
on each March 31, June 30, September 30 and December 31, beginning June 30,
1995 and shall be substantially in the form of Exhibit II-A1 attached hereto;
provided, however, that during any period in which there is a default in the
payment of interest or principal, interest shall accrue at the Applicable Rate
plus two percent compounded annually. All interest on the Notes shall be
computed on the basis of the actual number of days elapsed and a year of 365 or
366 days, as applicable. The Warrants shall be dated the date of issue, shall
expire on the Expiration Date and shall be substantially in the form attached
hereto as Exhibit II-A2. The term "Note" or "Notes" as used herein shall
include each Note delivered pursuant to any provision of this Agreement and
each Note delivered in substitution or exchange for any such Note, in any case
which is at the time outstanding. The term "Warrant" or "Warrants" as used
herein shall include each warrant delivered pursuant to any provision of this
Agreement and each warrant delivered in substitution or exchange for any such
Warrant, in any case which is at the time outstanding.
B. Purchase and Sale of Notes and Warrants. At the Closing (as
defined below) and subject to the terms and conditions of this Agreement, each
Purchaser severally, and not jointly, agrees to purchase from the Company and
the Company agrees to issue and sell to each Purchaser, Notes in such principal
amount ("Notes Purchased") and Warrants ("Warrants Purchased") initially
exercisable to purchase such number of shares of Common Stock as is set forth
opposite such Purchaser's name in the columns labeled, respectively, Notes
Purchased and Warrants Purchased on Schedule I hereto. Such sales of Notes and
Warrants to each Purchaser is to be a separate sale, and no Purchaser shall
have any liability under this Agreement on account of any other Purchaser and
each of the Purchasers shall be deemed to have entered into separate agreements
for the purchase and sale of the Notes and Warrants to be purchased by such
Purchaser. The purchase price for the Warrants Purchased and Notes Purchased
to be purchased by each Purchaser shall be the amount set forth opposite such
Purchaser's name in the column labeled "Investment" in Schedule I.
C. Closing. The Closing shall take place at 11:00 a.m. Central
Standard time on June 12, 1995 (the "Closing"). The Closing shall take place
at the offices of Chapman and Cutler, or at such other location as the
Purchasers and the Company may agree, whereupon the Company will deliver
8
<PAGE> 14
to the Purchasers (i) one or more Notes, as each Purchaser may request,
registered in the name of or as directed by such Purchaser, evidencing the
principal amount of Notes to be purchased by such Purchaser and (ii) Warrants
registered in the name of or as directed by such Purchaser, against payment of
the purchase price thereof by certified or official bank check or by wire
transfer of immediately available funds to or upon the order of the Company.
Should any Purchaser fail to purchase any Notes and Warrants as provided
herein, then the remaining Purchasers shall have the right, but not the
obligation, to acquire the amount of such defaulting Purchaser's Notes or
Warrants pro rata or, alternatively, as they among themselves may mutually
agree.
D. Certain Tax Matters. The Purchasers and the Company agree
that for federal income tax and other purposes the purchase price payable under
Paragraph 2C hereof shall be allocated $1,000 to each $1,000 principal amount
of the Notes and Warrants initially exercisable to purchase fifteen (15) shares
of Common Stock. The Purchasers and the Company agree that the issue price of
the Notes within the meaning of Section 1273(b) and 1273(c)(2)(B) of the Code
is $980.905 for each $1,000 principal amount of the Notes and that therefore
there is $19.095 original issue discount (as defined in Section 1273(a)(1) of
the Code) with respect to the Notes. Such $19.095 original issue discount will
be used for federal income tax purposes (including reporting purposes) with
respect to the transactions under or contemplated by this Agreement.
E. Terms. Except as otherwise set forth in this Agreement, the
terms and provisions of this Agreement shall continue in full force and effect
until such time as all Notes shall have been paid in full and all Warrants
shall have been exercised or shall have expired by their terms.
ARTICLE III
CONDITIONS TO CLOSING
Conditions to Closing. The Purchasers' obligation to purchase and pay
for the Notes and Warrants at the Closing is subject to the satisfaction, on or
before the Closing Date, of the following conditions:
(a) Opinion of Purchasers' Counsel. On or prior to the
Closing the Purchasers shall have received from Chapman and Cutler, who are
acting as special counsel for the Purchasers in connection with this
transaction, favorable opinions, dated the Closing Date, satisfactory to each
Purchaser.
(b) Opinion of Company's Counsel. On the Closing Date
the Purchasers shall have received from Michener, Larimore, Swindle, Whitaker,
Flowers, Sawyer, Reynolds & Chalk, L.L.P., which is acting as counsel to the
Company in connection with this transaction, a favorable opinion, dated the
Closing Date satisfactory to each Purchaser, substantially in the form and to
the effect set forth in Exhibit III-B hereto.
(c) Expenses. On the Closing Date, the Company shall
have paid the fees and expenses of Chapman and Cutler as special counsel to the
Purchasers.
(d) Purchase of Notes and Warrants. At the Closing,
Purchasers shall have purchased the Notes and Warrants set forth opposite their
names on Schedule I under the columns labeled "Notes Purchased" and "Warrants
Purchased".
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<PAGE> 15
(e) Representations and Warranties; No Default. The
representations and warranties contained in Article VII hereof shall be true on
and as of the Closing Date, except to the extent of changes caused by the
transactions herein contemplated; there shall exist on the Closing Date after
giving effect to the transactions described herein no Event of Default or
Default; all conditions to the Closing set forth in this paragraph 3A shall
have been met; and the Company shall have delivered to the Purchasers an
Officer's Certificate, dated the Closing Date, to such effects.
(f) Compliance with this Agreement. The Company shall
have performed and complied in all material respects with all agreements,
covenants and conditions contained herein and in any other document
contemplated hereby or thereby which are required to be performed or complied
with by the Company on or before the Closing Date.
(g) Purchase Permitted by Applicable Laws. The purchase
of and payment for the Notes and Warrants to be purchased by the Purchasers on
the Closing Date on the terms and conditions herein provided (including the use
of the proceeds of the Notes by the Company) shall not violate any applicable
law or governmental regulation (including without limitation Regulations G, T
and X of the Board of Governors of the Federal Reserve System) and shall not
subject the Purchasers to any tax, penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation
relating to the extension of credit.
(h) Compliance with Outstanding Debt Issues. On the
Closing Date, the Company shall have delivered to the Purchasers such evidence
as the Purchasers or their special counsel may reasonably request showing that
the execution, delivery and performance by the Company of this Agreement and
the sale of the Notes and Warrants and the issuance of the Common Stock upon
the exercise of the Warrants will not conflict with, or result in a breach of
the terms, conditions or provisions of, or constitute a default under, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any Subsidiary pursuant to, or otherwise violate, any instrument
evidencing any Indebtedness of the Company or any of its Subsidiaries or any
agreement relating thereto, including without limitation, a ninth amendment of
the D Note Agreement.
(j) E Stock Registration Agreement. The Purchasers and
the Company shall have entered into the E Stock Registration Agreement in
substantially the form set forth in Exhibit III-J hereto.
(k) Addendum Agreement. The Purchasers and the Company
shall have executed and delivered the Addendum Agreement in substantially the
form set forth in Exhibit III-K hereto.
(l) Waivers. The Company shall have entered into an
amendment and waiver agreement of the Series D Stock Registration Agreement
which shall include the Purchasers as Existing Shareholders (as defined
therein) and waive the prohibition on granting certain registration rights to
other shareholders, and otherwise satisfactory in form and substance to the
Purchasers. Furthermore, the Shareholders (as defined in the D Stockholders
Agreement) shall have waived the preemptive rights granted to such shareholders
pursuant to Section 4.1 thereof and such amendment and waiver agreement shall
be otherwise satisfactory in form and substance to the Purchasers.
(m) Payment of Closing Fee. Prior to the issuance and
sale of the Notes and
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Warrants to the Purchasers, the Company shall have paid to the Purchasers, on a
pro-rata basis in immediately available funds, an aggregate closing fee equal
to .5% of the principal amount of Notes being issued hereunder.
(n) Proceedings. On the Closing Date, all corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
(o) Private Placement Number. The Purchasers shall have
received a Private Placement Number from Standard & Poor's Corporation for the
Notes and Warrants issued hereunder.
ARTICLE IV
PREPAYMENTS
The Notes shall be subject to optional and mandatory prepayments as
specified in paragraphs 4A, 4B and 4C hereof.
A. Optional Prepayment Upon Public Offering. Without regard to
prepayments, if any, pursuant to paragraph 4B or 4C hereof, the Notes shall be
subject to prepayment of principal at the option of the holders thereof as
follows:
(a) 25% of the principal amount of the Notes (at par)
outstanding, together with interest accrued thereon to the date of prepayment
(with no prepayment penalty), if the Company shall complete a public offering
after December 6, 1994 of Common Stock of the Company which shall result in the
receipt by the Company, and any selling Shareholder of gross proceeds in a
minimum of $25,000,000, provided that the aggregate payments to the holders of
the Notes and the holders of the 1993 Notes, which shall be made in accordance
with the formula set forth in subparagraph (c) below (such pro rata payments to
the holders of the 1993 Notes, the "Required 1993 Series Prepayments"), shall
not in any event exceed an amount equal to fifty percent (50%) of the gross
proceeds of such public offering to the Company (less underwriter's discounts,
commissions and any underwriter's fees paid by the Company);
(b) For each whole $1,000,000 increment of such gross
proceeds in excess of $25,000,000 the principal amount of Notes subject to
prepayment of principal, at the option of the holders, shall increase by 1%, up
to a maximum of 50%, provided such payments provided for in paragraphs 4A(a)
and 4A(b) in the aggregate, together with the aggregate Required 1993 Series
Prepayments, shall not in any event exceed an amount equal to fifty percent
(50%) of the gross proceeds of such public offering to the Company (less
underwriter's discounts, commissions and any underwriter's fees paid by the
Company); and
(c) Such prepayments shall be allocated between the Notes
and the 1993 Notes pro rata as follows: Each holder of Notes or 1993 Notes
requesting prepayment shall receive a principal prepayment equal to the amount
so prepayable to all such holders of Notes and 1993 Notes multiplied by a
fraction, the numerator of which is the principal amount of the Notes or 1993
Notes
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<PAGE> 17
held by such holder and the denominator of which is the aggregate principal
amount of Notes and 1993 Notes outstanding with respect to which the holders
thereof have requested prepayment (the "Proration Formula"). The principal
amount of the Notes and the 1993 Notes outstanding shall be determined
immediately prior to effective date of such public offering.
The Company shall notify each holder of Notes of the occurrence of such
public offering as aforesaid within 10 days after the effective date of the
registration statement pertaining thereto under the Securities Act. Each such
holder may, for a period ending 30 days after the date such notice is received
by such holder, subject to completion of the offering, request in writing that
up to 25% (or such higher percentage that is applicable by virtue of clause (b)
above) of the principal amount of the Notes held by such holder be prepaid.
Within three (3) days after receipt by the Company of such a request, the
Company will confirm the date of prepayment to the requesting holder and will
in each case immediately upon the expiration of such 30-day period, prepay the
Notes of all holders requesting prepayment in the principal amount required to
be prepaid, in accordance with the Proration Formula, together with accrued and
unpaid interest thereon to the date of prepayment thereof. Any such
prepayments shall be in immediately available funds to the place or bank
account which such holder has designated for such payments hereunder.
B. Optional Prepayment in Whole or in Part with Premium. The
Notes shall be subject to prepayment, at any time in whole, or from time to
time in part, at the option of the Company on or after December 31, 1995, at
the applicable percentage of principal amount so to be prepaid set forth below,
together in each case with interest accrued thereon to the date of prepayment:
PERIOD PERCENTAGE
December 31, 1995 to December 30, 1996 112.5%
December 31, 1996 to December 30, 1997 110.7143%
December 31, 1997 to December 30, 1998 108.9286%
December 31, 1998 to December 30, 1999 107.1429%
December 31, 1999 to December 30, 2000 105.3572%
December 31, 2000 to December 30, 2001 103.5715%
December 31, 2001 to December 30, 2002 101.7858%
December 31, 2002 to and thereafter 100%
All partial prepayments pursuant to this paragraph 4B and paragraph 4B of the D
Note
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Agreement shall be allocated pro rata among the Notes and the 1993 Notes.
C. Mandatory Prepayment at Holders' Option upon Change in Control
Event. (a) The Notes shall be subject to prepayment by the Company, and the
Company shall immediately prepay such Notes, in whole or in part, in cash, at
the option of the holder, upon the occurrence of a Change in Control Event and
thereafter for a period ending 90 days subsequent to receipt by the holders of
Notes of notice from the Company to the effect that a Change in Control Event
has occurred, upon at least ten days written notice to the Company by such
holder specifying (a) the principal amount of Notes to be prepaid and (b) the
prepayment date.
(b) The prepayment price of the Notes as to each holder shall at
the election of such holder be (i) the sum of (A) the product of 3% multiplied
by the principal amount to be prepaid, (B) the principal amount to be prepaid
and (C) accrued interest; or (ii) the sum of (A) the product of the applicable
percentage in paragraph 4B (with 112.5% deemed to be applicable to any period
prior to December 31, 1995) times the principal amount to be prepaid and (B)
accrued interest, together with the surrender to the Company for cancellation
of 15 Warrants for each $1,000 principal amount of Notes being prepaid.
D. Notice of Prepayment and Change in Control. The Company shall
give each holder of Notes written notice of each prepayment pursuant to
paragraph 4B hereof not less than 30 days nor more than 45 days prior to any
prepayment date, specifying such prepayment date, the principal amount of the
Notes (and, if not all Notes are then held by a Purchaser, of the Notes held by
each holder) to be prepaid on such date and the paragraph pursuant to which
such prepayment is to be made. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the date of prepayment and the premium, if any, herein
provided, shall become due and payable on the prepayment date specified. The
Company shall give each holder of a Note written notice of a Change in Control
Event not more than 10 days after such event.
E. Partial Prepayments. Upon prepayment of less than all of the
Notes pursuant to paragraph 4B, the principal amount so prepaid (which, in the
case of a partial prepayment, shall be in a minimum amount of $500,000 and
integral multiples thereof in the case of a prepayment pursuant to paragraph
4B) shall be allocated to all Notes at the time outstanding in proportion to
the outstanding principal amounts thereof. Upon any partial prepayment of any
Note, such Note shall, at the option of the holder thereof, be either (a)
surrendered to the Company in exchange for a new Note in a principal amount
equal to the principal amount remaining unpaid on the Note surrendered, and
otherwise having the same terms and provisions as the Note surrendered, or (b)
made available to the Company at the principal office of the original holder of
such Note for notation thereon of the portion of the principal so prepaid,
except that, so long as any Purchaser shall hold any Note, the Company agrees
that such Purchaser may make notation of any portion of the principal so
prepaid on such Note on such Purchaser's records.
F. Purchase of Notes. The Company covenants that it will not,
and will not permit any Subsidiary to, directly or indirectly, pay, prepay,
exchange, purchase or otherwise acquire any Note or any 1993 Note except by
making a payment or prepayment in accordance with the provisions of
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<PAGE> 19
the Notes and of this Agreement. Any Note acquired by the Company or any
Subsidiary shall be canceled and shall not thereafter be deemed outstanding for
any purpose hereunder.
G. Application of Notes for Exercise of Warrants.
Notwithstanding any other provision of this Agreement (including without
limitation, Article IX hereof), the holder of any Note may, at any time, and
from time to time prior to and including the date of repayment in full of all
amounts due under the Note, or, with respect to any principal amount of Notes
for which the Company has given notice of prepayment in accordance with this
Article IV prior to the date of such prepayment, apply all or any part of the
unpaid principal thereof and accrued interest thereon to the payment of all or
a portion of the exercise price of Warrants or the warrants issued and
outstanding pursuant to (i) the Note Purchase Agreement dated May 27, 1992
between the Company and the parties listed therein or (ii) the D Note
Agreement. Under the terms and conditions set forth in the form of Warrant
attached hereto as Exhibit II-A2, Warrants with sufficient Warrant Values (as
therein defined) may be tendered in payment of the Exercise Price.
H. Mandatory Exchange. Notwithstanding the foregoing provisions
of this Article IV, if at any time prior to December 31, 1995, the Company
shall complete a public offering of Indebtedness having a final maturity date
which is one year or more subsequent to the date of issuance in an original
principal amount issued in a public offering of not less than $100,000,000,
except as otherwise provided in this paragraph 4H, it may require the holders
of Notes (a) to exchange (through a redemption or otherwise) their Notes, in
whole but not in part, for such Indebtedness having a principal amount equal to
the principal amount of the Notes exchanged, if: (i) such exchange is approved
by the consent of the holders of not less than 80% in principal amount of the
Notes then outstanding, and (ii) concurrently with such exchange, the Company
pays in cash all unpaid interest accrued to the date of such exchange on all of
the outstanding Notes which are so exchanged or redeemed, and (iii) at the time
of such exchange, no Default or Event of Default shall be in existence;
provided, however, that any holder of Notes not consenting to such exchange
shall not be required to effect such exchange, and such holder shall, at its
sole option, participate in such exchange as if it had consented thereto or be
paid on the date of exchange an amount in cash equal to 103% of the principal
amount of such holder's Notes plus unpaid interest accrued thereon to the date
of prepayment. In connection with any such exchange or payment, no Warrants
shall be cancelled, whether or not the holder thereof participates in such
exchange. The Company shall give each holder of Notes not less than 10 days
nor more than 30 days notice of the date of such exchange or payment (which
notice shall describe in reasonable detail the principal amount of Notes being
exchanged and the holders thereof and shall certify to the holders of the Notes
that the conditions set forth in clauses (i), (ii) and (iii) above will be true
and correct on and as of the date of the exchange), and concurrently with such
exchange shall deliver to each holder of Notes participating in such exchange a
final prospectus relating to the indebtedness delivered in such exchange.
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ARTICLE V
CERTAIN COVENANTS
A. Financial Statements and Other Reports. So long as any
Purchaser or any transferee of such Purchaser shall hold any Note or Warrants
which in the aggregate are initially exercisable to purchase 75,000 shares of
Common Stock, the Company will deliver to such Purchaser or such transferee:
(a) as soon as practicable and in any event within 45
days after the end of each month, copies of the Company's consolidated balance
sheet, consolidated income statement and consolidated statement of cash flows
in the manner in which such documents are routinely prepared.
(b) as soon as practicable and in any event within 45
days after the end of each of the first three quarters, (i) key operating
indicators, consolidated statements of income, stockholders' equity and cash
flows of the Company and its consolidated Subsidiaries for such fiscal period
and for the period from the beginning of the current fiscal year to the end of
such fiscal period, and a consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of such fiscal period, setting forth in
each case in comparative form consolidated figures for the corresponding
periods in the preceding fiscal year and (ii) consolidated statements of income
of the Company and its consolidated Subsidiaries for such fiscal period and for
the period from the beginning of the current fiscal year to the end of such
fiscal period, setting forth in comparative form consolidated figures in
comparative form for the corresponding period in the budget delivered pursuant
to paragraph 5A(i) hereto, all in reasonable detail, prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods involved, certified as to fair presentation by the principal
financial officer of the Company and accompanied by a written discussion of
operations in summary form prepared by the Company with respect to such fiscal
period;
(c) as soon as practicable and in any event within 45
days after the end of each of the first three quarters, and within 120 days
after the end of the fourth quarter key operating indicators, consolidating
statements of income, stockholders' equity and cash flows of the Company and
its consolidated Subsidiaries for such fiscal period and for the period from
the beginning of the current fiscal year to the end of such fiscal period, and
a consolidating balance sheet of the Company and its consolidated Subsidiaries
as at the end of such fiscal period;
(d) as soon as practicable and in any event within 120
days after the end of each fiscal year of the Company, (i) unaudited
consolidating statements of income, stockholders' equity and cash flows of the
Company and its consolidated Subsidiaries for such year and unaudited
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such year and (ii) consolidated statements of income, stockholders' equity
and cash flows of the Company and its consolidated Subsidiaries for such year,
and the consolidated balance sheets of the Company and its consolidated
Subsidiaries as at the end of such year, setting forth in each case in
comparative form corresponding figures from the preceding fiscal year, prepared
in accordance with generally accepted accounting principles consistently
followed throughout the periods involved and accompanied by an opinion of (i)
Coopers & Lybrand, or (ii) another firm among the six largest independent
public accountants of recognized national standing selected by the Company or
(iii) another firm of
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<PAGE> 21
independent public accountants of national standing mutually agreeable to the
Company and the holders of a majority in aggregate principal amount of the
Notes then outstanding (the "Accountants"), to the effect that such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied (except for changes in application in which the
Accountants concur and as are noted therein) and present fairly the financial
condition of the Company and its Subsidiaries and that the examination of the
Accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards and accordingly included
such test of the accounting records and such other auditing procedures as were
considered necessary in the circumstances (an "Audit Opinion"); and accompanied
by a written discussion of operations in summary form with respect to such
fiscal year prepared by the Company;
(e) together with the financial information described in
paragraph 5A(d), (i) statements of income, partners' equity and cash flows of
D/C Partnership for the fiscal year most recently ended and a balance sheet of
D/C Partnership as at the end of such fiscal year, setting forth in each case
in comparative form corresponding figures from the preceding fiscal year,
commencing with the fiscal year ended December 31, 1996, prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods involved and accompanied by an Audit Opinion of the Accountants,
(ii) a reconciliation prepared by the Chief Financial Officer of the Company of
the annual audited financial statements described in paragraph 5A(d)(ii) that
reconciles the unaudited consolidated financial statements used by the Company
in computing compliance with the financial covenants of Article V, as
described in paragraph 5F, (iii) a statement of the Accountants that they have
reviewed the reconciliation described in clause (ii) above and based upon such
review the Accountant has no reason to believe such reconciliation is incorrect
or misleading in any material respect and (iv) the unaudited consolidated
financial statements used by the Company in computing compliance with the
financial covenants of Article V, as described in paragraph 5F.
(f) promptly upon transmission thereof to its
stockholders, copies of all such financial statements, proxy statements,
notices and reports including without limitation Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q in definitive form which it files or which
it is or may be required to file with the Commission;
(g) promptly upon receipt thereof, copies of reports, if
any, submitted to the Company by independent accountants in connection with
each annual or interim audit of the books of the Company made by such
accountants;
(h) prior to a Successful Public Offering, promptly upon
transmission thereof to members of the Board of Directors, copies of any
intermediate financial information prepared in addition to that described in
paragraphs 5A(a), (b), (c) or (d) and copies of any other material information
distributed to the Board of Directors; provided, however, without limiting the
information rights of the Purchasers and any Purchasers' transferees pursuant
to paragraph 5W hereof, no such financial information or other material
information shall be delivered if it is determined by management and the Board
of Directors that such information is of such a proprietary and confidential
nature that its contents should reasonably be limited to the Board of Directors
and
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notice to such effect is sent to the Purchasers and their transferees;
(i) as soon as practicable and in any event within 45
days after the end of each fiscal year of the Company, a month-by-month and
hospital-by-hospital budget for each succeeding fiscal year and a year-by-year
budget for the next, second and third succeeding fiscal years;
(j) promptly, such additional financial and other
information as any holder may from time to time reasonably request;
(k) promptly upon sending to its senior secured lenders,
copies of required covenant compliances and information regarding events of
default under any such agreement, unless in either case the same or
substantially the same information is otherwise required to be sent pursuant to
the terms hereof; and
(l) promptly upon the occurrence thereof, notice of any
waiver of any event of default or compliance with any covenant in its senior
secured loan agreements or any amendment or modification of any such
agreements.
Together with each delivery of financial statements required by clause
(b) or (c) above, the Company will deliver to each of the Purchasers or their
transferees who then hold any Notes or Warrants an Officer's Certificate stating
that during the period covered by the most recent statement of income delivered
to the Purchasers no Event of Default or Default or "Default Event" (as that
term is defined in the Certificate of Incorporation) has occurred, or, if such
has occurred, specifying the nature and status thereof, the period of existence
thereof and what action the Company has taken or proposes to take with respect
thereto. The financial statements required to be delivered by clause (d) above
shall also be accompanied by a written statement of the independent public
accountants who certify such financial statements to the effect that, in the
course of the examination upon which their certification was based, they have
obtained no knowledge of any Event of Default or Default or Default Event
insofar as any such Event of Default or Default or Default Event relates to any
financial matters, or, if they have obtained knowledge of any such failure,
specifying the nature and period of existence thereof.
Forthwith upon any Responsible Officer obtaining knowledge of an Event
of Default or Default, the Company will deliver to each holder of Notes and/or
Warrants an Officer's Certificate specifying the nature thereof, the period of
existence thereof and what action the Company has taken or proposes to take with
respect thereto.
Each holder of Notes and/or Warrants is hereby authorized to deliver a
copy of financial statements delivered to it pursuant to this paragraph 5A to
any regulatory body having jurisdiction over it which requests such information.
Each holder of Notes is further authorized, from and after the date hereof, so
long as it shall hold any Note, to request any reasonable information from, and
to have access to, the Company's independent public accountants, and the Company
will direct such accountants to make available to such holder such information.
B. Restricted Payments. So long as any Note shall remain
outstanding, the Company will not, and will not permit any Subsidiary to, (i)
declare or pay any dividends on, or make any other distribution or payment on
account of any shares of any class of stock of the Company,
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whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash, property or in
obligations of the Company, except for (1) dividends payable in Common Stock as
permitted by the Certificate of Incorporation as in effect on the Closing Date
or (2) payment of dividends on the Series A Preferred Stock, the Series BB
Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock upon
the completion of a "Successful Secondary Public Offering" as such term is
defined in the Certificate of Incorporation on the date hereof (a "Successful
Secondary Public Offering") or conversion of such shares or (3) payment of
dividends on the Series A Preferred Stock, Series BB Preferred Stock, Series C
Preferred Stock, and Series D Preferred Stock upon a Change in Control Event or
redemption of such shares, in each case as permitted by the Certificate of
Incorporation as in effect on the Closing Date (provided, however, (x) no
payment of dividends shall be made pursuant to clauses (2) or (3) until the
Company shall have made all payments required under paragraph 4A and 4C herein,
and (y) no payment or dividends shall be made pursuant to clauses (2) or (3),
or otherwise, if there exists, or immediately after giving effect to such
payment or dividend there exists, an Event of Default), or (ii) retire, redeem,
purchase or otherwise acquire, any shares of any class of capital stock of the
Company or Indebtedness subordinated to the Notes. Notwithstanding anything
contained herein to the contrary and in addition to and not in limitation of
the foregoing instructions, no payments described in clauses (1), (2) or (3)
above (other than payments under clause (2) above upon the completion of a
Successful Secondary Public Offering), shall be made if: (a) such dividends,
distributions or payments set forth in (i) above exceed an amount equal to the
lesser of (x) 25% of the Net Income of the Company on a consolidated basis and
cumulative for all periods after December 31, 1992 (treated as one accounting
period) or (y) 12-1/2% of the Net Income of the Company on a consolidated basis
for the fiscal year following the fiscal year in which a Net Loss occurred, or
(b) during the fiscal year following two consecutive fiscal years where there
was for each such period a Net Loss.
C. Ratio of EBITDA to Interest Expense. So long as any Note
shall remain outstanding the Company, on a consolidated basis, will not permit,
as at the end of the most recent fiscal quarter of the Company, the ratio of
(i) EBITDA to (ii) Interest Expense on all Indebtedness (plus the amount of
Interest Expense due on Indebtedness assumed or incurred in connection with any
business acquired (whether by stock, assets or partnership) during the period,
which shall be deemed to be outstanding at the beginning of the period), in
each case after June 30, 1995, for the immediately preceding twelve month
period, to be less than 2.0 to 1.0.
D. Ratio of EBITDA to Total Debt Service. So long as any Note
shall remain outstanding the Company, on a consolidated basis, will not permit,
as at the end of the most recent fiscal quarter of the Company, the ratio of
(i) EBITDA to (ii) Total Debt Service (plus the amount of Total Debt Service on
Indebtedness assumed or incurred in connection with any business acquired
(whether by stock, assets or partnership) during the period, which shall be
deemed to be outstanding at the beginning of the period), in each case after
June 30, 1995, for the immediately preceding twelve month period, to be less
than 1.5 to 1.0.
E. Ratio of Indebtedness to Stockholders' Equity. So long as any
Note shall remain outstanding the Company, on a consolidated basis, will not
cause or permit the ratio of consolidated
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Indebtedness (as set forth on the most recent balance sheet of the Company) to
Stockholders' Equity to be greater than 4.0 to 1.0; provided, however, that for
purposes of calculations under this paragraph 5E, it is expressly agreed that
the Company may expense or otherwise charge (i) bank fees, legal and advisors'
fees and other closing costs incurred as a result of the sale of the Notes, the
1993 Notes and in connection with the execution and delivery of the Bank
Agreement; and (ii) accrued and unpaid dividends on the Series A Preferred
Stock, Series BB Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Common Stock; and provided, further, however, that the failure of the
Company to comply with the covenant set forth in this paragraph 5E solely as a
result of and to the extent adversely affected by the charges set forth in
clauses (i) and (ii) of this paragraph 5E, shall not constitute or be deemed an
Event of Default or any other breach or violation of any term or provision of
this Agreement.
F. Treatment of D/C Partnership. The Company shall, for the
purpose of determining compliance with the financial covenants contained in
this Article V, treat the D/C Partnership as a consolidated Subsidiary.
G. Consolidated Net Worth. So long as any Note shall remain
outstanding the Company, on a consolidated basis, will not permit Consolidated
Net Worth to be less than: $60,000,000 plus 50% of positive Net Income
determined on a cumulative basis for each full fiscal quarter beginning with
the fiscal quarter ending September 30, 1995 (it being agreed that the minimum
amount of Consolidated Net Worth required to be maintained pursuant to this
paragraph 5G shall not be reduced in the event that there is a Net Loss for
any such full fiscal quarter) from and after the Closing; provided, however,
that for purposes of calculations under this paragraph 5G, it is expressly
agreed that the Company may expense or otherwise charge (i) bank fees, legal
and advisors' fees and other closing costs incurred as a result of this
transaction; (ii) accrued and unpaid dividends on the Series A Preferred Stock,
Series BB Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
or Common Stock; and (iii) deferred charges reflected as a line item on the
Company's balance sheet at December 31, 1994 against earnings or as a direct
charge against Consolidated Net Worth when such charge is in accordance with
generally accepted accounting principles consistently applied; and provided,
further, however, that the failure of the Company to comply with the covenant
set forth in this paragraph 5G solely as a result of and to the extent
adversely affected by the charges set forth in clause (i), (ii) and (iii) of
this paragraph 5G, shall not constitute or be deemed an Event of Default or any
other breach or violation of any term or provision of this Agreement.
H. Permanent Capital. So long as any Note shall remain
outstanding the Company, on a consolidated basis, will have Permanent Capital
of not less than (i) $141,000,000 from the Closing Date through December 31,
1995, and (ii) $146,000,000 thereafter.
I. Limitation on Funded Indebtedness. So long as any Note shall
remain outstanding the Company, on a consolidated basis, will not incur Funded
Indebtedness in an amount greater than $45,000,000 (other than (i) Senior
Indebtedness, (ii) the 1993 Notes, (iii) Funded Indebtedness not to exceed
$16,153,925 assumed pursuant to the acquisition of Psychiatric Healthcare
Corporation, (iv) Indebtedness not exceeding $32,000,000 incurred solely in
connection with the acquisition of Springhill Medical Center, Mobile, Alabama,
and (v) the Notes), unless EBITDA for the immediately preceding twelve months
is greater than 250% of Fixed Charges for such twelve (12)
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month period plus the amount of Fixed Charges on Indebtedness assumed or
incurred in connection with any business acquired (whether by stock, assets or
partnership) during the period, which shall be deemed to be outstanding at the
beginning of the period. The Company may, at its option, for purposes of this
provision only, exclude EBITDA attributable to hospitals acquired within such
twelve month period and either held for sale or not in operation.
J. Merger, Consolidation, Sale, Lease, Transfer or Other
Disposition of Assets. (1) So long as any Note shall remain outstanding,
(a) neither the Company nor any Subsidiary will sell,
transfer, lease or otherwise dispose of any assets to any Person to the extent
the aggregate assets so sold, transferred, leased or disposed during (i) any
twelve (12) month period had an aggregate book value in excess of the greater
of either (1) $5,000,000 or (2) five percent (5%) or more of the consolidated
total assets of the Company and its Subsidiaries at the end of the most recent
fiscal quarter preceding such sale, transfer, lease or disposition or (ii) the
period from and after the Closing Date to and including the date of any
determination hereunder exceeds the greater of $60,000,000 or 25% or more of
the consolidated total assets of the Company and its Subsidiaries at the end of
the most recent fiscal quarter preceding such sale, transfer, lease or other
disposition; provided, however, without regard to the foregoing limitation, (x)
the Company and any of its Subsidiaries may sell, transfer, trade, lease or
otherwise dispose of any assets if within 360 days of any such action the
Company or any Subsidiary replaces any such assets with similar (or improved)
assets which are used by the Company or any Subsidiary in its operations and
(y) any Subsidiary may dissolve, liquidate or wind-up its business, provided
the distribution of all of its assets shall be made either to the Company or to
a consolidated Subsidiary; and
(b) neither the Company nor any Subsidiary will sell,
lease, transfer or otherwise dispose of all or substantially all of its assets
or consolidate with or merge with or into any Person or permit any Person other
than a Subsidiary to merge with or into it; provided that this subparagraph
shall not restrict any Subsidiary from selling, leasing, transferring, trading
or otherwise disposing of all or substantially all of its assets if such
transaction is otherwise permitted by subparagraph (a) above.
K. Restricted Investments. So long as any Note shall remain
outstanding the Company will not, and will not permit any Subsidiary to, make
or authorize any Restricted Investment. For the purposes of this paragraph the
term "Restricted Investment" shall mean (x) any investment, made in cash or
otherwise, by the Company or any Subsidiary (i) in any Person, whether by
acquisition of stock, indebtedness or other obligation or security, by a loan,
advance or capital contribution, or otherwise, or (ii) in any property, (y) any
loan for a purpose other than as described in clause (x) of this paragraph or
(z) any advance except the following:
(a) investments in and advances to wholly-owned
Subsidiaries or companies which simultaneously become wholly-owned
Subsidiaries;
(b) investments in property and equipment to be used in
the business of the Company or any wholly-owned Subsidiary;
(c) investments in direct obligations of, or obligations
the principal and interest
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of which are guaranteed by, the United States of America or any agency thereof
maturing in three years or less from the date of acquisition;
(d) investments in certificates of deposit or banker's
acceptances issued by any commercial bank located in the United States, Canada,
Western Europe or Japan which is owned by a bank holding company the commercial
paper of which is rated A2 or P2, respectively, by Standard & Poor's
Corporation or Moody's Investors Service, or higher, and which has capital,
surplus and undivided profits aggregating at least $100,000,000;
(e) investments in commercial paper maturing within 270
days or less from the date of acquisition rated in one of the two highest
grades by Standard & Poor's Corporation or Moody's Investors Service or by
another rating agency of nationally recognized standing;
(f) investments in money market funds;
(g) investments held by the Company or any Subsidiary on
the Closing Date;
(h) accounts receivable, prepaid items, inventories and
other current assets and deferred charges, all as determined in accordance with
generally accepted accounting principles consistently applied, arising in the
ordinary course of business;
(i) loans in a principal amount not to exceed $3,000,000
to the purchaser or an Affiliate of the purchaser of certain assets that
include the land and buildings purchased on September 1,1992 from HCA Health
Services of Texas principally located on Garth Road, Baytown, Texas;
(j) loans to D/C Partnership; provided that such loans
shall not be outstanding during any period in which the Company does not have
operational control of the D/C Partnership, whether pursuant to the Operating
Agreement dated December 21, 1994 between the Company and D/C Partnership or
otherwise; and
(k) in addition to the investments, loans and advances
described in clauses (a) through (j) above, investments, loans and advances
made in the ordinary course of business and normal and customary arrangements
with physicians and employees, which in the aggregate are not in excess at any
one time of 10% of the total assets of the Company and its consolidated
Subsidiaries on a consolidated basis; provided, however that approval of the
Board of Directors of the Company shall be required prior to (i) any loan or
advance to an employee, officer or director of the Company (other than
day-to-day routine business expenses or pursuant to established policies
approved by the Board of Directors of the Company), (ii) any loan, advance or
arrangement with a physician or group of physicians in excess of $10,000,000
and (iii) any loan, advance or arrangement with an Affiliate of a physician or
group of physicians (except D/C Partnership) in excess of $5,000,000;
L. Notice. So long as any Notes shall remain outstanding the
Company will notify each holder of a Note or Notes (a) immediately upon receipt
by the Company of any notice of, or knowledge by any Responsible Officer of,
any event of default under any material Current Indebtedness or Funded
Indebtedness, which notice shall describe what action by the Company is
intended to be taken with respect to such event, (b) immediately upon the
public announcement of any transaction, including without limitation any
merger, combination or consolidation, in which
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the Company will not be the surviving corporation, or a sale of all or
substantially all of the Company's assets and (c) of any Responsible Officer
obtaining knowledge of, and upon the occurrence of, any Change of Control
Event.
M. Inspection of Property. So long as any Note or Warrant
remains outstanding the Company will permit any Purchaser or Purchaser
transferee holding (together with any Affiliates of such Purchaser or Purchaser
transferee) an aggregate of $5,000,000 in principal amount of Notes or an
aggregate number of Warrants which if exercised would result in the receipt by
the Company of proceeds of $2,000,000, or a Person designated in writing by the
holders of a majority in aggregate principal amount of Notes outstanding or a
majority of the Warrants outstanding (provided the aggregate of such Warrants
would if exercised result in the receipt by the Company of proceeds of
$2,000,000) to be a Person acting on their behalf to visit and inspect any of
the properties of the Company and its Subsidiaries, to advise and consult with
management and examine and make abstracts of any of its books and records at
any time during normal business hours and as often as may be reasonably
requested and to discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Company and such Subsidiaries,
all at such reasonable times and as often as such holders may reasonably
request.
N. Corporate Existence, Licenses and Permits; Maintenance of
Properties. So long as any Notes shall remain outstanding the Company will at
all times do or cause to be done all things necessary to maintain, preserve and
renew its existence as a corporation organized under the laws of a state of the
United States of America, preserve and keep in force and effect, and cause each
of its Subsidiaries to preserve and keep in force and effect, all licenses and
permits necessary and material to the conduct of the business of the Company
and its consolidated Subsidiaries, taken as a whole, and to maintain and keep,
and cause each of its Subsidiaries to maintain and keep, such of its and their
respective properties in good repair, working order and condition (except for
normal wear and tear), and from time to time to make all needful and proper
repairs, renewals and replacements, including without limitation all trade name
and trademark registration renewals, so that any business material to the
Company carried on in connection therewith may be properly and advantageously
conducted at all times.
O. Taxes. So long as any Note shall remain outstanding the
Company will duly pay and discharge, and cause each of its Subsidiaries duly to
pay and discharge, all taxes (including payroll), assessments and governmental
charges upon or against the Company or its Subsidiaries or their respective
properties, in each case before the same become delinquent, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and the Company and its Subsidiaries shall have set aside on their
books adequate reserves with respect thereto.
P. Insurance. So long as any Note shall remain outstanding the
Company will apply for and continue in force and effect, or cause to be applied
for and continued in force and effect, adequate insurance covering the
respective risks of the Company and its Subsidiaries of such types and in such
amounts and with such deductibles as are customary for other similarly situated
corporations engaged in similar lines of business and with good and responsible
insurance companies and will not, without the approval of the Board of
Directors of the Company, maintain key man life insurance coverage on Charles
R. Miller in an amount less than $5,000,000. The
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Company and its Subsidiaries may utilize programs whereby it does not obtain
insurance coverage for certain risks (including workers' compensation and
hospital professional liability) except in amounts in excess of specified
limits, as approved by the Company's Board of Directors.
Q. Books and Accounts. So long as any Note shall remain
outstanding the Company will, and will cause each Subsidiary to, maintain
proper books of record and account in which full, true and correct entries
shall be made of its transactions and set aside on its books from its earnings
for each fiscal year all such proper reserves as in each case shall be required
in accordance with generally accepted accounting principles consistently
applied.
R. Notice of Events Involving Securities. The Company will give
each holder of a Note or Notes or Warrant or Warrants or Common Stock issued
upon exercise of any Warrant or Warrants which had been held by such holder at
the time of exercise thereof, unless the Company shall have previously given
such holder notice of such filing pursuant to another provision of this
Agreement, (a) within ten days thereafter, notice of the filing by the Company
with the Commission or with any national securities exchange either an
application to register any securities of the Company pursuant to Section 12 of
the Exchange Act, or a registration statement under Section 5 of the Securities
Act, relating to any securities of the Company, (b) as promptly as practicable
after any acquisition by it or by any Subsidiary of any of the Company's equity
securities in excess in one transaction or a series of related transactions of
1% of the number of such securities then outstanding and, in any event, in
connection with the materials delivered pursuant to paragraph 5A(b) hereof, as
at the close of each fiscal year, notice of all acquisitions by it or by any
Subsidiary of any of the Company's equity securities, specifying the class and
number of such equity securities so acquired, and (c) promptly upon notice
thereof, notice of the filing of any Schedule 13D or 13G with respect to
securities of the Company pursuant to the Exchange Act (with copies of any such
Schedule to accompany or follow such notice as soon as practicable).
S. No "Prohibited Transactions" and Employee Benefits. So long
as any Note shall remain outstanding, neither the Company nor any Subsidiary
nor any ERISA Affiliate will establish, maintain, contribute to or incur an
obligation to contribute to any plan (including a Multiemployer Plan) subject
to Title IV of ERISA or Section 412 of Internal Revenue Code of 1986, as
amended. Except as disclosed on Exhibit VII-P, neither the Company nor any
Subsidiary shall incur any liability with respect to retiree medical or death
benefits or other benefits payable after termination of employment. All
employee benefit plans and arrangements (regardless of whether such plan or
arrangements are covered by ERISA) maintained by or contributed to by the
Company, any Subsidiary or any ERISA Affiliate shall be maintained in
compliance with all applicable law, including any reporting requirements. With
respect to any plan maintained by or contributed to by the Company or any
Subsidiary, neither the Company nor any Subsidiary will fail to make any
contribution due under the terms of such plan or as required by law. Neither
the Company nor any Subsidiary, nor any other Person including any fiduciary,
will engage in any transaction prohibited by Section 406 of ERISA or Section
4975 of the Code which could subject the Company, any Subsidiary or any entity
that the Company or any Subsidiary has an obligation to indemnify to any tax or
penalty imposed under Section 4975 of the Code or Section 502 of ERISA. The
Company will not, and will not permit any Subsidiary to, enter into any
transaction or take any action which
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will result in any transaction contemplated by the Agreement becoming a
transaction prohibited by Section 406 of ERISA or Section 4975 of the Code.
T. Compliance with Environmental Laws. So long as any Note shall
remain outstanding the Company will not, and will not permit any Subsidiary to,
except in compliance with applicable Environmental Laws, or in the event of any
noncompliance with applicable Environmental Laws, only to the extent to which
such noncompliance would not have a material adverse effect on the business,
operations or financial condition of the Company, individually, or the Company
and its Subsidiaries, taken as a whole, (a) use any of the property of the
Company or any Subsidiary or any portion thereof for the handling, processing,
storage or disposal of Hazardous Substances, (b) cause or permit to be located
on any of the property any underground tank or other underground storage
receptacle for Hazardous Substances, (c) generate any Hazardous Substances on
any of the property, (d) conduct any activity on the property or use any
property in any manner so as to cause a release (i.e., releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing or dumping) or threatened release of Hazardous
Substances on, upon or into the property or (e) otherwise conduct any activity
on the property or use any property in any manner that would lead to any
environmental claim or violate any Environmental Law or bring such property in
violation of any Environmental Law.
U. Transactions with Affiliates or Officers. Except as disclosed
on Exhibit V-U, so long as any Note shall remain outstanding, the Company will
not, and will not permit any Subsidiary to, (a) enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
the rendering of any services, with any Affiliate (other than the Company or a
Subsidiary of the Company), or any officer or director thereof, or enter into,
assume or suffer to exist any employment or consulting contract with any
Affiliate (other than the Company or a Subsidiary of the Company), or any
officer or director thereof, except any transaction or contract which is in the
ordinary course of the Company's business and which is upon fair and reasonable
terms no less favorable to the Company than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate, (b) make any advance
or loan to any Affiliate (other than the Company or Subsidiary of the Company),
or any director or officer thereof or of the Company or to any trust of which
any of the foregoing is a beneficiary, or (c) pay any fees or expenses to, or
reimburse or assume any obligation for the reimbursement of any expenses
incurred by, any Affiliate (other than the Company or a Subsidiary of the
Company or Donaldson, Lufkin & Jenrette for investment banking services
pursuant to an agreement negotiated at arms length and containing terms and
conditions as are customarily contained in such agreements) or any officer or
director thereof; provided that nothing contained in this paragraph 5U shall be
deemed to prohibit (i) the Company or any of its Subsidiaries from providing
reasonable compensation and related fringe benefits (except as set forth in
paragraph 5S), advances permitted by paragraph 5K(h), reimbursement of normal
business expenses or indemnification rights to any of its respective officers,
directors, consultants and employees; or (ii) the payment of reasonable fees
and reasonable out-of-pocket expenses to counsel and directors who are not
employees of the Company or any of its Subsidiaries.
V. Issuance of Notes. Except for (i) the issuance and sale of
Notes pursuant to the terms of this Agreement to the Purchasers named herein
and (ii) the issuance of Notes in accordance with
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Paragraph 11E hereof, the Company, so long as any Notes are outstanding, shall
not issue, sell or deliver any Notes.
W. Board Visitation Rights. (a) So long as any Note or a Warrant
shall remain outstanding, the Company will notify any Purchaser or Purchaser
transferee holding (together with any Affiliates of such Purchaser or Purchaser
transferee) an aggregate of $5,000,000 in principal amount of Notes or an
aggregate number of Warrants which if exercised would result in the receipt by
the Company of proceeds of $2,000,000, concurrently with notice given to
members of the Board of Directors, of all regularly scheduled quarterly
meetings of the Board of Directors of the Company and will use all reasonable
efforts to notify such Purchaser or Purchaser transferee, concurrently with
notice given to members of the Board of Directors, of any special meetings of
the Board of Directors of the Company. The Company will permit such Purchasers
or Purchaser transferees to attend all such meetings as an observer and to
participate as an elected member with all rights of an elected member (unless
the Purchaser or Purchaser Transferee is a bank or bank holding company, in
which case such person shall be deemed an observer only), voting excepted, and
the Company shall deliver to such designated Purchaser or Purchaser transferee
all notices, reports and materials as are delivered to members of the Board of
Directors and the Company shall use its reasonable efforts to deliver such
notices, reports and materials at the same time such items are delivered to the
Board. Notwithstanding the foregoing, the Company shall be entitled to
withhold any such report or material and/or exclude any herein permitted
observer from any portion of any such meeting if counsel for the Company
determines at any time that the distribution of any such report or material
and/or the participation of any such permitted observer may result in the
waiver of the attorney-client privilege, or may violate any law, rule,
regulation or confidentiality agreement or create any liability to the Company
or any member of the Board of Directors. If at any time the Board exercises
its right to withhold any report or material or exclude any permitted observer,
it will give reasonable notice thereof. Any Purchaser or Purchaser transferee
attending any meeting of the Board of Directors shall be bound by the same
obligations and liabilities of an elected member of the Board of Directors as
to the use and disclosure of confidential, proprietary or other material
nonpublic information of the Company and corporate opportunities (other than
with respect to any such information or any such corporate opportunity obtained
by such Purchaser or Purchaser transferee from sources other than in connection
with the exercise of rights pursuant to this paragraph 5W).
(b) All rights of any Purchaser or Purchaser transferee under this
paragraph 5W shall expire upon the completion by the Company of a Successful
Public Offering.
X. No Change in Business. Neither the Company nor any of its
Subsidiaries will change substantively the character of its business as
conducted on the Closing Date as represented in Paragraph 7U hereof.
Y. Issuance of Additional Warrants. Unless the Company shall
have (i) prepaid or exchanged the Notes in whole in accordance with the
provisions of Article IV or (ii) completed a Qualified Public Debt Offering not
later than December 31, 1996, the Company shall on January 1, 1997, issue to
the holders of the Notes then outstanding, for no additional consideration,
Warrants initially evidencing the right to purchase Common Stock of the
Company, such Warrants to be dated the date of issue, to expire on the
Expiration Date, to be issued to each holder of the Notes in an
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amount equal to three shares of Common Stock per $1,000 principal amount of the
Notes held by such holder and to be substantially in the form attached hereto
as Exhibit II-A2.
A "Qualified Public Debt Offering" shall mean a public offering of not
less than $100,000,000 principal amount of Indebtedness of the Company (the "New
Debt") (i) having a final maturity more than one year from the date of issue
thereof, (ii) on terms and conditions reasonably customary in the public high
yield debt market for instruments similar to the New Debt at the time of such
offering, and (iii) in which the holders of the Notes are given an offer by the
Company to exchange the Notes for New Debt either (x) having an interest rate at
least equal to the Applicable Rate of the Notes or (y) if the interest rate
borne by the New Debt is less than the Applicable Rate of the Notes, then
pursuant to which the Interest Rate Difference is paid to the holders of the
Notes in cash, together with accrued but unpaid interest on the Notes to the
date of exchange.
"Interest Rate Difference" shall mean the present value of the cash
stream (assuming no prepayments of principal after the date of exchange)
representing the amount by which the Applicable Rate of the Notes on the date of
exchange exceeds the interest rate borne by the New Debt, discounted quarterly
at the interest rate borne by the New Debt from the date of final maturity of
the Notes to the date of exchange.
Z. Post Closing Conditions. (a) NAIC Rating. The Company shall
within 120 days following the Closing Date furnish evidence satisfactory to the
holders of the Notes of the rating assigned to the Notes by the National
Association of Insurance Commissioners.
(b) Amendment of Certificate of Incorporation. The Company shall
(i) at the first regular or special meeting of the Company's shareholders
following the Closing Date and in any event on or prior to June 1, 1996, cause
the Certificate of Incorporation to be amended to provide that the declaration
and payment of dividends and the redemption of the Series A Preferred Stock,
the Series BB Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and any other outstanding series of preferred stock of the
Company shall be prohibited if such declaration and payment or redemption would
violate any financial covenant in Article V and (ii) take all other actions
necessary to cause such amendment to become effective on or prior to June 30,
1996.
AA. No Amendment of D Note Agreement. The Company will not,
directly or indirectly, amend, modify or supplement any term, provision or
condition of the D Note Agreement or the 1993 Notes in any manner so as to
increase or improve the relative rights thereunder of the holders of the l993
Notes or Warrants issued pursuant to the D Note Agreement (the "Series D
Warrants"), or increase the obligations thereunder of the Company, (ii) the
Series D Stock Registration Agreement in any manner so as to increase or
improve the relative rights thereunder of the holders of any securities
entitled to be registered thereunder, or increase the obligations thereunder of
the Company, or (iii) the Series D Warrants, in any manner so as to increase or
improve the relative rights thereunder of the holders of the Series D Warrants,
or increase the obligations thereunder the Company; in any case without the
prior written consent of the holders 66-2/3% of the aggregated principal amount
of the Notes then outstanding.
BB. Shelf Registration. If the Company shall at any time file a
registration statement with the Commission pursuant to Rule 415 under the
Securities Act registering Common Stock issued
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or issuable upon (a) conversion of the Series A Preferred Stock, the Series BB
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock or
any other shares of securities convertible into Common Stock or (b) the
exercise of warrants to purchase Common Stock outstanding immediately prior to
the Closing, then the Company will include in such registration statement the
Common Stock issued and issuable upon the exercise of the Warrants, together
with any Common Stock issued as a dividend or other distribution with respect
thereto subsequent to the exercise of the Warrants but prior to the date of
filing such registration statement.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
6. Events of Default and Remedies. A. If any of the following
events shall occur and be continuing for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be affected
by operation of law or otherwise):
(i) the Company shall default in the payment (whether or
not such payment is prohibited under Article IX hereof) of any principal of or
premium, if any, on any Note when the same shall become due, either by the
terms thereof or otherwise as herein provided; or
(ii) the Company shall default in the payment (whether or
not such payment is prohibited under Article IX hereof) of any interest on any
Note and such default shall have continued for six business days; or
(iii) the Company shall default in the making of any
required purchase of any Note as provided in paragraph 4A or 4C hereof; or
(iv) the Company or any Subsidiary shall default in any
payment of principal of or interest on any other obligation for borrowed money
(or any obligation or obligations under a conditional sale or other title
retention agreement or any obligation or obligations issued or assumed as full
or partial payment for property whether or not secured by a purchase money
mortgage or any obligation under notes payable or drafts accepted representing
extensions of credit) in any case if such obligation is for an amount in excess
of $2,000,000, beyond any period of grace provided with respect thereto or
shall default in the performance of any other agreement, term or condition
contained in any agreement under which any such obligation is created (or if
any other default under any such agreement shall occur and be continuing) if
the effect of such default is to cause, or permit the holder or holders of such
obligation or obligations (or a trustee on behalf of such holder or holders) to
cause, such obligation or obligations to become due prior to its or their
stated maturity; or
(v) a final judgment, decree or order for the payment of
money in excess of $2,000,000 shall be rendered against the Company or any
Subsidiary, and such judgments shall not be covered by insurance and the same
shall not be discharged or execution thereon stayed pending appeal within 60
days after entry thereof, or, in the event of such a stay, such judgment shall
not be discharged, or again stayed pending further appeal, within 60 days after
such stay shall expire; or
(vi) any representation or warranty made by the Company
herein or in any writing furnished in connection with the issuance and sale of
the Notes and Warrants and the purchase
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thereof by the Purchasers shall be false in any material respect on the date as
of which made; or
(vii) the Company shall default in the performance or
observance of any agreement, covenant, term or condition contained in
paragraphs 5B, 5C, 5D, 5E, 5G, 5H, 5I, 5J, 5K, 5N, 5V, 5W or 5X; or
(viii) the Company shall default in the performance or
observance of any other agreement, covenant, term or condition contained in
this Agreement (other than as provided in clause (i), (ii), (iii) or (vii) of
this Article VI, for which the respective grace period, if any, described in
such clause shall apply), including without limitation the furnishing in
writing of any representation or warranty required to be furnished after the
Closing Date pursuant to this Agreement, and such default shall not have been
remedied within 30 days; provided, however, that if there shall have occurred a
default under paragraph 5A(a) through (d) hereto, then such 30 day period shall
not begin until a Purchaser shall have delivered a notice of such default to
the Company; or
(ix) if the Company or any Subsidiary shall (a) apply for
or consent to the appointment of a receiver, trustee, liquidator or custodian
or the like for itself or for its property, (b) admit in writing its inability
to pay its debts generally as they become due, (c) make a general assignment
for the benefit of creditors, (d) commence a voluntary case under the Federal
bankruptcy laws of the United States of America or file a voluntary petition or
answer seeking reorganization, an arrangement with creditors or an order for
relief or seeking to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding, or corporate action shall
be taken by it for the purpose of effecting any of the foregoing; or
(x) if without the application, approval or consent of
the Company or any Subsidiary, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Company or any
Subsidiary an order for relief or an adjudication in bankruptcy,
reorganization, dissolution, winding up, liquidation, a composition or
arrangement with creditors, a readjustment of debts, the appointment of a
trustee, receiver, liquidator or custodian or the like of the Company or such
Subsidiary or of all or any substantial part of its assets, or other like
relief in respect thereof under any bankruptcy or insolvency law, and, if such
proceeding is being contested by the Company or such Subsidiary in good faith,
the same shall (a) result in the entry of an order for relief or any such
adjudication or appointment or (b) continue undismissed, or pending and
unstayed, for any period of thirty (30) consecutive days;
B. Upon the happening of any event described in any of clauses
(i) through (iii) of Paragraph 6A hereof, then in each such event any holder or
holders of 35% in aggregate principal amount of the Notes at the time
outstanding may at any time (unless all Events of Default shall theretofore
have been waived or remedied) at its or their option and in addition to any
right, power or remedy permitted by law or equity or herein granted, by written
notice or notices to the Company, declare such holder's or holders' Notes to be
due and payable. Upon the happening of any event described in clauses (iv)
through (viii) of Paragraph 6A, then and in each such event any holder or
holders of 51% or more in aggregate principal amount of the Notes then
outstanding may at any time
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(unless all Events of Default shall theretofore have been waived or remedied)
at its or their option and in addition to any right, power or remedy permitted
by law or equity or herein granted, by written notice or notices to the
Company, declare all the Notes to be due and payable. Upon any such
declaration pursuant to the preceding sentence or upon the happening of any
event described in clause (ix) or (x) in Paragraph 6A hereof (in which case no
declaration is required), all Notes shall forthwith immediately mature and
become due and payable, together with interest accrued thereon, all without
present, demand, protest or notice, all of which are hereby waived. However,
if, at any time after the principal of the Notes shall so become due and
payable and prior to the date of maturity stated in the Notes, all arrears of
principal and interest on the Notes (with interest at the rate specified in the
Notes on any overdue principal and any overdue premium and, to the extent
legally enforceable, on any overdue interest) shall be paid to the holders of
Notes by or for the account of the Company, and all other defaults under this
Agreement, shall have been remedied or waived by holders representing not less
than two-thirds of the principal amount of Notes outstanding, then and in such
instance such default may be waived and its consequences rescinded and annulled
by the holders of not less than two-thirds of the principal amount of Notes
outstanding by written notice to the Company, which waiver shall be binding
upon all holders. It is expressly understood and agreed that the decision so to
waive any default and so to rescind and annul any consequences thereof is
within the sole judgment and control of the holders of the Notes, and such
holders shall be under no obligation so to do.
ARTICLE VII
REPRESENTATIONS, COVENANTS AND WARRANTIES
The Company represents, covenants and warrants as follows:
A. Organization, Standing, Qualification of Company and
Subsidiaries, and Authorization. The Company is a corporation duly organized
and existing in good standing under the laws of the State of Delaware; each
Subsidiary having assets in excess of $100,000 or annual revenues in excess of
$100,000 is duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated; the aggregate assets of all
Subsidiaries which are either not duly organized or existing in good standing,
or both, in their respective jurisdictions of incorporation does not exceed
$100,000; and the Company has and each Subsidiary has the corporate power to
own its respective property and to carry on its respective business as now
being conducted. The Company is and each Subsidiary is duly qualified and in
good standing as a foreign corporation to do business in every jurisdiction
where the character of the properties owned or leased by it or the nature of
any business transacted by it makes such qualification necessary and where such
nonqualification or lack of good standing would have a material adverse effect
on the business of the Company and its consolidated Subsidiaries taken as a
whole. The Company has no Subsidiaries other than as set forth in Exhibit
VII-A. The Company has delivered to the Purchasers true, complete and correct
copies of its Certificate of Incorporation and By-laws, as amended and in full
force and effect on the Closing Date.
The Company has taken all actions necessary to authorize it to enter
into and perform its obligations under this Agreement, including without
limitation the issuance of the Notes and
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Warrants (and to issue the shares of Common Stock issuable upon exercise of the
Warrants), the E Stock Registration Agreement, the Addendum Agreement and the
Certificate of Incorporation of the Company and to consummate the transactions
contemplated hereby and thereby. The Company has duly executed and delivered
this Agreement and, as of the Closing Date, the Notes, the Warrants, the E
Stock Registration Agreement and the Addendum Agreement. The Company has full
right, power and authority to execute and perform its obligations under this
Agreement, the Notes, the Warrants, the E Stock Registration Agreement and the
Addendum Agreement and this Agreement, and the Notes, the Warrants, the E Stock
Registration Agreement and the Addendum Agreement constitute the legal, valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
B. Financial Statements. The Company has furnished the
Purchasers with consolidated balance sheets of the Company and its consolidated
Subsidiaries as at December 31, 1994 and the related consolidated statements of
income, stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries for the fiscal year ended December 31, 1994, all certified by
Coopers & Lybrand, including in each case the related schedules and notes, and
the unaudited consolidated balance sheets of the Company and its consolidated
Subsidiaries and the key operating indicators of the Company and its
consolidated Subsidiaries as at March 31, 1995 and the unaudited consolidated
statements of income, stockholders' equity and cash flows of the Company and
its consolidated Subsidiaries for the period ended on such date, prepared by
the Company and certified by its principal financial officer.
Except as disclosed in Exhibit VII-B, all such financial statements (including
any related schedules and/or notes) have been prepared in accordance with
generally accepted accounting principles consistently applied, except to the
extent set forth in the notes to such financial statements, throughout the
periods involved and to the extent required by such principles show all
liabilities, direct and contingent, of the Company and its consolidated
Subsidiaries. Except as disclosed in Exhibit VII-B, the balance sheets and the
related schedules and notes fairly present on a consolidated basis the
financial condition of the Company and its consolidated Subsidiaries as at the
respective dates thereof; and the statements of income and stockholders' equity
and the related schedules and notes and the key operating indicators fairly
present on a consolidated basis the results of the operations of the Company
and its consolidated Subsidiaries for the respective periods indicated.
Except as disclosed in Exhibit VII-B, there have been no material adverse
changes in the business, operations, property, assets, prospects, condition,
financial or other, of the Company and its Subsidiaries, on a consolidated
basis, since December 31, 1994.
C. Actions Pending. Except as disclosed in Exhibit VII-C there
is no action, suit, investigation or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries before
any court, arbitrator or administrative or governmental body that (i) questions
the validity of this Agreement, the Notes, the Warrants, the shares of Common
Stock issuable upon exercise of the Warrants, the E Stock Registration
Agreement, the Addendum Agreement or the Certificate of Incorporation of the
Company or any action taken or to be taken pursuant hereto or thereto or (ii)
might adversely affect the right, title or interest of any Purchaser to the
Notes, the Warrants or the shares of Common Stock issuable upon exercise of the
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Warrants or (iii) that materially and adversely affects, or as to which there
is a reasonable possibility of an adverse decision that would materially and
adversely affect, either individually or collectively, the business, property,
assets or condition of the Company and its consolidated Subsidiaries taken as a
whole. Neither the Company nor any Subsidiary is in violation of any judgment,
order, writ, injunction, decree, rule or regulation of any court or
governmental department, commission, board, bureau, agency or instrumentality,
the violation of which might, either individually or collectively, materially
and adversely affect the business, property, assets or financial position of
the Company and its consolidated Subsidiaries taken as a whole.
D. Outstanding Debt; No Default. Neither the Company nor any of
its Subsidiaries has outstanding any Current Indebtedness or Funded
Indebtedness except as set forth in the consolidated balance sheet of the
Company and its consolidated Subsidiaries as at March 31, 1995 or as set forth
in Exhibit VII-D. The Company has no outstanding subordinated indebtedness
other than the Notes, the 1993 Notes and the Indebtedness described on Exhibit
VII-D. There exists no event of default by the Company or any Subsidiary under
the provisions of any instrument evidencing such Current Indebtedness or Funded
Indebtedness and there exists no event of default by the Company or any
Subsidiary, or any default by the Company or any Subsidiary the effect of which
would have a material adverse effect on the Company and its Subsidiaries taken
as a whole, under the provisions of any other Indebtedness of the Company or of
any Subsidiary or of any agreement relating thereto that is or could be
material to the Company or such Subsidiary.
E. Title, Liens. The Company has, and each of its Subsidiaries
has, good and marketable title to its respective properties and assets
reflected in the consolidated balance sheet of the Company and its consolidated
Subsidiaries as at December 31, 1994 (other than properties and assets disposed
of in the ordinary course of business and equity interests owned by others in
Subsidiaries of the Company) and except for property purchased under title
retention transactions or capitalized leases. Neither the Company nor any
Subsidiary has pledged or mortgaged its assets to secure any indebtedness other
than (i) to Banque Paribas, Agent under a loan agreement dated as of November
5, 1993, as amended, (ii) purchase money indebtedness, (iii) mortgages to
secure the assets being acquired, (iv) capital leases, (v) deposits in the
ordinary course or (vi) as otherwise disclosed to the Purchasers in any exhibit
hereto.
F. Taxes. The Company has, and each of its Subsidiaries has
timely, filed all Federal, State and other income and payroll tax returns that,
to the knowledge of the Company, are required to be filed, and each has paid
all taxes as shown on said returns and on all assessments received by it to the
extent that such taxes have become due except for taxes or assessments the
payment of which is being contested in good faith by proper action and against
which adequate accounting reserves are being maintained. The Company is not
aware of any proposed tax assessment against it or any Subsidiary and all tax
liabilities are provided for with adequate reserves.
G. Burdensome and Conflicting Agreements and Charter Provisions.
Neither the Company nor any Subsidiary is a party to any contract or agreement
or subject to any charter or other corporate restriction which materially and
adversely affects its business as currently conducted, properties or assets or
financial condition. Except as disclosed in Exhibit VII-G and other than
prohibitions on the prepayment of debt contained in the Bank Agreement (which
restricts the
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Company's ability to perform its obligations under paragraph 4A and 4C hereof),
neither the execution nor delivery nor performance of this Agreement and of the
Notes, the Warrants, E Stock Registration Agreement, and the Addendum Agreement
by the Company, nor the offering, issuance and sale of the Notes or Warrants by
the Company, nor fulfillment of nor compliance with the terms and provisions of
this Agreement and of the Notes, the Warrants, E Stock Registration Agreement
or the Addendum Agreement by the Company, nor the issuance by the Company of
shares of Common Stock upon exercise of the Warrants, will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien upon any of the properties or assets of the Company or any Subsidiary
pursuant to, or require any consent, approval or other action by any court or
administrative or governmental body or any other Person pursuant to, the
charter or by-laws of the Company or any Subsidiary, any award of any
arbitrator or any agreement (including any agreement with stockholders),
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any Subsidiary is subject, except for such approval as may be
required in connection with fulfillment of, or compliance with, the provisions
of Article X hereof (which such approval shall have been obtained prior to or
concurrent with the Closing Date) or causes anti-dilution clauses of any
outstanding securities to become operative or give rise to preemptive rights
(except with respect to such clauses or preemptive rights which have been
waived). Neither the Company nor any Subsidiary is a party to, or otherwise
subject to any provision contained in, any instrument evidencing Indebtedness
of the Company or such Subsidiary, any agreement relating thereto or any other
contract or agreement (including its charter) which, except to the extent
complied with by the Company or consented to in connection with the execution
of this Agreement, the E Stock Registration Agreement and the Addendum
Agreement and the issuance of the Notes and Warrants, restricts or otherwise
limits the incurring of the Indebtedness evidenced by the Notes.
H. Leases. The Company and each of its Subsidiaries enjoys
peaceful and undisturbed possession of all leases necessary in any material
respect for the operation of its respective properties and assets, none of
which contains any unusual or burdensome provisions which materially or
adversely affects or impairs the operation of such properties or assets. All
such leases are valid and subsisting and are in full force and effect. Neither
the Company nor any Subsidiary is in default under any material lease under
which the Company or any Subsidiary leases any property or equipment.
I. Possession of Patents, etc. The Company and each Subsidiary
possess or has the right to the use of all the patents, trademarks, trade
names, service marks, copyrights, licenses and other rights free from
burdensome restrictions that are currently used by them or are necessary in any
material respect for the ownership, maintenance and operation of their
respective businesses, properties and assets, and neither the Company nor any
Subsidiary is in violation of any thereof in any material respect or has
received notice from or has knowledge of any material claim by any Person that
it is now infringing any of the foregoing.
J. Offering of Notes. Neither the Company nor Donaldson, Lufkin
& Jenrette (the only Person authorized or employed by the Company as agent,
broker, dealer or otherwise in connection with the offering or sale of the
Notes and Warrants or any similar security by the Company) nor any
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other agent acting on the Company's behalf has, directly or indirectly, offered
the Notes or Warrants or any similar security of the Company for sale to, or
solicited any offers to buy the Notes or Warrants or any similar security of
the Company from, or otherwise approached or negotiated with respect thereto
with more than 35 Persons including the Purchasers (all of which Persons are
accredited investors or institutional investors), and neither the Company nor
any agent acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Notes or Warrants to the provisions of
Section 5 of the Securities Act, or to the registration or qualification
requirements of any securities or Blue Sky law of any applicable jurisdiction.
K. Broker's or Finder's Commissions. Except for any fees payable
to Donaldson, Lufkin & Jenrette in connection with the issuance of the Notes
and Warrants (which fees will be paid by the Company), no broker's or finder's
or placement fee or commission will be payable with respect to the issuance of
the Notes and Warrants or the transactions contemplated hereby, and the Company
will hold the Purchasers harmless from any claim, demand or liability for
broker's or finder's or placement fees or commissions alleged to have been
incurred in connection with the issuance of the Notes and Warrants or such
transactions.
L. Application of Proceeds. Neither the Company nor any
Subsidiary owns any "margin security" within the meaning of Regulation G (12
CFR Part 207) of the Board of Governors of the Federal Reserve System (herein
called a "margin security"). The proceeds from the sale of the Notes and
Warrants by the Company will be used for general corporate purposes. Neither
the Company nor any agent acting on its behalf has taken or will take any
action which might cause this Agreement or the Notes to violate Regulation G,
Regulation T, Regulation X or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the Exchange Act, in each case as in
effect now or as the same hereafter may be in effect.
M. Governmental Consent. Neither the nature of the Company or of
any Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor
any circumstance in connection with the offer, issue, sale or delivery of the
Notes or Warrants is such as to require any consent, approval or authorization
of, or any notice to, or filing, registration or qualification with, any court
or administrative or governmental body in connection with the execution and
delivery of this Agreement, the Series E Stock Registration Agreement, the
Addendum Agreement or the offer, issue, sale or delivery of the Notes or
Warrants or (except as may be required in connection with fulfillment of
Article X hereof), all of which consents, approvals, authorizations, notices,
filings, registrations or qualifications shall have been obtained or made on or
prior to the Closing Date, fulfillment of, or compliance with, the terms and
provisions of this Agreement, the Series E Stock Registration Agreement, the
Addendum Agreement or of the Notes or Warrants, or is such as to require or
give rise to any limitation on the Purchasers' ownership of any equity
securities of the Company.
N. Holding Company Status. Neither the Company nor any
Subsidiary is a "holding company," or a Subsidiary or affiliate of a "holding
company," or a "subsidiary company" of a "holding company," or a "public
utility," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or a "public utility" within the meaning of the Federal Power Act,
as
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amended.
O. Investment Company Status. Neither the Company nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
P. ERISA. All of the "employee pension benefit plans" within the
meaning of Section 3(2) of ERISA which are maintained by or contributed to by
the Company, any of its Subsidiaries or any ERISA Affiliate and which are
intended to meet the requirements of Section 401(a) of the Code are disclosed
in the Company's financial statements. Any such plan intending to qualify
under Section 401(a) or 401(k) of the Code does so qualify. Neither the
Company nor any of its Subsidiaries nor any ERISA Affiliate maintains,
contributes to or has contributed to a Multiemployer Plan or any other plan
subject to Title IV of ERISA or Section 412 of the Code. All material employee
benefit plans and arrangements covered by ERISA, maintained by or contributed
to by the Company, any of its Subsidiaries or any ERISA Affiliate are in
substantial compliance with all applicable law, including any reporting
requirements. Except as disclosed on Exhibit VII-P, neither the Company nor
any Subsidiary has any liability with respect to retiree medical or death
benefits or other benefits payable after termination of employment. Neither
the Company, nor any of its Subsidiaries nor any other Person, including any
fiduciary, has engaged in any transaction prohibited by Section 4975 of the
Code or Section 406 of ERISA which could subject the Company or any of its
Subsidiaries or any Person the Company or any of its Subsidiaries have an
obligation to indemnify to any material tax or penalty imposed under Section
4975 of the Code or Section 502 of ERISA.
Q. Disclosure. Neither this Agreement and the Schedule and
Exhibits attached hereto nor any other document, certificate or statement
furnished to any Purchaser by or on behalf of the Company in connection
herewith (including without limitation the private placement memorandum of the
Company distributed by the Company in connection with the offer of the Notes
and Warrants), contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
herein and therein, in the light of the circumstances under which made, not
misleading. There is no fact peculiar to the Company or its Subsidiaries and
known to the Company which materially adversely affects or in the future may
(so far as the Company can now foresee) materially adversely affect the
business, operations, property, assets, prospects, or condition, financial or
other, of the Company and its Subsidiaries, taken as a whole, which has not
been set forth in this Agreement and the Schedule and Exhibits attached hereto
or in the Notes or Warrants being purchased under this Agreement or in the
other documents described herein and furnished to each of the Purchasers by or
on behalf of the Company prior to the Closing Date in connection with the
transactions contemplated hereby.
R. Capital Stock. As of the Closing Date and after giving effect
to the transactions herein provided, the Company has authorized a total of
40,400,000 shares of its capital stock of all classes, consisting of 25,000,000
shares of Common Stock, 15,400,000 shares of Preferred Stock divided into the
following classes: 3,500,000 shares of Series A Preferred Stock, 6,500,000
shares of Series A-1 Convertible Preferred Stock, 2,300,000 shares of Series BB
Preferred Stock, 500,000
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shares of Series C Preferred Stock, 2,200,000 shares of Series D Preferred
Stock and 400,000 shares of Series B $2.125 Increasing Rate Cumulative
Convertible Preferred Stock ("Series BB Preferred Stock"). As of June 1,
1995, 4,243,975 shares of Common Stock are issued and outstanding, 3,500,000
shares of Series A Preferred Stock are issued and outstanding, 2,769,109 shares
of Series A-1 Convertible Preferred Stock are issued and outstanding 1,577,547
shares of Series BB Preferred Stock are issued and outstanding, 448,811 shares
of Series C Preferred Stock are issued and outstanding, 2,112,819 shares of
Series D Preferred Stock are issued and outstanding (which will be adjusted for
the issuance of up to 44,500 additional shares pursuant to the terms of the
acquisition agreement for Psychiatric Healthcare Corporation), and no shares of
Series BB Preferred Stock are outstanding. The Company holds no shares of its
capital stock in its treasury. Since June 1, 1995 the Company has not issued
any shares of capital stock. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. The Company has reserved such
number of shares of Common Stock for issuance pursuant to such instruments or
agreements as are set forth in Exhibit VII-R hereto.
The shares of Common Stock issuable upon exercise of the Warrants have
been reserved and will, when issued, be duly authorized, validly issued, fully
paid and non-assessable.
None of the shares of the Company's capital stock outstanding at Closing
(i) were subject to preemptive rights when issued or (ii) provide the holders
thereof with any preemptive rights with respect to any capital stock of the
Company or any capital stock referred to in the immediately following
subparagraph of this Paragraph 7R.
Except as otherwise stated in this paragraph or disclosed on Exhibit
VII-R and except for shares reserved for issuance in connection with the
Warrants, the Company has not granted or issued, or agreed to grant or issue,
any options, warrants or similar rights to acquire or receive any of the
authorized but unissued shares of its capital stock of any class or any
securities convertible into shares of its capital stock of any class. As of the
date hereof, no Person holds of record or beneficially owns 5% or more of the
outstanding shares of any class of the capital stock of the Company except as
set forth in Exhibit VII-R hereto. Except as described in Exhibit VII-R above,
the Company has not taken any action after June 1, 1995 and prior to the Closing
Date which, had Section 1B of the Warrants been in effect on and after such date
and to and including the Closing Date, would have required an adjustment in the
Exercise Price as defined in Section 1A of the Warrants.
S. Environmental Compliance. (a) Neither the Company nor any
Subsidiary is in violation, or alleged to be in violation of any judgment,
decree, order, law, license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
or any federal, state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter "Environmental
Laws"), which violation would have a material adverse effect on the business,
assets or financial condition of the
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Company individually or the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company nor any Subsidiary has received written
notice from any third party, including without limitation any federal, state or
local governmental authority, (i) that the Company or any Subsidiary has been
identified by the United States Environmental Protection Agency ("EPA") as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any
hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous
substances as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33), any medical waste and
any toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous Substances") which
any one of them has generated, transported or disposed of has been released at
any site at which a federal, state or local agency has conducted or has ordered
that either the Company or any Subsidiary conduct a remedial investigation,
removal or other response action pursuant to any Environmental Law or have
named the Company or any Subsidiary as a Potentially Responsible Party or are
seeking contribution from the Company or any Subsidiary; or (iii) that it is or
shall be a named party to any claim, action, cause of action, complaint, or
legal or administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Substances.
(c) To the knowledge of the Company, to the extent such activity
would have a material adverse effect on the business, assets or financial
condition of the Company, individually, or of the Company and its Subsidiaries,
taken as a whole: (i) no portion of the property of the Company or any
Subsidiary has been used for the handling, processing, storage or disposal of
Hazardous Substances except in accordance with applicable Environmental Laws;
and no underground tank or other underground storage receptacle for Hazardous
Substances is located on any portion of the property; (ii) in the course of any
activities conducted by the Company, its Subsidiaries or operators of their
properties, no Hazardous Substances have been generated or are being used on
the property except in accordance with applicable Environmental Laws; (iii)
there have been no releases (i.e., any past or present releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of Hazardous Substances
on, upon, into or from the property of the Company or any Subsidiary, which
releases would have a material adverse effect on the value of any of the
property or adjacent properties or the environment; and (iv) in addition, any
Hazardous Wastes as defined by 42 U.S.C. Section 6903(5), if any, that have
been generated on any of the property have been transported offsite only by
carriers having an identification number issued by the EPA, treated or disposed
of only by treatment or disposal facilities maintaining valid permits as
required under applicable Environmental Laws, which transporters and facilities
have been and are, to the best of the Company's knowledge, operating in
material compliance with such permits and applicable Environmental Laws.
T. Solvency. The Company is both as a separate corporate entity
and on a consolidated basis, and both before and after giving effect to the
transactions contemplated by this Agreement, solvent.
U. Business. As described in the private placement memorandum
distributed by the
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Company in the offer of the Notes and Warrants, the Company and its
Subsidiaries are engaged primarily in the business of owning and/or operating
hospitals and other health care facilities and related businesses
ARTICLE VIII
REPRESENTATIONS AND COVENANTS OF THE PURCHASERS
A. Investment Purpose. Each Purchaser as to itself represents
and warrants that (i) it is acquiring the Notes and Warrants to be purchased by
it hereunder for its own general account and/or one or more separate accounts
maintained by it for investment and not with a view to any distribution of the
Notes or Warrants to be purchased by it hereunder, but subject, nevertheless,
to the disposition of the Notes and Warrants being at all times within its
control, (ii) either (a) no part of the funds used to acquire the Notes and
Warrants constitutes assets allocated to any separate account maintained by
such Purchaser in which any employee benefit plan (or its related trust) has
any interest or (b) no part of the funds used to purchase the Notes or Warrants
constitute assets of an employee benefit plan (within the meaning of Section 3
(3) of ERISA as interpreted by the Department of Labor regulations as in effect
on the date hereof) and (iii) it is an "accredited investor" as defined in Rule
501 under the Securities Act.
B. Authority. Each Purchaser as to itself represents and
warrants that it has the power, is authorized or otherwise duly qualified to
execute this Agreement.
C. Waiver of Preemptive Rights. Each Purchaser having the right
to acquire Notes or Warrants in amounts different from the amounts set forth in
Schedule I, do by their execution hereof, waive such rights.
ARTICLE IX
SUBORDINATION
A. Subordination of Notes. Notwithstanding anything in this
Agreement, any Note or elsewhere to the contrary, the indebtedness evidenced by
the Notes, and any renewals, extensions, modifications, refundings or
refinancings thereof, including principal, premium, if any, and interest, and
any costs of collection in connection with the Notes, including attorney fees,
shall at all times be wholly subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth in this Article 9, to all
indebtedness not to exceed $200,000,000 as to principal amount of the Company
under the Amended and Restated Loan Agreement dated as of May 31, 1995, among
the Company, Banque Paribas, as Agent, and the banks which are parties thereto
(the "Bank Agreement"), specifically including, without limitation, all
principal not to exceed $200,000,000, premium, if any, interest (including
interest accruing after the commencement of any proceeding by or against the
Company under the Bankruptcy Code, to the extent such interest is allowed as a
claim in such proceeding), commitment fees, facilities fees, reimbursable
expenses, indemnities, costs of collection (including attorneys' fees), and all
other monetary obligations payable in connection with such indebtedness,
whether outstanding on the date hereof or created or incurred after the date
hereof (including any renewals, extensions, increases, modifications,
refundings or refinancings thereof) (such indebtedness of the Company to which
the Notes are subordinate and junior is sometimes
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hereafter referred to as "Senior Indebtedness"):
(1) (a) In the event of any liquidation, dissolution or
winding up of the Company, or of any execution, sale, receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other similar
proceeding relative to the Company or its property, whether in bankruptcy,
insolvency, reorganization or receivership proceedings or upon an assignment
for the benefit of creditors or any other marshalling of the assets and
liabilities of the Company, or otherwise (collectively, "Debtor Relief
Proceedings"), all Senior Indebtedness shall first be paid in full in cash (or
otherwise satisfied in a manner acceptable to the holders of the Senior
Indebtedness in their sole and absolute discretion) before any payment is made
upon the indebtedness evidenced by the Notes; and in any such event any payment
or distribution of any kind or character, whether in cash, property or
securities (other than in securities or other evidences of indebtedness, the
payment of which is subordinated to the payment of all Senior Indebtedness
which may at the time be outstanding to at least the same extent as the Notes
are subordinated) which shall be made upon or in respect of the Notes shall be
paid over to the holders of such Senior Indebtedness, pro rata, for application
in payment thereof unless and until such Senior Indebtedness shall have been
paid in full in cash (or otherwise satisfied in a manner acceptable to the
holders of the Senior Indebtedness in their sole and absolute discretion).
(b) In the event of the failure of the holders of the
Notes, or any of them, to file claims or proofs of claim in any Debtor Relief
Proceeding prior to the date which is thirty days before the applicable bar
date or other time limit for filing of such claims or proofs of claim, the
holders of the Notes hereby irrevocably authorize and empower the holders of
the Senior Indebtedness to file claims or proofs of claim in any such Debtor
Relief Proceeding, in the name of the holders of the Senior Indebtedness or in
the name of the holders of the Notes. The holders of the Notes hereby agree to
execute and deliver to the holders of the Senior Indebtedness such powers of
attorney, assignments or other instruments as may be requested by the holders
of the Senior Indebtedness in order to enable the holders of the Senior
Indebtedness to file such claims or proofs of claim upon or with respect to any
or all of the Notes.
(c) The holders of the Notes agree that, unless the
holders of the Senior Indebtedness have contested the validity or
enforceability of the Agreement or the Notes, none of the holders of the Notes
shall take any action in any Debtor Relief Proceeding which would contest the
validity or enforceability of (i) the Bank Agreement, (ii) the obligations of
the Company under the Bank Agreement, (iii) the liens or security interests
securing the Senior Indebtedness, (iv) the rights of the holders of the Senior
Indebtedness under the Bank Agreement and the documents, instruments, and
agreements securing the obligations of the Company under the Bank Agreement, or
(v) the validity or enforceability of the provisions of this Article 9.
(2) Except as otherwise specifically provided in this
paragraph (2), the holders of the Notes shall not be entitled to any payments
of principal, premium, or interest on the Notes until after the Senior
Indebtedness shall have been paid in full in cash (or otherwise satisfied in a
manner acceptable to the holders of the Senior Indebtedness in their sole and
absolute discretion). If (a) no default or event of default exists under the
Bank Agreement (and no event occurs which, upon the giving of notice or passage
of time, or both, would constitute a default or an event of
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<PAGE> 44
default under the Bank Agreement), and (b) if the making of the prepayments of
principal, premium and interest on the Notes required under Article IV(A)
hereof would not create or result in the occurrence of a default or an event of
default under the Bank Agreement (or an event or occurrence which, with the
giving of notice or passage of time, or both, would constitute a default or an
event of default under the Bank Agreement), then the prepayments of principal,
premium and interest on the Notes required under Article IV(A) hereof may be
made. If no default or event of default exists under the Bank Agreement (and
no event occurs which, upon the giving of notice or passage of time, or both,
would constitute a default or an event of default under the Bank Agreement),
the total principal, premium and interest required to be paid on the Notes on
the Maturity Date may be paid on December 31, 2003; provided that if any such
default or event of default blocking payment on the Notes pursuant to this
sentence is waived by the holders of the Senior Indebtedness or cured to the
satisfaction of the holders of the Senior Indebtedness, the total principal,
premium and interest required to be paid on the Notes on the Maturity Date
shall thereupon be immediately paid. So long as the holders of the Notes have
not received notice (as provided in paragraph (4) below) that a default or an
event of default exists under the Bank Agreement (or that an event has occurred
which, upon the giving of notice or passage of time, or both, would constitute
a default or an event of default under the Bank Agreement), and so long as no
payment default exists with respect to the Senior Indebtedness, the Company may
make and the holders of the Notes may receive the scheduled installments of
interest payable on the Notes. During the continuance of any payment default
under the documents evidencing or securing any Senior Indebtedness, no payment
of principal, premium or interest otherwise permitted hereunder shall be made
on the Notes until the time at which the payment default with respect to the
Senior Indebtedness is either waived by the holders of the Senior Indebtedness
or is cured to the satisfaction of the holders of the Senior Indebtedness.
During the continuance of any default or event of default under the documents
evidencing or securing any Senior Indebtedness (or upon the occurrence of any
event which with notice or lapse of time or both, would become a default or an
event of default under the Bank Agreement), other than a payment default, of
which the holders of the Notes have received notice (as provided in paragraph 4
below), no payment of principal, premium or interest otherwise permitted
hereunder shall be made on the Notes until the earliest of (a) the payment in
full in cash of all Senior Indebtedness (or the provision for such payment or
other satisfaction of the Senior Indebtedness in a manner acceptable to the
holders of the Senior Indebtedness in their sole and absolute discretion), (b)
the expiration of a 180-day period beginning on the day the holders of the
Notes receive notice of the occurrence of the default or the event of default
(or the occurrence of the event which, with the giving of notice, or passage of
time, or both, would constitute a default or an event of default) (such 180-day
period or shorter time if terminated under clause (c) following, being referred
to hereinafter as a "Blockage Period"), or (c) the time at which the default or
event of default (or the event which, with the giving of notice or passage of
time, or both, would constitute a default or event of default under the Bank
Agreement) with respect to the Senior Indebtedness is either waived by the
holders of the Senior Indebtedness or is cured to the satisfaction of the
holders of the Senior Indebtedness. Upon the expiration of any Blockage
Period, regularly-scheduled interest payments may be made with respect to the
Notes unless and until the holders of the Notes receive notice of an additional
Blockage Period, which notice must specify a different default or
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event of default than that specified in the notice which initiated the
preceding Blockage Period (or the recurrence, but not merely the continuance,
of such prior default or event of default). The holders of the Senior
Indebtedness may not impose more than four Blockage Periods while the Senior
Indebtedness is outstanding, and the holders of the Senior Indebtedness may not
impose any Blockage Period until at least forty-five (45) days have elapsed
since the end of the immediately preceding Blockage Period (if any).
(3) Until the Senior Indebtedness shall have been paid in
full in cash (or otherwise satisfied in a manner acceptable to the holders of
the Senior Indebtedness in their sole and absolute discretion), the holders of
the Notes (or any of them) may not accelerate the maturity of the Notes,
exercise any remedies with respect to the Company on account of the Notes or
the indebtedness evidenced thereby or take any action to collect any amounts
unpaid on the Notes until the earliest of (a) the institution of any Debtor
Relief Proceeding relating to the assets or liabilities of the Company, (b) the
acceleration of the maturity of any Senior Indebtedness, (c) the initiation by
the holders of the Senior Indebtedness of any judicial proceeding to collect
any Senior Indebtedness, or (d) the expiration of a thirty-day period beginning
on the day the holders of the Senior Indebtedness receive notice from the
holders of the Notes (as provided in paragraph (4) below) specifying the
default with respect to the Notes and the actions which the holders of the
Notes intend to take (such thirty-day period, or longer period if extended as
specified in the following sentence, is referred to hereinafter as the
"Standstill Period"). Without limiting or affecting the rights of the holders
of the Notes upon the occurrence of any event referred to in clauses (a)
through (c) of the immediately preceding sentence (in which event clause (d) of
the immediately preceding sentence and this sentence shall not apply), if any
Blockage Period exists at the time a notice is given under clause (d) of the
immediately preceding sentence, or if any Blockage Period is initiated during
any Standstill Period, the Standstill Period will continue through the later of
the expiration of the thirty day period or the expiration of such Blockage
Period. The expiration of, or existence or absence of, any Standstill Period
does not affect the subordination provided for in the other paragraphs of this
Article 9.
(4) Notice by the holders of the Senior Indebtedness to
the holders of the Notes required by paragraph (2) above and notice by the
holders of the Notes to the holders of the Senior Indebtedness required by
clause (d) of paragraph (3) above will be deemed received on the earliest of
(a) when given, if sent by confirmed telecopy, (b) upon oral confirmation of
delivery, if sent by courier, and (c) on the signing of a receipt therefor, if
given by registered or certified mail, return receipt requested. Notice is
effective upon receipt (actual or deemed) of such notice by the party to which
notice is given, without regard to whether or not any other similarly-situated
party has received such notice, and the Blockage Period or Standstill Period
with respect to such party shall commence upon that party's (actual or deemed)
receipt of notice.
(5) Following an acceleration of the maturity of any
Senior Indebtedness, and as long as such acceleration shall continue
unrescinded, such Senior Indebtedness shall first be paid in full in cash (or
otherwise satisfied in a manner acceptable to the holders of the Senior
Indebtedness in their sole and absolute discretion), before any payment is made
on, or with respect to, the Notes, regardless of whether or not such
acceleration takes place during any Blockage Period, regardless
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<PAGE> 46
of the number of Blockage Periods which have taken place, and regardless of how
many days have elapsed since the end of the immediately preceding Blockage
Period, if any.
(6) In the event that, notwithstanding the foregoing, any
cash or distribution of assets of the Company, whether in cash, property,
securities or otherwise, which, under the provisions of this Agreement should
not have been paid to the holders of the Notes, is received by the holders of
the Notes, any one of them or any person on their behalf, or provision is made
for such payment or distribution, such payment or distribution shall be held in
trust for the benefit of and shall immediately be paid or delivered directly to
the holders of the Senior Indebtedness, on a pro rata basis, with any necessary
endorsement, for application to the payment of the Senior Indebtedness, due or
not due, until the Senior Indebtedness shall have been fully paid or satisfied.
The provisions of this Article 9 are solely for the purpose of defining
the relative rights of the holders of Senior Indebtedness on the one hand, and
the holder of any Note on the other hand, and nothing herein shall impair, as
between the Company and the holder of any Note, the obligation of the Company,
which is unconditional and absolute, to pay the principal of, premium (if any)
and interest thereon in accordance with its terms; nor shall anything herein
prevent the holder of any Note from exercising all remedies otherwise permitted
by applicable law or hereunder upon default hereunder or under any Note, subject
to the rights of the holders of the Senior Indebtedness under this Article 9 and
the agreements of the holders of the Notes contained herein, and nothing herein
shall prevent the exercise of the Warrants (or any part thereof) in accordance
with their terms.
The provisions of this Article 9 are for the benefit of the holders of
the Senior Indebtedness, and the holders of the Senior Indebtedness are entitled
to enforce the provisions of this Article 9. Notwithstanding any other
provisions of this Agreement to the contrary, the provisions of this Article 9
may not be amended or modified without the written consent of all of the holders
of the Senior Indebtedness.
Subject to the payment in full in cash of all Senior Indebtedness (or
the provision for such payment or other satisfaction of the Senior Indebtedness
in a manner acceptable to the holders of the Senior Indebtedness in their sole
and absolute discretion), the holders of the Notes shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until all amounts owing on the Notes shall be paid in full,
and, as between the Company, its creditors other than holders of Senior
Indebtedness, and the holders of the Notes, no such payment or distribution made
to the holders of Senior Indebtedness by virtue of this Article 9 which
otherwise would have been made to the holders of the Notes shall be deemed to be
a payment by the Company on account of the Senior Indebtedness, it being
understood that the provisions of this Article 9 are and are intended solely for
the purpose of defining the relative rights of the Holders of the Notes, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination herein shall at any time be prejudiced or impaired by
any act or failure to act on the part of the Company or by any non-compliance by
the Company with the terms, provisions and covenants of this Agreement
regardless of any knowledge thereof any such holder may have or be
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otherwise charged with.
ARTICLE X
RESTRICTIONS ON TRANSFER
The Warrants, Notes and any Restricted Securities shall not be
transferable except upon the conditions specified in this Article X, which
conditions are intended to insure compliance with the provisions of the
Securities Act and state securities laws in respect of the transfer of any such
securities.
A. Restrictive Legends. (a) Unless and until otherwise permitted
by this Article, each certificate for a Warrant, Note or any Restricted
Securities issued to a Purchaser or a nominee thereof, or to any subsequent
transferee of such certificate shall be stamped or otherwise imprinted with a
legend in substantially the following form: "The securities represented by this
certificate have not been registered under the Securities Act of 1933, as
amended, and thus may not be offered for sale, sold, transferred or otherwise
disposed of unless registered under the Securities Act of 1933, as amended, or
unless an exemption from such registration is available. Further, such
transfer is subject to the conditions specified in the Series E Note Purchase
Agreement dated May 1, 1995 pursuant to which such securities were issued and
sold by Champion Healthcare Corporation (the "Company") and the Addendum
Agreement dated May 1, 1995, copies of which agreements are on file and may be
inspected at the principal office of the Company. A copy of each agreement
will be furnished by the Company to the holder hereof upon request and without
charge. Under certain circumstances specified in such Series E Note Purchase
Agreement, the Company has agreed to deliver to the holder hereof a new
certificate, not bearing this legend, for all or part of the number of the
securities evidenced hereby, as the case may be, registered in the name of such
holder or its designated nominee."
(b) The Company may order its transfer agents for Notes, Warrants
and Restricted Securities to stop the transfer of any Note, Warrant or
Restricted Securities bearing the legend set forth in Subparagraph (a) of this
paragraph 10A until the conditions of this Article X with respect to the
transfer of such securities have been satisfied.
B. Notice of Proposed Transfer. If, prior to any transfer or
sale of any Warrant or Restricted Securities, the holder desiring to effect
such transfer or sale shall deliver a written notice to the Company describing
briefly the manner of such transfer or sale and a written opinion of counsel
for such holder (who may be counsel employed by any institutional holder)
(provided that such counsel (if other than counsel for the Company or for the
Purchasers in connection with the issuance of the Notes and Warrants
hereunder), and the form and substance of such opinion, are reasonably
satisfactory to the Company) to the effect that such transfer or sale may be
effected without the registration of such securities under the Securities Act,
the Company shall thereupon permit or cause its transfer agent (if any) to
permit such transfer or sale to be effected; provided, however, that if in such
written notice the transferring holder represents and warrants to the Company
that the transfer or sale is to a purchaser or transferee whom the transferring
holder knows or reasonably believes to be a "qualified institutional buyer", as
that term is defined in Rule 144A promulgated by the Securities and Exchange
Commission under the Securities Act ("Rule 144A"),
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no opinion shall be required.
C. Termination of Restrictions. (a) Notwithstanding the foregoing
provisions of this Article X, the restrictions imposed by this Article X upon
the transferability of Notes, Warrants and Restricted Securities shall not
apply and shall terminate as to any particular Warrant, Note or Restricted
Securities if (1) such security is effectively registered under the Securities
Act and sold by the holder thereof in accordance with such registration, or (2)
a written opinion to the effect that such restrictions are no longer required
or necessary under any federal or state securities law or regulation have been
received from counsel for the holder thereof (who may be counsel employed by
any institutional holder) or counsel for the Company, or (3) such security is
sold without registration under the Securities Act in compliance with Rule 144
promulgated by the Securities and Exchange Commission under the Securities Act
("Rule 144") or Rule 144A, or (4) the Company is reasonably satisfied that the
holder of such security shall, in accordance with the terms of Subsection (k)
of Rule 144, be entitled to sell such security pursuant to such Subsection, or
(5) a letter or an order shall have been issued to the holder thereof by the
staff of the Securities and Exchange Commission or stating that no enforcement
action shall be recommended by such staff or taken by such Commission, as the
case may be, if such security is transferred without registration under the
Securities Act in accordance with the conditions set forth in such letter or
order and such letter or order specifies that no subsequent restrictions on
transfer are required.
(b) Whenever the restrictions imposed by this Article X shall
terminate, as hereinabove provided, the holder of any particular Note, Warrant
or Restricted Securities then outstanding as to which such restrictions shall
have terminated shall be entitled to receive from the Company, without expense
to such holder, one or more new certificates for any Note, Warrant or
Restricted Securities not bearing the restrictive legend set forth in paragraph
10A(a) hereof.
D. Compliance with Rule 144 and Rule 144A. At the written
request of any holder of any Note, Warrant or Restricted Securities who
proposes to sell any Note, Warrant or Restricted Securities in compliance with
Rule 144, the Company shall furnish to such holder, within ten days after
receipt of such request, a written statement as to whether or not the Company
is in compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule. For purposes of effecting compliance
with Rule 144A, in connection with any resales of any Note, Warrant or
Restricted Securities that hereafter may be effected pursuant to the provisions
of Rule 144A, any holder of any Note, Warrant or Restricted Securities desiring
to effect such resale and each prospective institutional purchaser of any such
Note, Warrant or Restricted Securities designated by such holder shall have the
right, at any time the Company is not subject to Section 13 or 15(d) of the
Securities and Exchange Act, to obtain from the Company, upon the written
request of such holder and at the Company's expense the documents specified in
Section (d)(4)(i) of Rule 144A, as such rule may be amended from time to time.
E. Non-Applicability of Restrictions on Transfer.
Notwithstanding the provisions of paragraph 10B hereof, any record owner of any
Note, Warrant or Restricted Securities may from time to time transfer all or
any part of such record owner's Note, Warrant or Restricted Securities (i) to a
nominee identified in writing to the Company as being the nominee of or for
such record owner, and any nominee of or for a beneficial owner of any Note,
Warrant or Restricted Securities
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identified in writing to the Company as being the nominee of or for such
beneficial owner may from time to time transfer all or part of any Note,
Warrant or Restricted Securities registered in the name of such nominee but
held as nominee on behalf of such beneficial owner, to such beneficial owner,
(ii) to an Affiliate, (iii) with respect to Bank of America Illinois and its
employees, any transfer by and between Bank of America Illinois, its affiliates
and employees, or (iv) if such record owner is a partnership or the nominee of
a partnership, to a partner, retired partner, or estate of a partner or retired
partner, of such partnership, so long as such transfer is in accordance with
the transferee's interest in such partnership and is without consideration;
provided, however, that each such transferee shall remain subject to all
restrictions on the transfer of securities herein contained.
ARTICLE XI
MISCELLANEOUS
A. Note Payments. The Company agrees that, so long as the
Purchasers shall hold any Note, it will make payments of principal thereof and
interest and premium, if any, thereon, which comply with the terms of this
Agreement, by wire transfer of immediately available funds for credit to each
Purchaser's account as set forth on Schedule II, or such other account in the
United States of America as such Purchaser may designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to
the place of payment. The Company agrees to afford the benefits of this
paragraph to any institutional investor of recognized standing which in
accordance with all of the terms hereof is the direct or indirect transferee of
any Note purchased by the Purchasers hereunder.
B. Expenses.
(a) Transaction. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to pay, and save the
Purchasers harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with the execution and delivery of this
Agreement and the acquisition and issuance of the Notes and Warrants and Common
Stock issuable upon exercise of the Warrants, limited to (i) taxes and filing
fees, to the extent such expenses are taxes or filing fees that arise as a
result of the Closing of the transactions contemplated hereby taking place in
Texas, together with interest and penalties, if any, (ii) printing costs, if
any; (iii) the fees and expenses of Chapman and Cutler, in connection with
services rendered with respect to this Agreement, the Notes, the Warrants, the
E Stock Registration Agreement and the Addendum Agreement through and including
completion of the Closing, not to exceed $80,000, and any subsequent
modification thereof, consent thereunder (including any proposed modification
or consent, whether or not finalized); (iv) the fees and expenses of Rudnick &
Wolfe, as counsel to the holders of the 1993 Notes; and (v) the investment
banking fees and expenses of Donaldson, Lufkin & Jenrette incurred in
connection with transactions related to the execution of this Agreement and the
issuance of the Notes and Warrants.
(b) Monitoring. The Company agrees to pay all reasonable
out-of-pocket expenses arising in connection with the exercise of a Purchaser's
rights under paragraph 5M, provided Purchaser submits a request, in writing,
for the payment of such expenses in advance of any such activity for which
payment will be sought, which request shall also contain a statement of a valid
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business reason therefor. Within three days of receipt of such request, the
president or any senior officer of the Company shall notify such Purchaser of
the Company's approval or rejection of such request; provided, however, the
Purchaser shall not be precluded from exercising its rights under paragraph 5M
pending such notification from the Company. If such request is rejected, the
Purchaser may thereupon submit its request to the Board of Directors, the
approval in writing by the majority of which shall bind the Company to pay the
requested expenses.
(c) Enforcement and Bankruptcy. The Company agrees to pay all
reasonable out-of-pocket expenses of Purchasers and their transferees arising
in connection with the enforcement of the rights of Purchasers contained herein
and in any case involving the bankruptcy of the Company.
(d) Survival. The obligations of the Company under this paragraph
shall survive transfer by the Purchasers and payment of any Note or exercise of
any Warrant and transfer by the Purchasers of any Common Stock.
C. Consent to Amendments.
(a) Notes. This Agreement, as to any amendment of rights
exclusively those of holders of Notes, may be amended, and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, if the Company shall obtain the written consent to such
amendment, action or omission to act given by the holder or holders of at least
two-thirds of the aggregate principal amount of the Notes at the time
outstanding, except that, without the written consent of the holder or holders
of all the Notes at the time outstanding, no amendment to this Agreement shall
change the maturity of any Note, or change the principal of, or the rate or
time of payment of interest or any premium payable with respect to, any Note,
or affect the time or amount of any required prepayments or modify the
subordination provisions in a manner adverse to the holders of Notes, or change
the transfer restrictions with respect to the Notes, or reduce the proportion
of the principal amount of the Notes required with respect to any consent.
(b) Notes and Warrants. Subject to the provisions and exceptions
of subparagraph (a) above, this Agreement, as to any amendment of any mutual
rights of the holders of Notes and Warrants, may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act given by the (i) holder or holders
of at least two-thirds (2/3) of the aggregate principal amount of the Notes at
the time outstanding and (ii) holder or holders of Warrants initially
exercisable to purchase two-thirds (2/3) of all shares of Common Stock issuable
upon the exercise of all Warrants at the time outstanding.
(c) Consideration, Binding Effect, etc. Any consideration given
to any holder to obtain his consent shall be given pro rata to all such holders
of Notes or Warrants, whether or not they give consent. Each holder of any
Note or Warrant at the time or thereafter outstanding (or of shares of Common
Stock entitled to any rights hereunder) shall be bound by any consent
authorized by this paragraph, whether or not such Note or Warrant shall have
been marked to indicate such consent, but any Note issued thereafter may bear a
notation referring to any such consent. No course of dealing between the
Company and the holder of any Note or Warrant nor any delay in exercising any
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rights hereunder or under any Note or Warrant shall operate as a waiver of any
rights of any holder of such Note or Warrant. As used herein and in the Notes
and Warrants, the term "this Agreement" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
D. Notices to Subsequent Holder. If any Note or Warrant shall
have been transferred to another holder pursuant to paragraph 11E and such
holder shall have designated in writing the address to which communications
with respect to such Note or Warrant shall be mailed, all notices,
certificates, requests, statements and other documents required or permitted to
be delivered to the Purchasers by any provision hereof shall also be delivered
to each such holder.
E. Form, Registration, Transfer and Exchange of Notes; Lost
Notes. The Notes are issuable only as registered Notes without coupons in the
denominations of $100,000 and integral multiples of $5,000 in excess of
$l00,000 for such Note; provided, however, that if the aggregate principal
amount of Notes purchased by any one Purchaser is less than $100,000, then any
such Note is issuable only as a registered Note in the denomination of such
aggregate principal amount. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and
of transfers of Notes. Upon surrender of any Note for registration of transfer
in compliance with the terms of this Agreement at the office of the Company,
the Company shall, at its expense (other than for transfer taxes, if any),
execute and deliver one or more new Notes of like tenor and of a like aggregate
principal amount registered in the name of the designated transferee or
transferees. At the option of the holder of any Note, such Note may be
exchanged for other Notes of like tenor and of any authorized denominations, of
a like aggregate principal amount, upon surrender of the Note to be exchanged
at the office of the Company. Whenever any Notes are so surrendered for
exchange, the Company or such transfer agent shall, at the Company's expense
(other than for transfer taxes, if any), execute and deliver the Notes which
the holder of Notes making the exchange is entitled to receive. Every Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the holder of such Note or his attorney duly authorized in writing. Any
Note or Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried
by the Note so exchanged or transferred, so that neither gain nor loss of
interest to accrue shall result from any such transfer or exchange. Upon
receipt of written notice or other evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any Note and, in the
case of any such loss, theft, or destruction, upon receipt of a Purchaser's
unsecured indemnity agreement, or, in the case of any other holder of a Note or
Notes, other indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Note, the
Company will make and deliver a new Note, as the case may be, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Note.
F. Registration, Transfer and Exchange of Warrants. The Company
shall keep at its principal office a register in which the Company shall
provide for the registration of Warrants and of transfers of Warrants. Upon
surrender of any Warrants for registration of transfer in compliance with the
terms of this Agreement at such office, the Company shall, at its expense
(other than for transfer taxes and duties, if any) execute and deliver or cause
to be executed and delivered one or
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<PAGE> 52
more new Warrants of like tenor and representing the right to purchase a like
amount of Common Stock, registered in the name of the designated transferee or
transferees. At the option of the holder of any Warrant, such Warrant may be
exchanged for other Warrants of like tenor and representing the right to
purchase a like amount of Common Stock, upon surrender of the Warrant to be
exchanged at such office of the Company. Whenever any Warrants are so
surrendered for exchange, the Company shall, at its expense (other than for
transfer taxes and duties, if any), execute and deliver or cause to be executed
and delivered the Warrants which the holder of Warrants making the exchange is
entitled to receive. Every Warrant presented or surrendered for registration
of transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Warrant or his
attorney duly authorized in writing. Upon receipt of written notice or other
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any warrant and, in the case of any such loss, theft, or
destruction, upon receipt of a Purchaser's unsecured indemnity agreement, or in
the case of any such mutilation upon surrender and cancellation of such
Warrant, the Company will make and deliver a new Warrant of like tenor, in lieu
of the lost, stolen, destroyed or mutilated Warrant.
G. Persons Deemed Owners. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of and interest and premium (if any) on such
Note and for all other purposes whatsoever, whether or not such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
H. Indemnification. The Company hereby agrees to indemnify,
defend, and hold harmless each holder of Notes as well as each of such holder's
subsidiaries, affiliates, directors, officers, trustees or employees
(collectively, all such parties being referred to herein as the "Indemnities")
and reimburse the Indemnities for, from and against all demands, claims,
actions or causes of actions, assessments, losses, damages, liabilities,
claims, costs and expenses, including without limitation, interest, penalties,
reasonable attorneys' fees, disbursements and expenses asserted against,
resulting to, imposed upon, or incurred by any Indemnitee, directly or
indirectly, by reason of or resulting from (i) a breach of any material
representation, warranty, covenant, agreement, or other obligation of the
Company contained in or made pursuant to this Agreement or any facts or
circumstances constituting such a breach, or (ii) any investigation or
proceeding against any one of the Company, the Indemnities, or their agents,
arising out of or in connection with this Agreement, the Notes, the Warrants,
the E Stock Registration Agreement or the Addendum Agreement or any transaction
contemplated hereby or thereby or any document or instrument executed herewith
or therewith or pursuant hereto or thereto), whether or not the transactions
contemplated by this Agreement are consummated, which investigation or
proceeding requires the participation of any Indemnitee or its agents or is
commenced or filed against any Indemnitee or its agents because of this
Agreement, the Notes, the Warrants, the E Stock Registration Agreement or the
Addendum Agreement or any of the transactions contemplated hereby or thereby or
any other document or instrument executed herewith or therewith or pursuant
hereto or thereto), other than an investigation or proceeding in which it is
finally determined that there was gross negligence or willful misconduct on the
part of such Indemnitee or its agents which was not taken by them in reliance
upon any of the Company's representations, warranties, covenants or agreements
in this Agreement,
47
<PAGE> 53
the Stock Registration Agreement, the Addendum Agreement or in any other
documents or instruments contemplated hereby or thereby or executed herewith or
therewith or pursuant hereto or thereto or (iii) any environmental claims
(including, but not limited to, claims under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or other
federal, state, local, or foreign Environmental Laws) arising from actions
taken (or from the failure to take action) or from events, circumstances, or
conditions whenever occurring or existing; provided, however, that the Company
shall not indemnify any Indemnitee under clause (iii) above for any
environmental claim arising as a result of any action taken by any Indemnitee.
(a) Third Party Claims. After receipt of any claim or notice of
the commencement of any action against a party entitled to indemnification
hereunder ("indemnified party") in respect of which indemnity may be sought
hereunder, the indemnified party will notify each party which is required to
indemnify the indemnified party or for which indemnity may be sought hereunder
("indemnifying party") in writing of the receipt or commencement thereof. The
omission of the indemnified party to so notify any indemnifying party shall not
relieve any indemnifying party of their obligations to indemnify in respect of
such action under this paragraph 11H. In the event of the commencement of any
such action as to which the indemnified party notifies the indemnifying parties
as aforesaid, each indemnifying party shall be entitled to participate therein
and assume the defense thereof with counsel chosen by them, provided, however,
that any Indemnitee, or any agent thereof, shall have the right (without
releasing the Company from any of its obligations hereunder) to employ its own
counsel and either to direct its own defense or to participate in the Company's
defense, but the fees and expenses of such counsel shall be at the expense of
such person unless (x) the employment of such counsel shall have been
authorized in writing by the Company in connection with such defense or (y) the
Company shall not have provided its counsel to take charge of such defense or
(z) the Indemnitee, or such agent of the Indemnitee, shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to the Company, and conflict
with any defenses of the Company, then in any of such events referred to in
clauses (x), (y) or (z) such counsel fees and expenses (but only for one
counsel for each Indemnitee and its respective agents) shall be borne by the
Company. Any settlement of any such action, suit, claim or proceeding shall
require the consent of both the Company and such indemnified person (neither of
which shall unreasonably withhold its consent).
I. Survival of Representations, Warranties and Indemnities. All
representations, warranties and indemnities contained herein or made in writing
by the Company in connection herewith shall survive the execution and delivery
of this Agreement and of the Notes and Warrants, regardless of any
investigation made by any Purchaser or on such Purchaser's behalf.
J. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of either of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not; provided, that the Company may not
assign any of its rights, duties or obligations under this Agreement, except
with the Purchasers' written consent.
K. Notices. All notices and other communications provided for or
given or made hereunder shall be in writing and shall be effective when
received upon the earlier of: (i) by hand or by
48
<PAGE> 54
first class mail (or registered mail, if required), (ii) by electronic
facsimile transmission, (iii) by courier or (iv) actual receipt if to the
Purchasers at their address set forth on Schedule I hereto, to transferees of
the Purchasers at their address set forth in the records of the Company or the
transfer agent of the Company, and if to the Company, at Champion Healthcare
Corporation, 14340 Torrey Chase, Suite 320, Houston, Texas 77014, or to such
other address with respect to any such party as such party shall give notice in
writing.
L. Accounting Terms. Unless otherwise set forth herein, all
accounting terms and provisions in this Agreement shall be construed to be as
determined in accordance with generally accepted accounting principles then in
effect.
M. Satisfaction Requirement. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser, the determination of
such satisfaction shall be made by such Purchaser in its sole and exclusive
judgment exercised in good faith.
N. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of Texas without regard to its conflict of law provisions.
This Agreement may not be changed orally, but (subject to the provisions of
paragraph 11C) only by an agreement in writing signed by the party against whom
enforcement is sought.
O. Headings; Table of Contents. The descriptive headings of the
several paragraphs of this Agreement and the table of contents are inserted for
convenience only and do not constitute a part of this Agreement.
P. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, all of which shall be deemed but one and the same
instrument and each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
Q. Non Business Days. If the date for making any payment or the
last date for performance of any act or the exercising of any right, as
provided in this Agreement, shall not be a business day, such payment may be
made or act performed or right exercised on the next succeeding business day,
with the same force and effect as if done on the nominal date provided in this
Agreement, except that interest shall accrue and be payable for the period
after such nominal date.
R. Confidentiality. The Purchasers acknowledge that the Company
intends to acquire and possibly dispose of hospitals and other businesses and
assets generally within the healthcare industry and that much of the
information the Company has provided and agreed to provide and make available
to Purchasers could materially and adversely affect the Company if it were to
be directly or indirectly provided or made available to competitors, entities
providing financing to competitors or any advisor to such competitors.
Therefore, each Purchaser agrees with respect to any information disclosed
hereunder by the Company (other than consolidated financial statements or other
publicly available information) that such Purchaser will take the same steps
with respect to such information that such Purchaser normally takes to prevent
disclosure of its own confidential information provided, that the foregoing
shall not prohibit disclosure of such information (i) to any other Purchaser,
(ii) to the
49
<PAGE> 55
employees, officers or agents of any Purchaser, (iii) to the extent necessary
or appropriate in connection with the enforcement of the Agreement or the Notes
or Warrants, (iv) to any person to which such Purchaser is required to make
such disclosure pursuant to applicable law, rule or regulation in connection
with any transfer or proposed transfer of a security, provided that such
transferee or proposed transferee agrees that any such information shall be
subject to the provisions hereof, or (v) to any federal, state or other
governmental or regulatory authority having jurisdiction over such holder
including, without limitation, the National Association of Insurance
Commissioners. It is specifically understood that the Company's audited annual
consolidated financial statements and its unaudited quarterly consolidated
financial statements (but not supplemental operating data) may be summarized
and used by Purchasers for any proper purpose (including, without limitations,
(i) in reports to partners of such Purchasers and (ii) as may be required by
(x) applicable governmental or regulatory authority or (y) in connection with
enforcement of the Agreement or the Notes or Warrant) other than disclosure to
known competitors of the Company or its Subsidiaries.
50
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CHAMPION HEALTHCARE CORPORATION
By /s/ James G. VanDevender
Name: James G. VanDevender
Title: Executive Vice President
CHAMPION HEALTHCARE CORPORATION
14340 Torrey Chase
Suite 320
Houston, Texas 77014
Telefacsimile: (713) 583-5495
Confirmation: (713) 583-5491
51
<PAGE> 57
Accepted as of June 12, 1995:
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By Lincoln National Investment
Management Company, Its
Attorney-In-Fact
By /s/ William N. Holm, Jr.
Its Vice President
Accepted as of June 12, 1995:
SECURITY-CONNECTICUT LIFE INSURANCE
COMPANY
By Lincoln National Investment
Management Company, Its
Attorney-In-Fact
By /s/ William N. Holm, Jr.
Its Vice President
Accepted as of June 12, 1995:
LINCOLN NATIONAL INCOME FUND, INC.
By /s/ H. Thomas McMeekin
Its President
Accepted as of June 12, 1995:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By /s/ Gary A. Poliner
Its Vice President
52
<PAGE> 58
53
<PAGE> 59
Accepted as of June 12, 1995:
BANK OF AMERICA ILLINOIS
By /s/ Ford S. Bartholow
Ford S. Bartholow
Its Managing Director
/s/ Christopher J. Perry
Christopher J. Perry
/s/ Robert F. Perille
Robert F. Perille
/s/ M. Ann O'Brien
M. Ann O'Brien
/s/ Ford S. Bartholow
Ford S. Bartholow
/s/ Jeffrey M. Mann
Jeffrey M. Mann
/s/ Matthew W. Clary
Matthew W. Clary
/s/ Thomas E. Van Pelt, Jr.
Thomas E. Van Pelt, Jr.
54
<PAGE> 60
Accepted as of June 12, 1995:
INDOSUEZ CAPITAL ASSET ADVISORS, INC.
By /s/ John G. Popp
John G. Popp
Its President
Accepted as of June 12, 1995:
INDOSUEZ CAPITAL FUNDING I, LIMITED
By /s/ John G. Popp
John G. Popp
Its Collateral Manager
Accepted as of June 12, 1995:
INDOSUEZ HIGH YIELD PARTNERS
By /s/ John G. Popp
John G. Popp
Its Partner
55
<PAGE> 61
<TABLE>
<CAPTION>
INVESTMENT
DOLLAR AMOUNTS OF WARRANTS
NAME OF PURCHASER NOTES TO BE PURCHASED TO BE PURCHASED
<S> <C> <C>
The Lincoln National Life Insurance $14,000,000 210,000
Company
c/o Lincoln National Investment
Management Company
200 East Berry Street
Renaissance Square
Fort Wayne, Indiana 46802
Attention: Investments-Private Placements
Lincoln National Income Fund, Inc. $500,000 7,500
c/o Lincoln National Investment
Management Company
200 East Berry Street
Renaissance Square
Fort Wayne, Indiana 46802
Attention: Investments-Private Placements
Security-Connecticut Life Insurance $500,000 7,500
Company
c/o Lincoln National Investment
Management Company
200 East Berry Street
Renaissance Square
Fort Wayne, Indiana 46802
</TABLE>
I-1
<PAGE> 62
Attention: Investments-Private Placements
<TABLE>
<S> <C> <C>
The Northwestern Mutual Life $13,000,000 195,000
Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Securities Department
Bank of America Illinois $4,000,000 52,800
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
</TABLE>
I-2
<PAGE> 63
<TABLE>
<CAPTION>
INVESTMENT
DOLLAR AMOUNTS OF WARRANTS
NAME OF PURCHASER NOTES TO BE PURCHASED TO BE PURCHASED
<S> <C> <C>
Christopher J. Perry $-0- 2,700
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
Robert F. Perille $-0- 1,575
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
M. Anne O'Brien $-0- 1,425
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
Ford S. Bartholow $-0- 900
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
</TABLE>
I-3
<PAGE> 64
<TABLE>
<S> <C> <C>
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
Jeffrey M. Mann $-0- 240
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
Matthew W. Clary $-0- 180
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
</TABLE>
I-4
<PAGE> 65
<TABLE>
<CAPTION>
INVESTMENT
DOLLAR AMOUNTS OF WARRANTS
NAME OF PURCHASER NOTES TO BE PURCHASED TO BE PURCHASED
<S> <C> <C>
Thomas E. Van Pelt, Jr. $-0- 180
c/o Bank of America Illinois
Mezzanine Investments Group
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow, Managing Director
Indosuez Capital Asset Advisors, Inc. $2,500,000 30,000
1211 Avenue of the Americas
New York, New York 10036
Attention:
Indosuez Capital Funding I, Limited $500,000 -0-
1211 Avenue of the Americas
New York, New York 10036
Attention:
Indosuez High Yield Partners -0- 15,000
1211 Avenue of the Americas ============ ========
New York, New York 10036
Attention:
Total $35,000,000 525,000
</TABLE>
I-5
<PAGE> 66
NAME OF PURCHASER
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
c/o Lincoln National Investment
Management Company
200 East Berry Street
Renaissance Square
Fort Wayne, Indiana 46802
Attention: Investments--Private Placements
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Bankers Trust Company (ABA #021001033)
Private Placement Processing
New York, New York
Account Number 99-911-145
for the account of: The Lincoln National Life Insurance Company (MZP)
Custodial Account Number 98124
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed to:
Lincoln National Investment Management Company
200 East Berry Street, Renaissance Square 2R-02
Fort Wayne, Indiana 46802
II-1
<PAGE> 67
Attention: William N. Holm, Jr./Mezzanine Finance
With a copy of each notice of payment to:
Bankers Trust Company
P.O. Box 998
Bowling Green Station
New York, New York 10274
Attention: Private Placement Unit
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 35-0472300
Securities are to be delivered to:
Bankers Trust Company
14 Wall Street, 4th Floor, Window #44
New York, New York 10005
Attention: Marlene Maynard, Mail Stop 4049
Ref: Account Name and Custody Account Number
II-2
<PAGE> 68
NAME OF PURCHASER
SECURITY-CONNECTICUT LIFE
INSURANCE COMPANY
c/o Lincoln National Investment
Management Company
200 East Berry Street
Renaissance Square
Fort Wayne, Indiana 46802
Attention: Investments--Private Placements
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes
due 2003, PPN 15850B A* 5, principal or interest") to:
Shawmut Bank Connecticut, N.A. (ABA #011900445)
777 Main Street
Hartford, Connecticut 06115
for credit to: Security-Connecticut Life Insurance Company (CUN)
Account Number 0156196
Notices
All notices of payment on or in respect of the Notes and written confirmation
of each such payment to:
Security-Connecticut Life Insurance Company
20 Security Drive
Avon, Connecticut 06001
Attention: Jodi Dean
II-3
<PAGE> 69
All notices and communications other than those in respect to payments to be
addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 35-1468921
Securities are to be delivered to:
Security-Connecticut Life Insurance Company
20 Security Drive
Avon, Connecticut 06001
Attention: Jodi Dean
II-4
<PAGE> 70
NAME OF PURCHASER
LINCOLN NATIONAL INCOME
FUND, INC.
c/o Lincoln National Investment
Management Company
200 East Berry Street
Renaissance Square
Fort Wayne, Indiana 46802
Attention: Investments--Private Placements
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Bankers Trust Company (ABA #021001033)
Private Placement Processing
New York, New York
Account Number 99-911-145
for the account of: Lincoln National Income Fund, Inc.
Custodial Account Number 98245
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed to:
Lincoln National Investment Management Company
200 East Berry Street, Renaissance Square 2R-02
Fort Wayne, Indiana 46802
II-5
<PAGE> 71
Attention: William N. Holm, Jr./Mezzanine Finance
With a copy of each notice of payment to:
Bankers Trust Company
P.O. Box 998
Bowling Green Station
New York, New York 10274
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 35-1273664
Securities are to be delivered to:
Bankers Trust Company
14 Wall Street, 4th Floor, Window #44
New York, New York 10005
Attention: Marlene Maynard, Mail Stop 4049
Ref: Account Name and Custody Account Number
II-6
<PAGE> 72
NAME OF PURCHASER
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Securities Department
Telecopier Number: (414) 299-7124
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Bankers Trust Company (ABA #021-001-033)
16 Wall Street
Insurance Unit, 4th Floor
New York, New York 10005
for credit to: The Northwestern Mutual Life Insurance Company
Account Number 00-000-027
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment
to be addressed, Attention: Treasurer's Department/Securities Operations
(Telecopier Number 414-299-2111).
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 39-0509570
II-7
<PAGE> 73
NAME OF PURCHASER
BANK OF AMERICA ILLINOIS
231 South LaSalle Street
Chicago, IL 60697
Attention: Ford Bartholow/Mezzanine Investments Group
Telecopier Number: (312) 828-6298
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Bank of America Illinois (ABA #071000039)
Chicago, Illinois
RC 2148
Attention: Bradley Baker
for credit to:
Account Number 6638763
Champion Healthcare Corporation
Notices
All notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
II-8
<PAGE> 74
NAME OF PURCHASER
INDOSUEZ CAPITAL ASSET
ADVISORS, INC.
1211 Avenue of the Americas
New York, New York 10036
Attention: Ray Wright
Telecopier Number: (212) 278-2250
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Banque Indosuez (ABA 026002668)
New York, New York
Ref: Indosuez Capital Asset Advisors, Inc.
Notices
All notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-3714013
II-9
<PAGE> 75
NAME OF PURCHASER
INDOSUEZ CAPITAL FUNDING I
LIMITED
1211 Avenue of the Americas
New York, New York 10036
Attention: Elaine Mah
Telecopier Number: (212) 278-2250
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Texas Commerce Bank N.A. (ABA 113000609)
Houston, Texas
BNF=Trust Clearing Account
OBI=Attn: Asset Backed Group/Indosuez
A/C #55030011340102
for credit to:
Account Number 7001109635800
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed to:
Indosuez Capital Funding I, Limited
c/o Texas Commerce Bank N.A.
Attn: Asset Backed Group, A/C 13401
600 Travis Street, 8th Floor
Houston, TX 77002-8039
Name of Nominee in which Notes are to be issued: OBIE & CO.
II-10
<PAGE> 76
NAME OF PURCHASER
INDOSUEZ HIGH YIELD PARTNERS
1211 Avenue of the Americas
New York, New York 10036
Attention: Ray Wright
Telecopier Number: (212) 278-2250
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Champion Healthcare Corporation, Series E 11% Senior Subordinated Notes due
2003, PPN 15850B A* 5, principal or interest") to:
Banque Indosuez (ABA 026002668)
New York, New York
Ref: Indosuez High Yield Partners
Notices
All notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 13-3762288
II-11
<PAGE> 77
EXHIBIT II-A1
FORM OF NOTE
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and thus may not be offered for
sale, sold, transferred or otherwise disposed of unless registered under the
Securities Act of 1933, as amended, or unless an exemption from such
registration is available. Further, such transfer is subject to the conditions
specified in the Series E Note Purchase Agreement dated May 1, 1995 (the
"Agreement") pursuant to which such securities were issued and sold by Champion
Healthcare Corporation (the "Company") and the D Stockholders Agreement dated as
of December 31, 1993, copies of which agreements are on file and may be
inspected at the principal office of the Company. A copy of each agreement will
be furnished by the Company to the holder hereof upon request and without
charge. Under certain circumstances specified in such Series E Note Purchase
Agreement, the Company has agreed to deliver to the holder hereof a new
certificate, not bearing this legend, for all or part of the number of the
securities evidenced hereby, as the case may be, registered in the name of such
holder or its designated nominee.
This Note has been issued with Original Issue Discount. The Chief
Financial Officer of Champion Healthcare Corporation at (713) 583-5491 will make
available to the holder of this Note upon request the information required by
Section 1.1275-3(b)(1)(i) of the Internal Revenue Regulations.
CHAMPION HEALTHCARE CORPORATION
Series E 11% Senior Subordinated Note
Due December 31, 2003
No. E-______________
$___________________
[date]
FOR VALUE RECEIVED, the undersigned, Champion Healthcare Corporation
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Delaware, hereby
1
<PAGE> 78
promises to pay to [_____________] or registered assigns, the principal sum of
[__________________] on December 31, 2003, with interest (computed on the basis
of the number of days actually elapsed and a 365-or 366-day year, as
applicable) on the unpaid balance thereof from the date of issuance hereof
until December 31, 2003 or until the principal hereof shall have become due and
payable, at the Applicable Rate, payable quarterly on each March 31, June 30,
September 30 and December 31 in each year, commencing June 30, 1995; provided,
however, that during any period in which there is a default in the payment of
interest or principal, interest shall accrue at the Applicable Rate plus 2% per
annum compounded annually. "Applicable Rate" shall mean with respect to the
outstanding principal amount of the Notes, 11% per annum from the date of issue
up to and including December 31, 2000, and 12% per annum thereafter; provided,
however, that in the event that the Company has not completed a public issuance
of debt of the Company having a maturity of more than one year which shall
result in the receipt by the Company of gross proceeds in a minimum of
$100,000,000 prior to March 31, 1996, the Applicable Rate shall be 11.50% for
the period from April 1, 1996 to and including December 31, 2000. This Note is
subject to mandatory and optional prepayment at the times, in the amounts and
subject to the conditions set forth in the Agreement.
Payments of principal, premium and interest are to be made by wire
transfer to the account of the payee set forth on Schedule II to the Agreement,
or in such other manner or to such other place in the United States of America
as the payee hereof or its registered assigns shall designate to the Company in
writing, in lawful money of the United States of America.
This Note is one of a duly authorized issue of Senior Subordinated Notes
due December 31, 2003 of the Company, originally issued pursuant to the Series E
Note Purchase Agreement (the "Agreement") dated May 1, 1995, by and among the
Company, the Purchasers listed on Schedule I to the Agreement and certain other
parties named therein and is entitled to the benefit of the Agreement, and each
holder of this Note, by his acceptance hereof, agrees to be bound by the
provisions of the Agreement. As provided in the Agreement, (i) this Note is
subject to prepayment, in whole or in part, as specified in such Agreement, (ii)
the payment of the principal of, premium, if any, and interest on this Note is
expressly subordinated on the terms and conditions set forth in the Agreement to
the payment of all Senior Indebtedness of the Company, as defined in the
Agreement, and (iii) this note may be transferred only upon fulfillment by the
Company and the holder hereof of conditions specified in the Agreement.
2
<PAGE> 79
As provided and subject to the restrictions on transfer set forth in the
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or his attorney duly authorized in writing, a new
Note for a like principal amount will be issued to, and registered in the name
of, the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary. This Note shall be
governed by and enforced in accordance with the laws of the State of Texas.
The Company agrees to make prepayments of the Notes on the dates and in
the amounts specified in the Agreement.
Should the indebtedness represented by this Note or any part thereof be
collected in any proceeding provided for in the Agreement or be placed in the
hands of attorneys for collection, the Company agrees to pay, in addition to the
principal, premium, if any, and interest due and payable hereon, all costs of
collecting this Note, including reasonable attorney's fees and expenses.
In case an Event of Default, as defined in the Agreement, shall occur
and be continuing, this Note may, as provided for in the Agreement, be declared
due and payable in the amount, in the manner and with the effect provided in the
Agreement.
CHAMPION HEALTHCARE CORPORATION
By:
James G. VanDevender,
Title: Executive Vice President
3
<PAGE> 80
FIRST AMENDMENT TO SERIES E NOTE PURCHASE AGREEMENT
THIS FIRST AMENDMENT, dated as of the 1st day of October, 1995, by and
between CHAMPION HEALTHCARE CORPORATION, a Delaware corporation (the
"Company"), LINCOLN NATIONAL LIFE INSURANCE COMPANY, LINCOLN NATIONAL INCOME
FUND, INC., SECURITY-CONNECTICUT LIFE INSURANCE COMPANY, THE NORTHWESTERN
MUTUAL LIFE INSURANCE COMPANY, BANK OF ILLINOIS, INDOSUEZ CAPITAL ASSET
ADVISORS, INC., INDOSUEZ CAPITAL FUNDING I, LIMITED, and INDOSUEZ HIGH YIELD
PARTNERS (individually, a "Purchaser" and collectively, the "Purchasers")
W I T N E S S E T H :
WHEREAS, the Company, the Purchasers and other individuals entered
into the Series E Note Purchase Agreement, dated as of May 1, 1995 ("Series E
Agreement"), pursuant to which the Company issued to (i) Purchasers, and the
Purchasers purchased Thirty-five Million Dollars ($35,000,000.00) aggregate
principal amount of the Company's Series E 11% Senior Subordinated Notes due
December 31, 2003 ("Series E Notes") and (ii) Purchasers and certain
individuals, and the Purchasers and certain individuals purchased detachable
warrants initially evidencing the right to purchase an aggregate of 525,000
shares common stock of the Company ("E Warrants");
WHEREAS, the Company has determined it is in the Company's best
interest to permit a subsidiary to increase the amount of certain loans by it
to $3,500,000, which are subject to, and in excess of, the $3,000,000
limitation contained in Article V.K "Restricted Investments", sub part "(i)";
and
WHEREAS, the Company has requested the Purchasers to amend the Series
E Agreement, and the Purchasers are willing to modify and amend such terms and
provisions thereof.
NOW, THEREFORE, for and in consideration of these premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchasers hereby agree as follows:
1. TERMS. All capitalized terms defined in the Series E
Agreement and not otherwise defined herein shall have the same definitions when
used herein as set forth in the Series E Agreement.
2. ARTICLE 5.K. RESTRICTED INVESTMENTS. The covenant
regarding restricted investments contained in Article V. K. is amended by
deleting sub part "(i)" and replacing it as follows:
<PAGE> 81
"(i) loans in a principal amount not to exceed $3,500,000 to
the purchaser or an Affiliate of the purchaser of certain
assets that include the land and buildings purchased on
September 1, 1992 from HCA Health Services of Texas
principally located on Garth Road, Baytown, Texas;"
3. PRIORITY. In the event of any inconsistency between
the terms of this First Amendment and terms of the Series E Agreement, as
amended, the terms of this First Amendment shall control.
4. MISCELLANEOUS.
a. HEADINGS. Section headings are for reference
only, and shall not affect the interpretation or meaning of any provision of
this First Amendment.
b. EFFECT OF FIRST AMENDMENT. The Series E
Agreement, as amended by this First Amendment, shall remain in full force and
effect except that any reference therein, or in any documents or instruments
required thereunder or annexes or schedules thereto, referring to the Series E
Agreement, shall be deemed to refer to the Series E Agreement as amended by
this First Amendment.
c. GOVERNING LAW. This First Amendment shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, without regard to the principles of conflicts of laws thereof.
d. COUNTERPARTS. This First Amendment may be
executed by the different parties hereto on separate counterparts, each of
which, when so executed, shall be deemed an original but all such counterparts
shall constitute but one and the same First Amendment.
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
First Amendment to be executed by their respective duly authorized officers as
of the date first above written.
CHAMPION HEALTHCARE CORPORATION
By: ____________________________________
James G. VanDevender
Executive Vice-President
[Remaining signatures on following pages]
First Amendment to Series E Agreement Page 2
<PAGE> 82
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln National Investment Management Company,
Its Attorney-In-Fact
By:
-----------------------------------------------
Its Vice President
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
By: Lincoln National Investment Management Company,
Its Attorney-In-Fact
By:
----------------------------------------------
Its Vice President
LINCOLN NATIONAL INCOME FUND, INC.
By:
----------------------------------------------
THE NORTHWESTERN MUTUAL LIFE INSURANCE
By:
----------------------------------------------
Its Vice President
First Amendment to Series E Agreement Page 3
<PAGE> 83
BANK OF AMERICA ILLINOIS
By:
----------------------------------------
Ford S. Bartholow
Its Managing Director
--------------------------------------
Christopher J. Perry
--------------------------------------
Robert F. Perille
--------------------------------------
M. Ann O'Brien
--------------------------------------
Ford S. Bartholow
--------------------------------------
Jeffrey M. Mann
--------------------------------------
Matthew W. Clary
--------------------------------------
Thomas E. Van Pelt, Jr.
First Amendment to Series E Agreement Page 4
<PAGE> 84
INDOSUEZ CAPITAL ASSET ADVISORS, INC.
By:
-------------------------------
John G. Popp
Its President
INDOSUEZ CAPITAL FUNDING I, LIMITED
By:
-------------------------------
John G. Popp
Its Collateral Manager
INDOSUEZ HIGH YIELD PARTNERS
By:
-------------------------------
John G. Popp
Its Partner
OBIE & CO.
By:
-------------------------------
Texas Commerce Bank NA
Trust Department
First Amendment to Series E Agreement Page 5
<PAGE> 85
SECOND AMENDMENT TO SERIES E NOTE PURCHASE AGREEMENT
THIS SECOND AMENDMENT, dated as of the [31st] day of December, 1995,
by and between CHAMPION HEALTHCARE CORPORATION, a Delaware corporation (the
"Company"), LINCOLN NATIONAL LIFE INSURANCE COMPANY, LINCOLN NATIONAL INCOME
FUND, INC., SECURITY-CONNECTICUT LIFE INSURANCE COMPANY, THE NORTHWESTERN
MUTUAL LIFE INSURANCE COMPANY, BANK OF ILLINOIS, OBIE & CO., INDOSUEZ CAPITAL
FUNDING I, LIMITED, INDOSUEZ HIGH YIELD PARTNERS AND OTHERS (individually, a
"Purchaser" and collectively, the "Purchasers")
W I T N E S S E T H :
WHEREAS, the Company, the Purchasers and other individuals entered
into the Series E Note Purchase Agreement, dated as of May 1, 1995, pursuant
to which the Company issued to (i) Purchasers, and the Purchasers purchased
Thirty-five Million Dollars ($35,000,000.00) aggregate principal amount of the
Company's Series E 11% Senior Subordinated Notes due December 31, 2003 ("Series
E Notes") and (ii) Purchasers and certain individuals, and the Purchasers and
certain individuals purchased detachable warrants initially evidencing the
right to purchase an aggregate of 525,000 shares common stock of the Company
("E Warrants") (collectively with the First Amendment, the "Series E Purchase
Agreement");
WHEREAS, the Company and the Purchasers executed the First Amendment
to Series E Note Purchase Agreement effective as of October 1, 1995 (the "First
Amendment");
WHEREAS, the Company has determined it is in the Company's best
interest to enter into the 1995 Recapitalization Agreement and as a part
thereof issue shares of Common Stock to holders of its preferred stock in
consideration for such holders of preferred stock agreeing to take certain
actions; and
WHEREAS, the Company has requested the Purchasers to waive certain
terms and provisions thereof.
NOW, THEREFORE, for and in consideration of these premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Purchasers hereby agree as follows:
1. TERMS. All capitalized terms defined in the Series E
Agreement and not otherwise defined herein shall have the same definitions when
used herein as set forth in the Series E Agreement.
<PAGE> 86
2. WAIVER OF ARTICLE 5.B. RESTRICTED PAYMENTS. The
restriction contained in Article V.B "Restricted Payments" is waived with
respect to the issuance of Common Stock to the holders of the Company's shares
of preferred stock in consideration for the actions taken in accordance with,
and covenants contained in, the 1995 Recapitalization Agreement of the Company
dated December [31], 1995
3. PRIORITY. In the event of any inconsistency between
the terms of this Second Amendment and terms of the Series E Agreement, as
amended, the terms of this Second Amendment shall control.
4. EFFECTIVE DATE. This Second Amendment is conditioned
upon and will become effective with the closing of the 1995 Recapitalization
Agreement by the Company.
5. MISCELLANEOUS.
a. HEADINGS. Section headings are for reference
only, and shall not affect the interpretation or meaning of any provision of
this Second Amendment.
b. EFFECT OF SECOND AMENDMENT. The Series E
Agreement, as amended by the First Amendment and this Second Amendment, shall
remain in full force and effect except that any reference therein, or in any
documents or instruments required thereunder or annexes or schedules thereto,
referring to the Series E Agreement, shall be deemed to refer to the Series E
Agreement as so amended.
c. GOVERNING LAW. This Second Amendment shall
be governed by, and construed in accordance with, the laws of the State of
Delaware, without regard to the principles of conflicts of laws thereof.
d. COUNTERPARTS. This Second Amendment may be
executed by the different parties hereto on separate counterparts, each of
which, when so executed, shall be deemed an original but all such counterparts
shall constitute but one and the same Second Amendment.
Second Amendment to Series E Agreement Page 2
<PAGE> 87
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Second Amendment to be executed by their respective duly authorized officers as
of the date first above written.
CHAMPION HEALTHCARE CORPORATION
By: ____________________________________
James G. VanDevender
Executive Vice-President
[Remaining signatures appear on the following pages]
Second Amendment to Series E Agreement Page 3
<PAGE> 88
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln National Investment Management Company,
Its Attorney-In-Fact
By:
------------------------------------------------
Its Vice President
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
By: Lincoln National Investment Management Company,
Its Attorney-In-Fact
By:
-----------------------------------------------
Its Vice President
LINCOLN NATIONAL INCOME FUND, INC.
By:
-----------------------------------------------
THE NORTHWESTERN MUTUAL LIFE INSURANCE
By:
-----------------------------------------------
Its Vice President
Second Amendment to Series E Note Purchase Agreement
<PAGE> 89
BANK OF AMERICA ILLINOIS
By:
----------------------------------------
Ford S. Bartholow
Its Managing Director
------------------------------------
Christopher J. Perry
------------------------------------
Robert F. Perille
------------------------------------
M. Ann O'Brien
------------------------------------
Ford S. Bartholow
------------------------------------
Jeffrey M. Mann
------------------------------------
Matthew W. Clary
------------------------------------
Thomas E. Van Pelt, Jr.
INDOSUEZ CAPITAL FUNDING I, LIMITED
By:
-------------------------------
John G. Popp
Its Collateral Manager
Second Amendment to Series E Note Purchase Agreement
<PAGE> 90
INDOSUEZ HIGH YIELD PARTNERS
By:
-------------------------------
John G. Popp
Its Partner
OBIE & CO.
By:
-------------------------------
Texas Commerce Bank NA
Trust Department
Second Amendment to Series E Note Purchase Agreement
<PAGE> 91
WAIVER AND CONSENT
SERIES E STOCK REGISTRATION AGREEMENT
The undersigned, parties to the Series E Stock Registration Agreement
dated May 1, 1995, in connection with the 1995 Recapitalization Agreement of
Champion Healthcare Corporation ("Company") dated December [31], 1995, hereby:
(i) waive the prohibition in the last paragraph of Article II B.
"Piggy-Back Registration." of the Series E Stock Registration
Agreement, dated May 1, 1995 insofar as such prohibition would prevent
the Company from including the Common Stock to be issued pursuant to
the 1995 Recapitalization Agreement dated December [31], 1995, in the
Stock Registration Agreement dated December 30, 1990, as amended, the
Series B And Series C Stock Registration Agreement dated December 2,
1993, as amended and the Series D Stock Registration Agreement dated
December 31, 1993, as amended; and (ii) consent to the inclusion of
the Common Stock to be issued pursuant to the 1995 Recapitalization
Agreement dated December [31], 1995, in the Stock Registration
Agreement dated December 30, 1990, as amended, the Series B And Series
C Stock Registration Agreement dated December 2, 1993, as amended and
the Series D Stock Registration Agreement dated December 31, 1993, as
amended.
Dated effective December [31], 1995.
CHAMPION HEALTHCARE CORPORATION
By:
----------------------------------
JAMES G. VANDEVENDER
Executive Vice President
[Remaining signatures appear on the following pages]
Champion Healthcare Corporation
Registration Agreement Waiver re 1995 Recapitalization Agreement Page 1
<PAGE> 92
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln National Investment Management Company,
Its Attorney-In-Fact
By:
------------------------------------------------
Its Vice President
SECURITY-CONNECTICUT LIFE INSURANCE
COMPANY
By: Lincoln National Investment Management Company,
Its Attorney-In-Fact
By:
-----------------------------------------------
Its Vice President
LINCOLN NATIONAL INCOME FUND, INC.
By:
-----------------------------------------------
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By:
-----------------------------------------------
Its Vice President
BANK OF AMERICA ILLINOIS
By:
-----------------------------------------------
Ford S. Bartholow
Its Managing Director
Registration Agreement Waiver re 1995 Recapitalization
<PAGE> 93
-----------------------------------------------
Christopher J. Perry
-----------------------------------------------
Robert F. Perille
-----------------------------------------------
M. Ann O'Brien
-----------------------------------------------
Ford S. Bartholow
-----------------------------------------------
Jeffrey M. Mann
-----------------------------------------------
Matthew W. Clary
-----------------------------------------------
Thomas E. Van Pelt, Jr.
INDOSUEZ CAPITAL FUNDING I, LIMITED
By:
-------------------------------------------
Name:
Its Collateral Manager
INDOSUEZ HIGH YIELD PARTNERS
By:
-------------------------------------------
John G. Popp
Its Partner
Registration Agreement Waiver re 1995 Recapitalization
<PAGE> 94
OBIE & CO.
By:
-------------------------------------------
Texas Commerce Bank NA
Trust Department
Registration Agreement Waiver re 1995 Recapitalization
<PAGE> 1
EXHIBIT 10.08
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made as of this 4th day of August, 1995 by and
between CHAMPION HEALTHCARE CORPORATION, a Texas corporation (the "Company"),
and CHARLES R. MILLER, an individual residing in Houston, Texas ("Executive")
W I T N E S S E T H
WHEREAS, Executive currently serves as the President and Chief
Executive Officer of the Company; and
WHEREAS, the Company desires to induce Executive to remain employed
by the Company and Executive desires to continue employment with the Company
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Executive intend that Executive's current
employment agreement with the Company, dated as of the 10th day of February,
1990, shall be superseded by the terms of this Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be
legally bound, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
services of Executive, and Executive hereby agrees to continue to render the
same to the Company upon the terms and conditions hereinafter set forth.
a. PRIOR AGREEMENTS. The Company and Executive hereby
agree that, as of the effective date of this Agreement, the employment
agreement, dated February 10, 1990, by and between the parties hereto shall be
null and void and of no further effect, and, as of such date, Executive's
employment with the Company shall be subject to the terms and conditions of
this Agreement.
2. DUTIES. Executive shall serve as President and Chief Executive
Officer of the Company. The authority, duties, responsibilities and position
of Executive while employed pursuant to this Agreement shall be those set forth
in the Bylaws of the Company for the office of President and Chief Executive
Officer; subject, however, to such modifications, directions, and limitations
specified, from time to time, by the Board of Directors of the Company (the
"Board"), in its sole discretion. Upon any change in the status, office and/or
duties of Executive or any
<PAGE> 2
reduction in compensation or benefits under this Agreement, Executive shall
have ninety (90) days from the effective date thereof to provide written
consent thereto and the failure to provide such consent or the provision of a
written refusal to the Company within such time period shall be deemed a
termination in accordance with Paragraph 10(b) herein, effective on such 90th
day or the date of delivery of such written refusal, whichever is earlier.
Executive shall render such duties and services at the Company's principal
office in Houston, Texas, or such other locations as agreed upon between the
Board and Executive.
3. TERM. This Agreement shall have a term of five (5) years
commencing on the date first above written, subject to earlier termination
pursuant to Paragraph 10 hereof. Failure to renew this Agreement or enter into
a new employment agreement upon the expiration of this Agreement on terms
mutually agreeable between Executive and the Company shall constitute a
termination of this Agreement in accordance with Paragraph 10(b) herein.
4. COMPENSATION. The Company shall pay to Executive, and Executive
shall accept, as compensation for all services performed pursuant to this
Agreement, for each full calendar year during the term of this Agreement, a
base salary (the "Base Salary") of four hundred fifty thousand dollars
($450,000.00) per annum, payable in approximately equal installments at such
intervals as are consistent with the Company's pay periods for regular salaried
executive employees. Executive's Base Salary during the term of this Agreement
shall be reviewed by the Board on an annual basis (commencing with calendar
year 1996) and may be increased at the discretion of the Board.
a. ADDITIONAL COMPENSATION. No bonuses or other additional
compensation will be paid to Executive during the term of this Agreement
without the approval of the Compensation Committee of the Board and the Board.
5. EXPENSES AND BENEFITS. In addition to compensation, Executive
shall receive the following:
a. EXPENSES. Subject to such general employee expense
account policies as the Company may adopt from time to time, the Company shall
pay for, or reimburse Executive upon presentation of vouchers, invoices, or
receipts with respect to any and all expenses reasonably incurred by Executive
in the performance of his duties and responsibilities for the Company,
including, without limitation, expenses for such items as entertainment,
travel, meals, lodging, initiation and membership fees, fees and dues for
professional associations, and other similar items. Such vouchers, invoices,
and receipts shall be reviewed periodically for reasonableness by the Audit
Committee of the Board. In addition, no reimbursements shall be allowed for
travel, meals, or lodging for Executive's spouse unless Executive obtains prior
approval for such expenditures from the Company.
b. RETIREMENT BENEFITS. While employed hereunder, Executive
shall be entitled
-2-
<PAGE> 3
to participate in any and all pension and retirement plans, programs, and
arrangements, including non-qualified supplemental plans, adopted by the
Company and made available to its salaried executives. Nothing contained
herein shall be construed to limit the discretion of the Board or its delegate
to adopt, amend, modify, or terminate any such plans.
c. HEALTH, DISABILITY AND DEATH BENEFITS. The Company shall
provide (i) life insurance insuring Executive's life while employed hereunder;
(ii) dependent life insurance coverage; (iii) disability insurance coverage;
(iv) accidental death and dismemberment benefits, including a death benefit;
(v) travel and accident insurance; and (vi) health coverage for Executive and
his dependents, in each case in accordance with such standard coverage as
adopted by the Company from time to time and generally provided to other
salaried executives of the Company. Nothing contained herein shall be
construed to limit the discretion of the Board or its delegate to adopt, amend,
modify, or terminate any such plans.
d. MISCELLANEOUS BENEFITS. To the extent not duplicative of
the benefits otherwise specifically provided in this Paragraph 5, and subject
to and in accordance with the terms and conditions contained therein, while
employed hereunder, Executive shall be entitled to participate as and to the
extent of any other eligible employee of the Company, in any and all employee
benefit plans, policies, and programs now or hereafter maintained by the
Company for its salaried executives in general.
6. COVENANT NOT TO COMPETE. While employed hereunder, Executive
covenants and agrees as follows:
a. DISCLOSURE. Executive has disclosed to the Board, in
writing, all healthcare related interests, investments, or business activities,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever and Executive shall notify the Board promptly, in writing,
of any changes in or additions to such interests, activities, or investments.
b. LIMITATIONS. During the term of this Agreement and for a
period of one (1) year following the effective date of a termination of
employment, unless otherwise provided herein, Executive shall not engage in the
following:
(i) own, either directly or indirectly, any interest in any
business that competes with the Primary Business in which the Company is
engaged, within a radius of 30 miles from any site, facility, or location which
is owned, affiliated, managed or operated by the Company or any of its
subsidiaries, including physician practices of any kind. For the purposes of
this Agreement, Primary Business shall mean the delivery of integrated
healthcare services in markets where the Company owns hospitals and/or skilled
nursing facilities ("SNFs"), with the hospital serving as the hub of the local
delivery system in conjunction with its physician medical staff. In addition to
inpatient acute care, psychiatric care, and skilled nursing care, these
services can
-3-
<PAGE> 4
include 1) individual physician practices and/or physician based organizations
such as primary care and specialty clinics, physician-hospital organizations
("PHOs") or medical service organizations ("MSOs"), physician medical groups
and 2) ambulatory programs such as home health care, ambulatory surgery,
psychiatric services, occupational and sports medicine centers, psychiatric
after-care and day care programs, and other diagnostic, rehabilitative and
treatment services. Some of these services, sites and facilities may be
located in satellite areas for the purpose of extending the hub hospital's
geographic service area and to serve as access points and/or referral sources
for either the local delivery system or the hub hospital. The Board may
modify, from time to time, the definition of Primary Business to include any
additional business or service activity in which the Company may engage during
the term of this Agreement. Upon the modification of the definition, the Board
shall provide written notification of such modification to Executive within
thirty (30) calendar days. The definition of "Primary Business" shall also
include definitive plans for expanding the Primary Business into new markets
where the Company does not currently operate its Primary Business, regardless
of whether such expansion occurs after Executive's termination. In the event
of an expansion of the Primary Business within the applicable period of this
Paragraph 6, the Board shall provide written notification to Executive within
thirty (30) calendar days.
(ii) participate or serve, either directly or indirectly,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever in any business or service activity that competes with the
Primary Business in which the Company is engaged.
(iii) solicit any individual employed by the Company to
leave the employment of the Company.
Notwithstanding the foregoing, Executive may own, either directly or
indirectly, any interest in any business that competes with the Primary
Business of the Company if: (1) any such interest constitutes no more than a
five percent (5%) interest in a publicly held company; (2) any such interest
was held by Executive prior to employment with the Company or prior to the
Company's involvement in such Primary Business and was properly disclosed to
the Board pursuant to Paragraph 6(a); or (3) the Board provides written consent
of Executive's ownership of any such interest.
c. MODIFICATION OF LIMITATION. It is the desire and the
intent of the parties that the provisions of this Paragraph 6 shall be
enforceable to the fullest extent permissible under applicable law and public
policy. Accordingly, if this Paragraph 6 or any portion thereof shall be
adjudicated to be invalid or unenforceable, the length and scope of this
Paragraph 6 shall be reduced to the extent necessary so that this covenant may
be enforced to the fullest extent permissible under applicable law.
7. CONFIDENTIALITY. Executive agrees that, while employed hereunder
and for
-4-
<PAGE> 5
one (1) year thereafter, he shall not, without the prior written consent of the
Company, disclose to any third party or use for his own benefit or the benefit
of any third party or for any purpose other than the exclusive benefit of the
Company or its affiliates, any confidential information relating to the Company
or any of its affiliates which was obtained by or revealed to him while in the
employ of the Company or which is otherwise the property of the Company or any
of its affiliates; provided that this provision shall not restrict Executive's
use or disclosure of information (i) known generally to the public (other than
that which he may have disclosed in breach of any agreement) or (ii) as
required by law, so long as Executive gives the Company reasonable prior
written notice of such required disclosure. At the request of the Company,
Executive shall surrender promptly to the Company or its delegate, upon
termination of his employment hereunder, or at any time prior thereto, any
document, memorandum, record, letter, specification, or other paper in his
possession or under his control relating to the operations, business, patients,
or affairs of the Company.
8. CHANGE IN CONTROL. Executive may terminate his employment under
this Agreement by tendering written notice of resignation of not fewer than
ninety (90) days within six (6) calendar months of a Change in Control. In
addition, Executive may terminate his employment hereunder by tendering written
notice of resignation of not fewer than ninety (90) days within eighteen (18)
calendar months after a Change in Control and within six (6) months after the
occurrence of any of the following: (i) a failure to appoint Executive to the
office of President and Chief Executive Officer; (ii) any material change by
the Company in Executive's authority, duties, or responsibilities which would
result in the loss or reduction of Executive's authority, responsibility,
importance, or dignity; or (iii) any material breach of this Agreement,
including without limitation, a reduction of Executive's Base Salary.
For the purposes of this Agreement, a Change in Control shall be deemed to have
occurred if (i) any "Person" (as defined in Sections 13(d) and 14(d)(2) of the
Securities and Exchange Act of 1934, as amended), either alone or in
conjunction with its "Affiliates" (as defined in Rule 405 of the General Rules
and Regulations under the Securities Act of 1933, as amended), or (ii) other
group of persons, corporations, partnerships or other entities who are not
Affiliates but who are acting in concert with any Person, acquire ownership,
whether of record or beneficially, of that number of shares of outstanding
stock of the Company which would allow such Person or entity and/or its
affiliates, or others acting in concert, to elect a majority of the Board. A
Change in Control shall not include any acquisition of control (i) by any of
the Company's three (3) senior officers as of August 4, 1995, whether acting
alone or in concert with each other, provided Executive is a participant with
one or more such officers; or (ii) pursuant to which Executive accepts equity
securities of the Company or any entity with or into which the Company is
merged or consolidated, or which controls or is controlled by the Company or
any such entity except for equity securities received by Executive in his
capacity as stockholder and in accordance with stock options and other benefits
not materially in excess of those typically available to officers of other
publicly held for-profit healthcare companies not subject to a change in
control.
-5-
<PAGE> 6
In the event Executive terminates his employment after a Change in
Control, the Company shall (i) pay Executive severance pay equal to Executive's
then highest monthly rate of Base Salary under this Agreement multiplied by 12,
the product of which is then multiplied by 2.99, on a monthly basis over a
period of three (3) years, or at Executive's election, the Company shall fund a
trust by cash or annuity in form and substance satisfactory to Executive in an
amount sufficient to permit the trust to make monthly payments or any unpaid
portion thereof over the prescribed period or the Company shall make a lump sum
cash payment equal to the sum of the monthly installments without discount to
present value and (ii) pay, award, fund or otherwise provide all benefits
(including the continuation of all disability, life, and medical insurance as
provided prior to the Change in Control), stock options, and bonuses, both
vested and unvested, which bonuses shall be prorated to date of termination.
In addition, the Company relinquishes any right it has or may have, by
agreement or otherwise, to purchase any shares of stock of the Company owned by
Executive.
9. TERMINATION. This Agreement may be terminated upon the
occurrence of any one of the following:
a. VOLUNTARY. Executive may terminate this Agreement at any time
during the term of this Agreement by providing six (6) months prior written
notice of termination to the Board. In the event of a voluntary termination by
Executive, he shall not be bound by Paragraph 6(b)(i) and 6(b)(ii) of the
covenant not to compete.
b. INVOLUNTARY WITHOUT CAUSE. The Board, by a vote of the
majority of the directors, may terminate this Agreement without Cause (as
defined in Paragraph 9(c) below) at any time during the term of this Agreement
by providing thirty (30) days prior written notice to Executive. For purposes
of this Agreement, termination resulting from Executive's death or disability
shall be considered as termination without cause under this Paragraph 9(b).
c. INVOLUNTARY WITH CAUSE. The Board may terminate Executive
for Cause at any time during the term of this Agreement by providing written
notice that is immediately effective. Cause shall mean: (i) the conviction of
Executive or a guilty plea to a felony crime; (ii) in tile judgment of the
Board, Executive has committed any act of embezzlement, fraud, theft,
dishonesty, or moral turpitude; (iii) the violation by Executive of the
provisions of Paragraph 6 of this Agreement which is not cured within thirty
(30) days after written notice of such violation is given by the Board to
Executive; (iv) wilful, persistent, and continued refusal by Executive, not
involving a good faith difference of business judgment, to follow the written
directions or instructions of the Board pertaining to a material duty,
responsibility, or function of Executive; and (v) wilful misconduct or gross
negligence by Executive in the performance of his duties that has or will
likely have a material adverse financial effect on the Company as a whole.
1O. PAYMENTS UPON TERMINATION. In the event of a termination
described in Paragraph
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9 above, Executive shall receive the following payments and benefits, if any:
a. VOLUNTARY. In the event Executive terminates his employment
hereunder voluntarily in accordance with Paragraph 9(a), Executive shall
receive his then current Base Salary and benefits, including stock options, set
forth in this Agreement through the end of the notice period contained in
Paragraph 9(a).
b. INVOLUNTARY WITHOUT CAUSE. In the event the Company terminates
Executive without Cause in accordance with Paragraph 9(b), Executive shall
receive his then current Base Salary and then current health benefits for
himself and his eligible dependents for a period of two (2) years after the
effective date of such termination.
c. INVOLUNTARY WITH CAUSE. In the event the Company terminates
Executive for Cause in accordance with Paragraph 9(c), Executive shall receive
his then current Base Salary and benefits up to the date he receives written
notification of termination from the Board; provided, however, that if such
termination for Cause becomes the subject of an arbitration proceeding in
accordance with Paragraph II and Executive prevails in such arbitration, Base
Salary and benefits shall be provided in accordance with Paragraph 10(b).
11. ALTERNATIVE DISPUTE RESOLUTION. Disputes between the parties
arising out of or relating to this Agreement or the making, performance, or
interpretation thereof shall be resolved as follows:
a. NEGOTIATION. The parties shall attempt in good faith to
resolve any controversy, dispute, or claim arising out of or relating to this
Agreement or the making, performance, or interpretation thereof, by
negotiations between executives of the parties who have the authority to settle
the dispute. Any party may give the other party written notice of any dispute
not resolved in the normal course of business. Within twenty (20) days after
delivery of such notice, executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to exchange relevant information and to attempt to resolve the
dispute. If a negotiator intends to be accompanied at a meeting by an
attorney, the other negotiator shall be given at least three working days
notice of such intention and may also be accompanied by an attorney. All
negotiations pursuant to this Paragraph 11 (a) are confidential and shall be
treated as compromise and settlement negotiations for purposes of all
applicable rules of evidence. If the dispute is not resolved by negotiation
within sixty (60) days, or if the parties fall to meet within twenty (20) days,
and either party determines that the claim, dispute or controversy cannot be
resolved by negotiation, such party may submit the controversy, claim or
dispute to mediation as described below by providing a written
notice of submission to mediation to the other party.
b. MEDIATION. If either party submits a controversy, dispute or
claim to mediation, the parties agree the mediation shall occur pursuant to the
following procedures and
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understandings:
(i) A mediation firm in Houston, Texas, acceptable to both
parties, shall be designated to provide a mediator to work with the parties to
resolve their differences and the party submitting the dispute or claim to
mediation shall promptly provide such firm with a request to provide a
mediator.
(ii) The mediator appointed shall be knowledgeable with
respect to the hospital and healthcare industry and may be rejected by the
parties only for bias.
(iii) Within thirty (30) days from the date of the notice
submitting a dispute or claim to mediation, each party shall provide the
mediator with a written summary of the facts and law with respect to the matter
in dispute.
(iv) Within sixty (60) days from the time of his or her
appointment, the mediator shall meet with the parties and assist them in
resolving the dispute, unless the parties mutually consent to an extension of
such time.
(v) The mediation conference or conferences shall be held in
Houston, Texas, unless the mediator and the parties mutually agree on another
location or locations.
(vi) Efforts to reach a settlement shall continue until
the conclusion of the mediation proceeding, which is deemed to occur when: (a) a
written settlement is reached; (b) the mediator concludes and informs the
parties in writing that further efforts would not be useful; or (c) the parties
agree in writing that an impasse has been reached. Neither party may withdraw
before the conclusion of the proceeding.
(vii) If the mediation proceeding concludes without a
settlement being reached, the dispute, controversy or claim shall be resolved
by binding arbitration as described below.
(viii) All discussions, representations, and statements made
in the mediation process shall be privileged as settlement negotiations;
nothing related to the mediation shall be admitted as evidence at arbitration
or trial or shall be subject to discovery; and the mediator shall be immune
from causes of action which may be brought against him or her with respect to
such mediation proceedings under Texas law.
(ix) The costs of the mediation, including the fees and
expenses of the mediator, shall be borne as follows: one-third (1/3) by
Executive and two-thirds (2/3) by the Company.
c. ARBITRATION. Arbitration shall occur in Houston, Texas, in
accordance with the Rules of the American Arbitration Association then
existing, and judgment on the arbitration
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award may be entered in any court having jurisdiction over the subject matter
in controversy. The procedure for arbitration shall be in accordance with the
rules of the American Arbitration Association then existing except that the
Company and Executive shall each select one arbitrator, and the two selected
arbitrators shall choose a third arbitrator. In the event that either the
Company or Executive fails to select an arbitrator within ten (10) days after
arbitration is sought, or if the two arbitrators fail to select a third
arbitrator within fifteen (15) days after arbitration is sought, the American
Arbitration Association shall select the third arbitrator. Each arbitrator so
selected shall be knowledgeable with respect to the United States for-profit
hospital and healthcare industry. Expenses of arbitration, including
reasonable attorneys' fees and costs of collection, may be awarded in any such
arbitration.
d. STATUTE OF LIMITATIONS. All applicable statutes of
limitations and defenses based upon the passage of time shall be tolled while
the procedures specified in this Paragraph 11 are pending. The parties shall
take such action, if any, required to effectuate such tolling.
e. PERFORMANCE. Each party is required to continue to perform its
obligations under this Agreement pending final resolution of any dispute
arising out of or relating to this Agreement.
f. EXTENSION OF DEADLINES. All deadlines specified in this
Paragraph 11 may be executed by mutual agreement.
12. ENFORCEMENT. The parties regard the alternate dispute resolution
provisions of Paragraph 11 above to be an essential covenant of this Agreement
and legally binding upon them. In the event of a violation of Paragraph 11,
the parties recognize that the Company or Executive may suffer continuing and
irreparable harm for which the Company or Executive will have no adequate
remedy at law. Both parties hereby waive that either has an adequate remedy at
law for any such breach. In recognition thereof, the Company and Executive
hereby agree that, in the event of any such breach, either party shall be
entitled to seek a decree of specific performance, mandamus, or any other
appropriate remedy to enforce the provisions of this Agreement without any
requirement that a bond be posted. The parties further agree that Paragraph 11
shall not in any way limit remedies at law or in equity otherwise available to
either party.
13. INDEMNIFICATION. The Company shall indemnify and hold Executive
harmless from all liability, costs and expenses incurred as a consequence of
claims resulting from or arising out of Executive's status as an officer and/or
Director of the Company, or as a result of having been an officer and/or
Director of the Company to the full extent provided by Texas law, the Company's
Articles of Incorporation and the Company's Bylaws. In addition, the Company
shall reimburse Executive for all reasonable attorneys' fees, expenses and
disbursements incurred in connection with the enforcement of this Agreement by
Executive, provided Executive prevails in such enforcement proceeding.
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14. NOTIFICATION. Any notice required or permitted to be given to
Executive under this Agreement shall be sufficient if in writing and if
delivered to Executive personally or sent by overnight United States mail or
overnight courier service to Executive's residence as listed in the Company's
records. Any notice required or permitted to be given to the Company shall be
sufficient if in writing and if delivered personally or sent by overnight
United States mail or overnight courier service to the Company's principal
office at 14340 Torrey Chase Boulevard, Suite 320, Houston, Texas, 77014, to
the attention of the Chairman of the Option and Compensation Committee of the
Board. Personal delivery to the Board shall be to the Chairman of the Board.
In addition, copies of any notices to Executive shall also be sent to Wayne M.
Whitaker, 3500 City Center Tower II, 301 Commerce Street, Fort Worth, TX 76102.
The parties to this Agreement shall notify each other of changes in address
pursuant to this Paragraph 14.
15. SURVIVAL. Paragraphs 6, 7, 12, and 13 of this Agreement shall
survive any termination of Executive's employment hereunder unless otherwise
provided herein.
16. MISCELLANEOUS.
a. ASSIGNMENT AND BINDING EFFECT. Except as set forth herein,
neither party may assign its rights or obligations hereunder without prior
written consent of the other party. The respective rights and obligations
under this Agreement shall be binding upon the parties hereto and their heirs,
executors, administrators, successors, and assigns, including, in the case of
the Company, any other corporation or entity with which the Company may be
merged or otherwise combined or which may acquire all or substantially all of
the Company's assets and, in the case of Executive, his estate or other legal
representatives.
b. GOVERNING LAW. This Agreement shall be governed as to its
validity, interpretation, and effect by the laws of the State of Texas.
Performance of this Agreement shall be in Harris County, Texas.
c. SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid, illegal, or unenforceable for
any reason, the remaining provisions and portions of this Agreement shall
remain in full force and effect to the fullest extent permitted by law. Such
invalid, illegal, or unenforceable provision shall be deemed modified to the
extent necessary to make it valid, legal, and enforceable.
d. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement and understanding of the parties hereto with respect to
the subject matter hereof, supersedes all prior discussions, understandings and
agreements with respect thereto and may not be modified or changed, except by
an agreement in writing executed by the Company and Executive, with the
approval of the Board.
e. CAPTIONS. All captions and headings used herein are for
convenient reference
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only and do not form part of this Agreement.
f. WAIVER. The waiver of a breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
g. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement on the date first above written.
CHAMPION HEALTHCARE CORPORATION
By: /s/ JAMES G. VANDEVENDER
------------------------------
James G. VanDevender
Executive Vice President
EXECUTIVE
By: /s/ CHARLES R. MILLER
------------------------------
Charles R. Miller
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EXHIBIT 10.09
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made as of this 4th day of August, 1995 by and
between CHAMPION HEALTHCARE CORPORATION, a Texas corporation (the "Company"),
and JAMES G. VANDEVENDER, an individual residing in Houston, Texas
("Executive")
WITNESSETH
WHEREAS, Executive currently serves as the Executive Vice President
and Chief Financial Officer of the Company; and
WHEREAS, the Company desires to induce Executive to remain employed by
the Company and Executive desires to continue employment with the Company upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Executive intend that Executive's current
employment agreement with the Company, dated as of the 31st day of December,
1990, shall be superseded by the terms of this Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be
legally bound, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
services of Executive, and Executive hereby agrees to continue to render the
same to the Company upon the terms and conditions hereinafter set forth.
a. PRIOR AGREEMENTS. The Company and Executive hereby agree
that, as of the effective date of this Agreement, the employment agreement,
dated December 31, 1990, by and between the parties hereto shall be null and
void and of no further effect, and, as of such date, Executive's employment
with the Company shall be subject to the terms and conditions of this
Agreement.
2. DUTIES. Executive shall serve as Executive Vice President and
Chief Financial Officer of the Company. The authority, duties,
responsibilities and position of Executive while employed pursuant to this
Agreement shall be those set forth in the Bylaws of the Company for the office
of Executive Vice President and Chief Financial Officer; subject, however, to
such modifications, directions, and limitations specified, from time to time,
by the Chief Executive Officer of the Company, in his sole discretion. Upon
any change in the status, office and/or duties of Executive or any reduction in
compensation or benefits under this Agreement, Executive shall
<PAGE> 2
have ninety (90) days from the effective date thereof to provide written
consent thereto and the failure to provide such consent or the provision of a
written refusal to the Company within such time period shall be deemed a
termination in accordance with Paragraph 10(b) herein, effective on such 90th
day or the date of delivery of such written refusal, whichever is earlier.
Executive shall render such duties and services at the Company's principal
office in Houston, Texas, or such other locations as agreed upon between the
Board of Directors of the Company (the "Board") and Executive.
3. TERM. This Agreement shall have a term of five (5) years
commencing on the date first above written, subject to earlier termination
pursuant to Paragraph 10 hereof. Failure to renew this Agreement or enter into
a new employment agreement upon the expiration of this Agreement on terms
mutually agreeable between Executive and the Company shall constitute a
termination of this Agreement in accordance with Paragraph 10(b) herein.
4. COMPENSATION. The Company shall pay to Executive, and Executive
shall accept, as compensation for all services performed pursuant to this
Agreement, for each full calendar year during the term of this Agreement, a
base salary (the "Base Salary") of three hundred thousand dollars ($300,000.00)
per annum, payable in approximately equal installments at such intervals as are
consistent with the Company's pay periods for regular salaried executive
employees. Executive's Base Salary during the term of this Agreement shall be
reviewed by the Board on an annual basis (commencing with calendar year 1996)
and may be increased at the discretion of the Board.
a. ADDITIONAL COMPENSATION. No bonuses or other additional
compensation will be paid to Executive during the term of this Agreement
without the approval of the Compensation Committee of the Board and the Board.
5. EXPENSES AND BENEFITS. In addition to compensation, Executive
shall receive the following:
a. EXPENSES. Subject to such general employee expense
account policies as the Company may adopt from time to time, the Chief
Executive Officer or his designee shall pay for, or reimburse Executive upon
presentation of vouchers, invoices, or receipts with respect to any and all
expenses reasonably incurred by Executive in the performance of his duties and
responsibilities for the Company, including, without limitation, expenses for
such items as entertainment, travel, meals, lodging, initiation and membership
fees, fees and dues for professional associations, and other similar items.
Such vouchers, invoices, and receipts shall be reviewed periodically for
reasonableness by the Chief Executive Officer or his designee. In addition, no
reimbursements shall be allowed for travel, meals, or lodging for Executive's
spouse unless Executive obtains prior approval for such expenditures from the
Company.
b. RETIREMENT BENEFITS. While employed hereunder, Executive
shall be entitled
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to participate in any and all pension and retirement plans, programs, and
arrangements, including non-qualified supplemental plans, adopted by the
Company and made available to its salaried executives. Nothing contained
herein shall be construed to limit the discretion of the Board or its delegate
to adopt, amend, modify, or terminate any such plans.
c. HEALTH, DISABILITY AND DEATH BENEFITS. The Company shall
provide (i) life Insurance insuring Executive's life while employed hereunder;
(ii) dependent life insurance coverage; (iii) disability insurance coverage;
(iv) accidental death and dismemberment benefits, including a death benefit;
(v) travel and accident insurance; and (vi) health coverage for Executive and
his dependents, in each case in accordance with such standard coverage as
adopted by the Company from time to time and generally provided to other
salaried executives of the Company. Nothing contained herein shall be
construed to limit the discretion of the Board or its delegate to adopt, amend,
modify, or terminate any such plans.
d. MISCELLANEOUS BENEFITS. To the extent not duplicative of
the benefits otherwise specifically provided in this Paragraph 5, and subject
to and in accordance with the terms and conditions contained therein, while
employed hereunder, Executive shall be entitled to participate as and to the
extent of any other eligible employee of the Company, in any and all employee
benefit plans, policies, and programs now or hereafter maintained by the
Company for its salaried executives in general.
6. COVENANT NOT TO COMPETE. While employed hereunder, Executive
covenants and agrees as follows:
a. DISCLOSURE. Executive has disclosed to the Board, in
writing, all healthcare related interests, investments, or business activities,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever and Executive shall notify the Board promptly, in writing,
of any changes in or additions to such interests, activities, or investments.
b. LIMITATIONS. During the term of this Agreement and for a
period of one (1) year following the effective date of a termination of
employment, unless otherwise provided herein, Executive shall not engage in the
following:
(i) own, either directly or indirectly, any interest in
any business that competes with the Primary Business in which the Company is
engaged, within a radius of 30 miles from any site, facility, or location which
is owned, affiliated, managed or operated by the Company or any of its
subsidiaries, including physician practices of any kind. For the purposes of
this Agreement, Primary Business shall mean the delivery of integrated
healthcare services in markets where the Company owns hospitals and/or skilled
nursing facilities ("SNFs"), with the hospital serving as the hub of the local
delivery system in conjunction with its physician medical staff. In addition
to inpatient acute care, psychiatric care, and skilled nursing care, these
services can
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include 1) individual physician practices and/or physician based organizations
such as primary care and specialty clinics, physician-hospital organizations
("PHOs") or medical service organizations ("MSOs"), physician medical groups
and 2) ambulatory programs such as home health care, ambulatory surgery,
psychiatric services, occupational and sports medicine centers, psychiatric
after-care and day care programs, and other diagnostic, rehabilitative and
treatment services. Some of these services, sites and facilities may be
located in satellite areas for the purpose of extending the hub hospital's
geographic service area and to serve as access points and/or referral sources
for either the local delivery system or the hub hospital. The Board may
modify, from time to time, the definition of Primary Business to include any
additional business or service activity in which the Company may engage during
the term of this Agreement. Upon the modification of the definition, the Board
shall provide written notification of such modification to Executive within
thirty (30) calendar days. The definition of "Primary Business" shall also
include definitive plans for expanding the Primary Business into new markets
where the Company does not currently operate its Primary Business, regardless
of whether such expansion occurs after Executive's termination. In the event
of an expansion of the Primary Business within the applicable period of this
Paragraph 6, the Board shall provide written notification to Executive within
thirty (30) calendar days.
(ii) participate or serve, either directly or indirectly,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever in any business or service activity that competes with the
Primary Business in which the Company is engaged.
(iii) solicit any individual employed by the Company to leave
the employment of the Company.
Notwithstanding the foregoing, Executive may own, either directly or
indirectly, any interest in any business that competes with the Primary
Business of the Company if: (1) any such interest constitutes no more than a
five percent (5%) interest in a publicly held company; (2) any such interest
was held by Executive prior to employment with the Company or prior to the
Company's involvement in such Primary Business and was properly disclosed to
the Board pursuant to Paragraph 6(a); or (3) the Board provides written consent
of Executive's ownership of any such interest.
c. MODIFICATION OF LIMITATION. It is the desire and the intent of
the parties that the provisions of this Paragraph 6 shall be enforceable to the
fullest extent permissible under applicable law and public policy.
Accordingly, if this Paragraph 6 or any portion thereof shall be adjudicated to
be invalid or unenforceable, the length and scope of this Paragraph 6 shall be
reduced to the extent necessary so that this covenant may be enforced to the
fullest extent possible under applicable law.
7. CONFIDENTIALITY. Executive agrees that, while employed hereunder
and for
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one (1) year thereafter, he shall not, without the prior written consent of the
Company, disclose to any third party or use for his own benefit or the benefit
of any third party or for any purpose other than the exclusive benefit of the
Company or its affiliates, any confidential information relating to the Company
or any of its affiliates which was obtained by or revealed to him while in the
employ of the Company or which is otherwise the property of the Company or any
of its affiliates; provided that this provision shall not restrict Executive's
use or disclosure of information (i) known generally to the public (other than
that which he may have disclosed in breach of any agreement) or (ii) as
required by law, so long as Executive gives the Company reasonable prior
written notice of such required disclosure. At the request of the Company,
Executive shall surrender promptly to the Company or its delegate, upon
termination of his employment hereunder, or at any time prior thereto, any
document, memorandum, record, letter, specification, or other paper in his
possession or under his control relating to the operations, business, patients,
or affairs of the Company.
8. CHANGE IN CONTROL. Executive may terminate his employment under
this Agreement by tendering written notice of resignation of not fewer than
ninety (90) days within six (6) calendar months of a Change in Control. In
addition, Executive may terminate his employment hereunder by tendering written
notice of resignation of not fewer than ninety (90) days within eighteen (18)
calendar months after a Change in Control and within six (6) months after the
occurrence of any of the following: (i) a failure to appoint Executive to the
office of Executive Vice President and Chief Financial Officer; (ii) any
material change by the Company in Executive's authority, duties, or
responsibilities which would result in the loss or reduction of Executive's
authority, responsibility, importance, or dignity; or (iii) any material breach
of this Agreement, including without limitation, a reduction of Executive's
Base Salary.
For the purposes of this Agreement, a Change in Control shall be deemed to have
occurred if (i) any "Person" (as defined in Sections 13(d) and 14(d)(2) of the
Securities and Exchange Act of 1934, as amended), either alone or in conjunction
with its "Affiliates" (as defined in Rule 405 of the General Rules and
Regulations under the Securities Act of 1933, as amended), or (ii) other group
of persons, corporations, partnerships or other entities who are not Affiliates
but who are acting in concert with any Person, acquire ownership, whether of
record or beneficially, of that number of shares of outstanding stock of the
Company which would allow such Person or entity and/or its affiliates, or others
acting in concert, to elect a majority of the Board. A Change in Control shall
not include any acquisition of control (i) by any of the Company's three (3)
senior officers as of August 4, 1995, whether acting alone or in concert with
each other, provided Executive is a participant with one or more such officers;
or (ii) pursuant to which Executive accepts equity securities of the Company or
any entity with or into which the Company is merged or consolidated, or which
controls or is controlled by the Company or any such entity except for equity
securities received by Executive in his capacity as stockholder and in
accordance with stock options and other benefits not materially in excess of
those typically available to officers of other publicly held for-profit
healthcare companies not subject to a change in control.
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In the event Executive terminates his employment after a Change in
Control, the Company shall (i) pay Executive severance pay equal to Executive's
then highest monthly rate of Base Salary under this Agreement multiplied by 12,
the product of which is then multiplied by 2.99, on a monthly basis over a
period of three (3) years, or at Executive's election, the Company shall fund a
trust by cash or annuity in form and substance satisfactory to Executive in an
amount sufficient to permit the trust to make monthly payments or any unpaid
portion thereof over the prescribed period or the Company shall make a lump sum
cash payment equal to the sum of the monthly installments without discount to
present value and (ii) pay, award, fund or otherwise provide all benefits
(including the continuation of all disability, life, and medical insurance as
provided prior to the Change in Control), stock options, and bonuses, both
vested and unvested, which bonuses shall be prorated to date of termination.
In addition, the Company relinquishes any right it has or may have, by
agreement or otherwise, to purchase any shares of stock of the Company owned by
Executive.
9. TERMINATION. This Agreement may be terminated upon the
occurrence of any one of the following:
a. VOLUNTARY. Executive may terminate this Agreement at any
time during the term of this Agreement by providing six (6) months prior
written notice of termination to the Board. In the event of a voluntary
termination by Executive, he shall not be bound by Paragraph 6(b)(i) and
6(b)(ii) of the covenant not to compete.
b. INVOLUNTARY WITHOUT CAUSE. The Chief Executive Officer of
the Company may terminate this Agreement without Cause (as defined in Paragraph
9(c) below) at any time during the term of this Agreement by providing thirty
(30) days prior written notice to Executive. For purposes of this Agreement,
termination resulting from Executive's death or disability shall be considered
as termination without cause under this Paragraph 9(b).
c. INVOLUNTARY WITH CAUSE. The Chief Executive Officer of
the Company may terminate Executive for Cause at any time during the term of
this Agreement by providing written notice that is immediately effective.
Cause shall mean: (i) the conviction of Executive or a guilty plea to a felony
crime; (ii) in the judgment of the Board, Executive has committed any act of
embezzlement, fraud, theft, dishonesty, or moral turpitude; (iii) the violation
by Executive of the provisions of Paragraph 6 of this Agreement which is not
cured within thirty (30) days after written notice of such violation is given
by the Board to Executive; (iv) wilful, persistent, and continued refusal by
Executive, not involving a good faith difference of business judgment, to
follow the written directions or instructions of the Board pertaining to a
material duty, responsibility, or function of Executive; and (v) wilful
misconduct or gross negligence by Executive in the performance of his duties
that has or will likely have a material adverse financial effect on the Company
as a whole.
10. PAYMENTS UPON TERMINATION. In the event of a termination
described in Paragraph
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9 above, Executive shall receive the following payments and benefits, if any:
a. VOLUNTARY. In the event Executive terminates his
employment hereunder voluntarily in accordance with Paragraph 9(a), Executive
shall receive his then current Base Salary and benefits, including stock
options, set forth in this Agreement through the end of the notice period
contained in Paragraph 9(a).
b. INVOLUNTARY WITHOUT CAUSE. In the event the Company
terminates Executive without Cause in accordance with Paragraph 9(b), Executive
shall receive his then current Base Salary and then current health benefits for
himself and his eligible dependents for a period of two (2) years after the
effective date of such termination.
c. INVOLUNTARY WITH CAUSE. In the event the Company
terminates Executive for Cause in accordance with Paragraph 9(c), Executive
shall receive his then current Base Salary and benefits up to the date he
receives written notification of termination from the Board; provided, however,
that if such termination for Cause becomes the subject of an arbitration
proceeding in accordance with Paragraph 11 and Executive prevails in such
arbitration, Base Salary and benefits shall be provided in accordance with
Paragraph 10(b).
11. ALTERNATIVE DISPUTE RESOLUTION. Disputes between the parties
arising out of or relating to this Agreement or the making, performance, or
interpretation thereof shall be resolved as follows:
a. NEGOTIATION. The parties shall attempt in good faith to
resolve any controversy, dispute, or claim arising out of or relating to this
Agreement or the making, performance, or interpretation thereof, by
negotiations between executives of the parties who have the authority to settle
the dispute. Any party may give the other party written notice of any dispute
not resolved in the normal course of business. Within twenty (20) days after
delivery of such notice, executives of both parties shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary, to exchange relevant information and to attempt to resolve the
dispute. If a negotiator intends to be accompanied at a meeting by an
attorney, the other negotiator shall be given at least three working days
notice of such intention and may also be accompanied by an attorney. All
negotiations pursuant to this Paragraph 11(a) are confidential and shall be
treated as compromise and settlement negotiations for purposes of all
applicable rules of evidence. If the dispute is not resolved by negotiation
within sixty (60) days, or if the parties fall to meet within twenty (20) days,
and either party determines that the claim, dispute or controversy cannot be
resolved by negotiation, such party may submit the controversy, claim or
dispute to mediation as described below by providing a written notice of
submission to mediation to the other party.
b. Mediation. If either party submits a controversy, dispute or
claim to mediation, the parties agree the mediation shall occur pursuant to the
following procedures and
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understandings:
(i) A mediation firm in Houston, Texas, acceptable to both
parties, shall be designated to provide a mediator to work with the parties to
resolve their differences and the party submitting the dispute or claim to
mediation shall promptly provide such firm with a request to provide a
mediator.
(ii) The mediator appointed shall be knowledgeable with
respect to the hospital and healthcare industry and may be rejected by the
parties only for bias.
(iii) Within thirty (30) days from the date of the notice
submitting a dispute or claim to mediation, each party shall provide the
mediator with a written summary of the facts and law with respect to the matter
in dispute.
(iv) Within sixty (60) days from the time of his or her
appointment, the mediator shall meet with the parties and assist them in
resolving the dispute, unless the parties mutually consent to an extension of
such time.
(v) The mediation conference or conferences shall be held in
Houston, Texas, unless the mediator and the parties mutually agree on another
location or locations.
(vi) Efforts to reach a settlement shall continue until the
conclusion of the mediation proceeding, which is deemed to occur when: (a) a
written settlement is reached; (b) the mediator concludes and informs the
parties in writing that further efforts would not be useful; or (c) the parties
agree in writing that an impasse has been reached. Neither party may withdraw
before the conclusion of the proceeding.
(vii) If the mediation proceeding concludes without a
settlement being reached, the dispute, controversy or claim shall be resolved
by binding arbitration as described below.
(viii) All discussions, representations, and statements made
in the mediation process shall be privileged as settlement negotiations;
nothing related to the mediation shall be admitted as evidence at arbitration
or trial or shall be subject to discovery; and the mediator shall be immune
from causes of action which may be brought against him or her with respect to
such mediation proceedings under Texas law.
(ix) The costs of the mediation, including the fees and
expenses of the mediator, shall be borne as follows: one-third (1/3) by
Executive and two-thirds (2/3) by the Company.
c. ARBITRATION. Arbitration shall occur in Houston, Texas,
in accordance with the Rules of the American Arbitration Association then
existing, and judgment on the arbitration
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award may be entered in any court having jurisdiction over the subject matter
in controversy. The procedure for arbitration shall be In accordance with the
rules of the American Arbitration Association then existing except that the
Company and Executive shall each select one arbitrator, and the two selected
arbitrators shall choose a third arbitrator. In the event that either the
Company or Executive fails to select an arbitrator within ten (10) days after
arbitration is sought, or if the two arbitrators fail to select a third
arbitrator within fifteen (15) days after arbitration is sought, the American
Arbitration Association shall select the third arbitrator. Each arbitrator so
selected shall be knowledgeable with respect to the United States for-profit
hospital and healthcare industry. Expenses of arbitration, including
reasonable attorneys' fees and costs of collection, may be awarded in any such
arbitration.
d. STATUTE OF LIMITATIONS. All applicable statutes of
limitations and defenses based upon the passage of time shall be tolled while
the procedures specified in this Paragraph 11 are pending. The parties shall
take such action, if any, required to effectuate such tolling.
e. PERFORMANCE. Each party is required to continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement.
f. EXTENSION OF DEADLINES. All deadlines specified in this
Paragraph 11 may be executed by mutual agreement.
12. ENFORCEMENT. The parties regard the alternate dispute
resolution provisions of Paragraph 11 above to be an essential covenant of
this Agreement and legally binding upon them. In the event of a violation of
Paragraph 11, the parties recognize that the Company or Executive may suffer
continuing and irreparable harm for which the Company or Executive will have no
adequate remedy at law. Both parties hereby waive that either has an adequate
remedy at law for any such breach. In recognition thereof, the Company and
Executive hereby agree that, in the event of any such breach, either party
shall be entitled to seek a decree of specific performance, mandamus, or any
other appropriate remedy to enforce the provisions of this Agreement without
any requirement that a bond be posted. The parties further agree that
Paragraph 11 shall not in any way limit remedies at law or in equity otherwise
available to either party.
13. INDEMNIFICATION. The Company shall indemnify and hold Executive
harmless from all liability, costs and expenses incurred as a consequence of
claims resulting from or arising out of Executive's status as an officer and/or
Director of the Company, or as a result of having been an officer and/or
Director of the Company to the full extent provided by Texas law, the Company's
Articles of Incorporation and the Company's Bylaws. In addition, the Company
shall reimburse Executive for all reasonable attorneys' fees, expenses and
disbursements incurred in connection with the enforcement of this Agreement by
Executive, provided Executive prevails in such enforcement proceeding.
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14. NOTIFICATION. Any notice required or permitted to be given to
Executive under this Agreement shall be sufficient if in writing and if
delivered to Executive personally or sent by overnight United States mail or
overnight courier service to Executive's residence as listed in the Company's
records. Any notice required or permitted to be given to the Company shall be
sufficient if in writing and if delivered personally or sent by overnight
United States mail or overnight courier service to the Company's principal
office at 14340 Thorough Chase Boulevard, Suite 320, Houston, Texas, 77014, to
the attention of the Chief Executive Officer. In addition, copies of any
notices to Executive shall also be sent to Wayne M. Whitaker, 3500 City Center
Tower II, 301 Commerce Street, Fort Worth, TX 76102. The parties to this
Agreement shall notify each other of changes in address pursuant to this
Paragraph 14.
15. SURVIVAL. Paragraphs 6, 7, 12, and 13 of this Agreement shall
survive any termination of Executive's employment hereunder unless otherwise
provided herein.
16. MISCELLANEOUS.
a. ASSIGNMENT AND BINDING EFFECT. Except as set forth
herein, neither party may assign its rights or obligations hereunder without
prior written consent of the other party. The respective rights and
obligations under this Agreement shall be binding upon the parties hereto and
their heirs, executors, administrators, successors, and assigns, including, in
the case of the Company, any other corporation or entity with which the Company
may be merged or otherwise combined or which may acquire all or substantially
all of the Company's assets and, in the case of Executive, his estate or other
legal representatives.
b. GOVERNING LAW. This Agreement shall be governed as
to its validity, interpretation, and effect by the laws of the State of Texas.
Performance of this Agreement shall be in Harris County, Texas.
c. SEVERABILITY. In the event that any provision or
portion of this Agreement shall be determined to be invalid, illegal, or
unenforceable for any reason, the remaining provisions and portions of this
Agreement shall remain in full force and effect to the fullest extent permitted
by law. Such invalid, illegal, or unenforceable provision shall be deemed
modified to the extent necessary to make it valid, legal, and enforceable.
d. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof, supersedes all prior discussions, understandings and
agreements with respect thereto and may not be modified or changed, except by
an agreement in writing executed by the Company and Executive, with the
approval of the Board.
e. CAPTIONS. All captions and headings used herein are for
convenient reference only and do not form part of this Agreement.
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f. WAIVER. The waiver of a breach of any term or provision
of this Agreement shall not operate as or be construed to be a waiver of any
other or subsequent breach of this Agreement.
g. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have executed this Agreement on the date first above written.
CHAMPION HEALTHCARE CORPORATION
By: /s/ CHARLES R. MILLER
------------------------------------------
Charles R. Miller
President and Chief Executive Officer
EXECUTIVE
/s/ JAMES G. VANDEVENDER
---------------------------------------------
James G. VanDevender
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<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made as of this 4th day of August, 1995 by and
between CHAMPION HEALTHCARE CORPORATION, a Texas corporation (the "Company"),
and RONALD R. PATTERSON, an individual residing in Houston, Texas ("Executive")
WITNESSETH
WHEREAS, Executive currently serves as the Executive Vice President
and Chief Operating Officer of the Company; and
WHEREAS, the Company desires to induce Executive to remain employed by
the Company and Executive desires to continue employment with the Company upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Executive intend that Executive's current
employment agreement with the Company, dated as of the 1st day of January,
1992, shall be superseded by the terms of this Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be
legally bound, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ
the services of Executive, and Executive hereby agrees to continue to render
the same to the Company upon the terms and conditions hereinafter set forth.
a. PRIOR AGREEMENTS. The Company and Executive hereby
agree that, as of the effective date of this Agreement, the employment
agreement, dated January 1, 1992, by and between the parties hereto shall be
null and void and of no further effect, and, as of such date, Executive's
employment with the Company shall be subject to the terms and conditions of
this Agreement.
2. DUTIES. Executive shall serve as Executive Vice President and
Chief Operating Officer of the Company. The authority, duties,
responsibilities and position of Executive while employed pursuant to this
Agreement shall be those set forth in the Bylaws of the Company for the office
of Executive Vice President and Chief Operating Officer; subject, however, to
such
<PAGE> 2
modifications, directions, and limitations specified, from time to time, by the
Chief Executive Officer of the Company, in his sole discretion. Executive
shall render such duties and services at the Company's principal office in
Houston, Texas, or such other locations as agreed upon between the Chief
Executive Officer and Executive.
3. TERM. This Agreement shall have a term of three (3) years
commencing on the date first above written, subject to earlier termination
pursuant to Paragraph 10 hereof. Failure to renew this Agreement or enter
into a new employment agreement upon the expiration of this Agreement on terms
mutually agreeable between Executive and the Company shall constitute a
termination of this Agreement in accordance with Paragraph 10(b) herein.
4. COMPENSATION. The Company shall pay to Executive, and
Executive shall accept, as compensation for all services performed pursuant to
this Agreement, for each full calendar year during the term of this Agreement,
a base salary (the "Base Salary") of three hundred thousand dollars
($300,000.00) per annum, payable in approximately equal installments at such
intervals as are consistent with the Company's pay periods for regular salaried
executive employees. Executive's Base Salary during the term of this Agreement
shall be reviewed by the Board of Directors of the Company (the "Board") on an
annual basis commencing with calendar year 1996 and may be increased at the
discretion of the Board.
a. ADDITIONAL COMPENSATION. No bonuses or other
additional compensation will be paid to Executive during the term of this
Agreement without the approval of the Compensation Committee of the Board and
the Board.
5. EXPENSES AND BENEFITS. In addition to compensation, Executive
shall receive the following:
a. EXPENSES. Subject to such general employee expense
account policies as the Company may adopt from time to time, the Chief
Executive Officer or his designee shall pay for, or reimburse Executive upon
presentation of vouchers, invoices, or receipts with respect to any and all
expenses reasonably incurred by Executive in the performance of his duties and
responsibilities for the Company, including, without limitation, expenses for
such items as entertainment, travel, meals, lodging, initiation and membership
fees, fees and dues for professional associations, and other similar items.
Such vouchers, invoices, and receipts shall be reviewed periodically for
reasonableness by the Chief Executive Officer or his designee. In addition, no
reimbursements shall be allowed for travel, meals, or lodging for Executive's
spouse unless Executive obtains prior approval for such expenditures from the
Company.
b. RETIREMENT BENEFITS. While employed hereunder,
Executive shall be entitled to participate in any and all pension and
retirement plans, programs, and arrangements, including non-qualified
supplemental plans, adopted by the Company and made available to its salaried
executives. Nothing contained herein shall be construed to limit the
discretion of the Board or
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<PAGE> 3
its delegate to adopt, amend, modify, or terminate any such plans.
c. HEALTH, DISABILITY AND DEATH BENEFITS. The Company
shall provide (i) life insurance insuring Executive's life while employed
hereunder; (ii) dependent life insurance coverage; (iii) disability insurance
coverage; (iv) accidental death and dismemberment benefits, including a death
benefit; (v) travel and accident insurance; and (vi) health coverage for
Executive and his dependents, in each case in accordance with such standard
coverage as adopted by the Company from time to time and generally provided to
other salaried executives of the Company. Nothing contained herein shall be
construed to limit the discretion of the Board or its delegate to adopt, amend,
modify, or terminate any such plans.
d. MISCELLANEOUS BENEFITS. To the extent not
duplicative of the benefits otherwise specifically provided in this Paragraph
5, and subject to and in accordance with the terms and conditions contained
therein, while employed hereunder, Executive shall be entitled to participate
as and to the extent of any other eligible employee of the Company, in any and
all employee benefit plans, policies, and programs now or hereafter maintained
by the Company for its salaried executives in general.
6. COVENANT NOT TO COMPETE. While employed hereunder, Executive
covenants and agrees as follows:
a. DISCLOSURE. Executive has disclosed to the Board, in
writing, all healthcare related interests, investments, or business activities,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever and Executive shall notify the Board promptly, in writing,
of any changes in or additions to such interests, activities, or investments.
b. LIMITATIONS. During the term of this Agreement and for
a period of one (1) year following the effective date of a termination of
employment, unless otherwise provided herein, Executive shall not engage in the
following:
(i) own, either directly or indirectly, any interest in
any business that competes with the Primary Business in which the Company is
engaged, within a radius of 30 miles from any site, facility, or location which
is owned, affiliated, managed or operated by the Company or any of its
subsidiaries, including physician practices of any kind. For the purposes of
this Agreement, Primary Business shall mean the delivery of integrated
healthcare services in markets where the Company owns hospitals and/or skilled
nursing facilities ("SNFs"), with the hospital serving as the hub of the local
delivery system in conjunction with its physician medical staff. In addition
to inpatient acute care, psychiatric care, and skilled nursing care, these
services can include 1) individual physician practices and/or physician based
organizations such as primary care and specialty clinics, physician-hospital
organizations ("PHOs") or medical service organizations ("MSOs"), physician
medical groups and 2) ambulatory programs such as home
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health care, ambulatory surgery, psychiatric services, occupational and sports
medicine centers, psychiatric after-care and day care programs, and other
diagnostic, rehabilitative and treatment services. Some of these services,
sites and facilities may be located in satellite areas for the purpose of
extending the hub hospital's geographic service area and to serve as access
points and/or referral sources for either the local delivery system or the hub
hospital. The Board may modify, from time to time, the definition of Primary
Business to include any additional business or service activity in which the
Company may engage during the term of this Agreement. Upon the modification of
the definition, the Board shall provide written notification of such
modification to Executive within thirty (30) calendar days. The definition of
"Primary Business" shall also include definitive plans for expanding the
Primary Business into new markets where the Company does not currently operate
its Primary Business, regardless of whether such expansion occurs after
Executive's termination. In the event of an expansion of the Primary Business
within the applicable period of this Paragraph 6, the Board shall provide
written notification to Executive within thirty (30) calendar days.
(ii) participate or serve, either directly or indirectly,
whether as a proprietor, stockholder, partner, co-venturer, director, officer,
employee, independent contractor, agent, consultant, or in any other capacity
or manner whatsoever in any business or service activity that competes with the
Primary Business in which the Company is engaged.
(iii) solicit any individual employed by the Company to leave
the employment of the Company.
Notwithstanding the foregoing, Executive may own, either directly or
indirectly, any interest in any business that competes with the Primary
Business of the Company if: (1) any such interest constitutes no more than a
five percent (5%) interest in a publicly held company; (2) any such interest
was held by Executive prior to employment with the Company or prior to the
Company's involvement in such Primary Business and was properly disclosed to
the Board pursuant to Paragraph 6(a); or (3) the Board provides written consent
of Executive's ownership of any such interest.
c. MODIFICATION OF LIMITATION. It is the desire and the
intent of the parties that the provisions of this Paragraph 6 shall be
enforceable to the fullest extent permissible under applicable law and public
policy. Accordingly, if this Paragraph 6 or any portion thereof shall be
adjudicated to be invalid or unenforceable, the length and scope of this
Paragraph 6 shall be reduced to the extent necessary so that this covenant may
be enforced to the fullest extent possible under applicable law.
7. CONFIDENTIALITY. Executive agrees that, while
employed hereunder and for one (1) year thereafter, he shall not, without the
prior written consent of the Company, disclose to any third party or use for
his own benefit or the benefit of any third party or for any purpose other than
the exclusive benefit of the Company or its affiliates, any confidential
information
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<PAGE> 5
relating to the Company or any of its affiliates which was obtained by or
revealed to him while in the employ of the Company or which is otherwise the
property of the Company or any of its affiliates; provided that this provision
shall not restrict Executive's use or disclosure of information (i) known
generally to the public (other than that which he may have disclosed in breach
of any agreement) or (ii) as required by law, so long as Executive gives the
Company reasonable prior written notice of such required disclosure. At the
request of the Company, Executive shall surrender promptly to the Company or
its delegate, upon termination of his employment hereunder, or at any time
prior thereto, any document, memorandum, record, letter, specification, or
other paper in his possession or under his control relating to the operations,
business, patients, or affairs of the Company.
8. CHANGE IN CONTROL. Executive may terminate his employment
under this Agreement by tendering written notice of resignation of not fewer
than ninety (90) days within six (6) calendar months of a Change in Control.
In addition, Executive may terminate his employment hereunder by tendering
written notice of resignation of not fewer than ninety (90) days within
eighteen (18) calendar months after a Change Control and within six (6) months
after the occurrence of any of the following: (i) a failure to appoint
Executive to the office of Executive Vice President and Chief Operating
Officer; (ii) any material change by the Company in Executive's authority,
duties, or responsibilities which would result in the loss or reduction of
Executive's authority, responsibility, importance, or dignity; or (iii) any
material breach of this Agreement, including without limitation, a reduction of
Executive's Base Salary.
For the purposes of this Agreement, a Change in Control shall be deemed to have
occurred if (i) any "Person" (as defined in Sections 13(d) and 14(d)(2) of the
Securities and Exchange Act of 1934, as amended), either alone or in
conjunction with its "Affiliates" (as defined in Rule 405 of the General Rules
and Regulations under the Securities Act of 1933, as amended), or (ii) other
group of persons, corporations, partnerships or other entities who are not
Affiliates but who are acting in concert with any Person, acquire ownership,
whether of record or beneficially, of that number of shares of outstanding
stock of the Company which would allow such Person or entity and/or its
affiliates, or others acting in concert, to elect a majority of the Board. A
Change in Control shall not include any acquisition of control (i) by any of
the Company's three (3) senior officers as of August 4, 1995, whether acting
alone or in concert with each other, provided Executive is a participant with
one or more such officers; or (ii) pursuant to which Executive accepts equity
securities of the Company or any entity with or into which the Company is
merged or consolidated, or which controls or is controlled by the Company or
any such entity except for equity securities received by Executive in his
capacity as stockholder and in accordance with stock options and other benefits
not materially in excess of those typically available to officers of other
publicly held for-profit healthcare companies not subject to a change in
control.
In the event Executive terminates his employment after a Change in
Control, the Company shall (i) pay Executive severance pay equal to Executive's
then highest monthly rate of Base Salary under this Agreement multiplied by 12,
the product of which is then multiplied
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by 2, on a monthly basis over a period of two (2) years, or at Executive's
election, the Company shall fund a trust by cash or annuity in form and
substance satisfactory to Executive in an amount sufficient to permit the trust
to make monthly payments or any unpaid portion thereof over the prescribed
period or the Company shall make a lump sum cash payment equal to the sum of the
monthly installments without discount to present value and (ii) pay, award, fund
or otherwise provided all benefits (including the continuation of all
disability, life, and medical insurance as provided prior to the Change in
Control), stock options, and bonuses, both vested and unvested, which bonuses
shall be prorated to date of termination. In addition, the Company relinquishes
any right it has or may have, by agreement or otherwise, to purchase any shares
of stock of the Company owned by Executive.
9. TERMINATION. This Agreement may be terminated upon the occurrence
of any one of the following:
a. VOLUNTARY. Executive may terminate this Agreement at any
time during the term of this Agreement by providing six (6) months prior
written notice of termination to the Board. In the event of a voluntary
termination by Executive, he shall not be bound by Paragraph 6(b)(i) and
6(b)(ii) of the covenant not to compete.
b. INVOLUNTARY WITHOUT CAUSE. The Chief Executive
Officer of the Company may terminate this Agreement without Cause (as defined
in Paragraph 9(c) below) at any time during the term of this Agreement by
providing thirty (30) days prior written notice to Executive. For purposes of
this Agreement, termination resulting from Executive's death or disability
shall be considered as termination without cause under this Paragraph 9(b).
c. INVOLUNTARY WITH CAUSE. The Chief Executive Officer
of the Company may terminate Executive for Cause at any time during the term of
this Agreement by providing written notice that is immediately effective.
Cause shall mean: (i) the conviction of Executive or a guilty plea to a felony
crime; (ii) in the judgment of the Board, Executive has committed any act of
embezzlement, fraud, theft, dishonesty, or moral turpitude; (iii) the violation
by Executive of the provisions of Paragraph 6 of this Agreement which is not
cured within thirty (30) days after written notice of such violation is given
by the Board to Executive; (iv) wilful, persistent, and continued refusal by
Executive, not involving a good faith difference of business judgment, to
follow the written directions or instructions of the Board pertaining to a
material duty, responsibility, or function of Executive; and (v) wilful
misconduct or gross negligence by Executive in the performance of his duties
that has or will likely have a material adverse financial effect on the Company
as a whole.
10. PAYMENTS UPON TERMINATION. In the event of a termination
described in Paragraph 9 above, Executive shall receive the following payments
and benefits, if any:
a. VOLUNTARY. In the event Executive terminates his employment
hereunder
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voluntarily in accordance with Paragraph 9(a), Executive shall receive his then
current Base Salary and benefits, including stock options, set forth in this
Agreement through the end of the notice period contained in Paragraph 9(a).
b. INVOLUNTARY WITHOUT CAUSE. In the event the Company
terminates Executive without Cause in accordance with Paragraph 9(b), Executive
shall receive his then current Base Salary and then current health benefits for
himself and his eligible dependents for a period of eighteen (18) months after
the effective date of such termination.
c. INVOLUNTARY WITH CAUSE. In the event the Company
terminates Executive for Cause in accordance with Paragraph 9(c), Executive
shall receive his then current Base Salary and benefits up to the date he
receives written notification of termination from the Board; provided, however,
that if such termination for Cause becomes the subject of an arbitration
proceeding in accordance with Paragraph 11 and Executive prevails in such
arbitration, Base Salary and benefits shall be provided in accordance with
Paragraph 10(b).
11. ALTERNATIVE DISPUTE RESOLUTION. Disputes between the parties
arising out of or relating to this Agreement or the making, performance, or
interpretation thereof shall be resolved as follows:
a. NEGOTIATION. The parties shall attempt in good faith to
resolve any controversy, dispute, or claim arising out of or relating to this
Agreement or the making, performance, or interpretation thereof, by negotiations
between executives of the parties who have the authority to settle the dispute.
Any party may give the other party written notice of any dispute not resolved in
the normal course of business. Within twenty (20) days after delivery of such
notice, executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If a negotiator
intends to be accompanied at a meeting by an attorney, the other negotiator
shall be given at least three working days notice of such intention and may also
be accompanied by an attorney. All negotiations pursuant to this Paragraph 11
(a) are confidential and shall be treated as compromise and settlement
negotiations for purposes of all applicable rules of evidence. If the dispute
is not resolved by negotiation within sixty (60) days, or if the parties fail to
meet within twenty (20) days, and either party determines that the claim,
dispute or controversy cannot be resolved by negotiation, such party may submit
the controversy, claim or dispute to mediation as described below by providing a
written notice of submission to mediation to the other party.
b. MEDIATION. If either party submits a controversy, dispute
or claim to mediation, the parties agree the mediation shall occur pursuant to
the following procedures and understandings:
(i) A mediation firm in Houston, Texas, acceptable to both
parties, shall be
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designated to provide a mediator to work with the parties to resolve their
differences and the party submitting the dispute or claim to mediation shall
promptly provide such firm with a request to provide a mediator.
(ii) The mediator appointed shall be knowledgeable with
respect to the hospital and healthcare industry and may be rejected by the
parties only for bias.
(iii) Within thirty (30) days from the date of the notice
submitting a dispute or claim to mediation, each party shall provide the
mediator with a written summary of the facts and law with respect to the matter
in dispute.
(iv) Within sixty (60) days from the time of his or her
appointment, the mediator shall meet with the parties and assist them in
resolving the dispute, unless the parties mutually consent to an extension of
such time.
(v) The mediation conference or conferences shall be held in
Houston, Texas, unless the mediator and the parties mutually agree on another
location or locations.
(vi) Efforts to reach a settlement shall continue until the
conclusion of the mediation proceeding, which is deemed to occur when: (a) a
written settlement is reached; (b) the mediator concludes and informs the
parties in writing that further efforts would not be useful; or (c) the parties
agree in writing that an impasse has been reached. Neither party may withdraw
before the conclusion of the proceeding.
(vii) If the mediation proceeding concludes without a
settlement being reached, the dispute, controversy or claim shall be resolved
by binding arbitration as described below.
(viii) All discussions, representations, and statements made
in the mediation process shall be privileged as settlement negotiations;
nothing related to the mediation shall be admitted as evidence at arbitration
or trial or shall be subject to discovery; and the mediator shall be immune
from causes of action which may be brought against him or her with respect to
such mediation proceedings under Texas law.
(ix) The costs of the mediation, including the fees and
expenses of the mediator, shall be borne as follows: one-third (1/3) by
Executive and two-thirds (2/3) by the Company.
c. ARBITRATION. Arbitration shall occur in Houston,
Texas, in accordance with the Rules of the American Arbitration Association
then existing, and judgment on the arbitration award may be entered in any
court having jurisdiction over the subject matter in controversy. The
procedure for arbitration shall be in accordance with the rules of the American
Arbitration Association then existing except that the Company and Executive
shall each select one arbitrator,
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<PAGE> 9
and the two selected arbitrators shall choose a third arbitrator. In the event
that either the Company or Executive fails to select an arbitrator within ten
(10) days after arbitration is sought, or if the two arbitrators fail to select
a third arbitrator within fifteen (15) days after arbitration is sought, the
American Arbitration Association shall select the third arbitrator. Each
arbitrator so selected shall be knowledgeable with respect to the United States
for-profit hospital and healthcare industry. Expenses of arbitration,
including reasonable attorneys' fees and costs of collection, may be awarded in
any such arbitration.
d. STATUTE OF LIMITATIONS. All applicable statutes of
limitations and defenses based upon the passage of time shall be tolled while
the procedures specified in this Paragraph 11 are pending. The parties shall
take such action, if any, required to effectuate such tolling.
e. PERFORMANCE. Each party is required to continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement.
f. EXTENSION OF DEADLINES. All deadlines specified in this
Paragraph 11 may be executed by mutual agreement.
12. ENFORCEMENT. The parties regard the alternate dispute
resolution provisions of Paragraph 11 above to be an essential covenant of
this Agreement and legally binding upon them. In the event of a violation of
Paragraph 11, the parties recognize that the Company or Executive may suffer
continuing and irreparable harm for which the Company or Executive will have no
adequate remedy at law. Both parties hereby waive that either has an adequate
remedy at law for any such breach. In recognition thereof, the Company and
Executive hereby agree that, in the event of any such breach, either party
shall be entitled to seek a decree of specific performance, mandamus, or any
other appropriate remedy to enforce the provisions of this Agreement without
any requirement that a bond be posted. The parties further agree that
Paragraph 11 shall not in any way limit remedies at law or in equity otherwise
available to either party.
13. INDEMNIFICATION. The Company shall indemnify and hold
Executive harmless from all liability, costs and expenses incurred as a
consequence of claims resulting from or arising out of Executive's status as an
officer and/or Director of the Company, or as a result of having been an
officer and/or Director of the Company to the full extent provided by Texas
law, the Company's Articles of Incorporation and the Company's Bylaws. In
addition, the Company shall reimburse Executive for all reasonable attorneys'
fees, expenses and disbursements incurred in connection with the enforcement of
this Agreement by Executive, provided Executive prevails in such enforcement
proceeding.
14. NOTIFICATION. Any notice required or permitted to be given to
Executive under this Agreement shall be sufficient if in writing and if
delivered to Executive personally or sent
-9-
<PAGE> 10
by overnight United States mail or overnight courier service to Executive's
residence as listed in the Company's records. Any notice required or permitted
to be given to the Company shall be sufficient if in writing and if delivered
personally or sent by overnight United States mail or overnight courier service
to the Company's principal office at 14340 Torrey Chase Boulevard, Suite 320,
Houston, Texas, 77014, to the attention of the Chief Executive Officer. In
addition, copies of any notices to Executive shall also be sent to Wayne M.
Whitaker, 3500 City Center Tower II, 301 Commerce Street, Fort Worth, TX 76102.
The parties to this Agreement shall notify each other of changes in address
pursuant to this Paragraph 14.
15. SURVIVAL. Paragraphs 6, 7, 12, and 13 of this Agreement shall
survive any termination of Executive's employment hereunder unless otherwise
provided herein.
16. MISCELLANEOUS.
a. ASSIGNMENT AND BINDING EFFECT. Except as set forth herein,
neither party may assign its rights or obligations hereunder without prior
written consent of the other party. The respective rights and obligations
under this Agreement shall be binding upon the parties hereto and their heirs,
executors, administrators, successors, and assigns, including, in the case of
the Company, any other corporation or entity with which the Company may be
merged or otherwise combined or which may acquire all or substantially all of
the Company's assets and, in the case of Executive, his estate or other legal
representatives.
b. GOVERNING LAW. This Agreement shall be governed as to its
validity, interpretation, and effect by the laws of the State of Texas.
Performance of this Agreement shall be in Harris County, Texas.
c. SEVERABILITY. In the event that any provision or portion of
this Agreement shall be determined to be invalid, illegal, or unenforceable for
any reason, the remaining provisions and portions of this Agreement shall
remain in full force and effect to the fullest extent permitted by law. Such
invalid, illegal, or unenforceable provision shall be deemed modified to the
extent necessary to make it valid, legal, and enforceable.
d. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement and understanding of the parties hereto with respect to
the subject matter hereof, supersedes all prior discussions, understandings and
agreements with respect thereto and may not be modified or changed, except by
an agreement in writing executed by the Company and Executive, with the
approval of the Board.
e. CAPTIONS. All captions and headings used herein are for
convenient reference only and do not form part of this Agreement.
f. WAIVER. The waiver of a breach of any term or provision of
this Agreement
-10-
<PAGE> 11
shall not operate as or be construed to be a waiver of any other or subsequent
breach of this Agreement.
g. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement on the date first above written.
CHAMPION HEALTHCARE CORPORATION
By: /s/ CHARLES R. MILLER
------------------------------------------
Charles R. Miller
President and Chief Executive Officer
EXECUTIVE
/s/ RONALD R. PATTERSON
---------------------------------------------
Ronald R. Patterson
-11-
<PAGE> 1
10.23(g) Form of Warrant issued pursuant to Series E Note Purchase
Agreement, dated May 1, 1995, as amended.
<PAGE> 2
AMENDMENT NO. 1 TO
SERIES E WARRANTS
THIS AMENDMENT NO.1 TO SERIES E WARRANTS, is dated December
[31], 1995 ("Amendment"), by and among CHAMPION HEALTHCARE CORPORATION, a
Delaware corporation (the "Company"), THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY, SECURITY-CONNECTICUT LIFE INSURANCE COMPANY, LINCOLN NATIONAL INCOME
FUND, INC., THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, BANK OF AMERICA
ILLINOIS, INDOSUEZ CAPITAL FUNDING I, LIMITED, INDOSUEZ HIGH YIELD PARTNERS,
and OBIE & CO. (individually, a "Holder" and collectively, the "Holders").
W I T N E S S E T H :
WHEREAS, the Holders hold warrants evidencing the right to purchase
shares of common stock of the Company that were issued pursuant to the Series E
Note Purchase Agreement, dated as of May 1, 1995 as amended (such warrants, the
"Series E Warrants");
WHEREAS, the Company has determined it is in the Company's best
interest to enter into the 1995 Recapitalization Agreement and as a part
thereof issue shares of Common Stock to holders of its preferred stock in
consideration for such holders of preferred stock agreeing to take certain
actions and offer holders of certain warrants to purchase common stock of the
Company the right to exercise such warrants at a reduced exercise price for a
specific period of time; and
WHEREAS, the Company has requested the Holders to modify certain terms
and provisions of the Series E Warrants and such Holders are willing to modify
such terms and provisions;
NOW, THEREFORE, for and in consideration of these premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the undersigned Holder hereby agree as follows:
I. TERMS. All capitalized terms defined in the Series E Warrants and not
otherwise defined herein shall have the same definitions when used
herein as set forth in the Series E Warrant.
II. AMENDMENT TO EXERCISE PRICE. Commencing on December [31], 1995 and
ending on the ninetieth (90) day after the adoption of the amendment
to the Company's Certificate of Incorporation provided for in the 1995
Recapitalization Agreement among the Company and the other parties
thereto dated December 31, 1995, and only during such period, the
Exercise Price shall be $7.00 per share, unless during such period the
Exercise Price in effect immediately prior to the date of this
amendment, if adjusted pursuant to the terms of the Warrant, would be
less than $7.00 per share, then in such case such lesser Exercise
Price shall be the Exercise Price.
Amendment No. 1 to Series E Warrants Page 1
<PAGE> 3
III. AMENDMENT SECTION 1B(10). "CERTAIN ISSUES EXCEPTED". The text of
Section 1 B (10) "Certain Issues Excepted" to the Series E Warrants is
amended by adding the following exceptions:
"(V) upon the issuance or provision for issuance of
[2,808,683] shares of Common Stock to the holders of
the Company's Series A, A-1, BB, C and D Preferred
Stock as a part of the terms of the 1995
Recapitalization Agreement of the Company dated
[December 31, 1995]; and
(W) upon the reduction, and any exercises pursuant
thereto, of the exercise price of certain warrants to
purchase shares of Company Common Stock as described
in the 1995 Recapitalization Agreement of the Company
dated December [31], 1995"
IV. CONSENT TO AMENDING SERIES E WARRANTS. The undersigned holders
consent to Amendment No.3 to the Series D Warrants issued pursuant to
the Series D Note and Stock Purchase Agreement dated as of December
31, 1993, as amended, between the Company and the other parties
thereto, in accordance with and pursuant to the terms of the 1995
Recapitalization Agreement dated December 31, 1995 between the Company
and the other parties thereto.
V. AGREEMENT TO DELIVER AMENDMENTS. The Holder agrees to deliver this
Amendment, together with any future amendments to the Series E
Warrants, to any transferee or purchaser thereof.
VI. EFFECTIVE DATE OF AMENDMENT. This Amendment is conditioned upon and
will become effective with the closing of the 1995 Recapitalization
Agreement by the Company.
VII. PRIORITY. In the event of any inconsistency between the terms of this
Amendment and terms of the Series E Warrant, this Amendment shall
control.
VIII. MISCELLANEOUS.
A. HEADINGS. Section headings are for reference only, and shall
not affect the interpretation or meaning of any provision of
this Amendment.
B. EFFECT OF THIS AMENDMENT. The Series E Warrants as amended by
this Amendment, shall remain in full force and effect except
that any reference therein, or in any documents or instruments
required thereunder or annexes or schedules thereto, referring
to the Series E Warrants shall be deemed to refer to the
Series E Warrants as amended by this Amendment.
C. GOVERNING LAW. This Amendment shall be governed by, and
construed in
Amendment No. 1 to Series E Warrants Page 2
<PAGE> 4
accordance with, the laws of the State of Delaware without
regard to the principles of conflicts of laws thereof.
D. COUNTERPARTS. This Amendment may be executed by the different
parties hereto on separate counterparts, each of which, when
so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same Amendment.
IN WITNESS WHEREOF, the Company and the undersigned Purchaser
have caused this Amendment to be executed by their respective duly authorized
officers as of the date first above written.
CHAMPION HEALTHCARE CORPORATION
By:_________________________________________
James G. VanDevender
Executive Vice-President
[Remaining signatures appear on the following pages]
Amendment No. 1 to Series E Warrants Page 3
<PAGE> 5
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: Lincoln National Investment Management
Company, Its Attorney-In-Fact
By: _____________________________________
Its Vice President
SECURITY-CONNECTICUT LIFE INSURANCE
COMPANY
By: Lincoln National Investment Management
Company, Its Attorney-In-Fact
By: _____________________________________
Its Vice President
LINCOLN NATIONAL INCOME FUND, INC.
By: _____________________________________
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By: _____________________________________
Its Vice President
Amendment No. 1 to Series E Warrants
<PAGE> 6
BANK OF AMERICA ILLINOIS
By: ____________________________________
Ford S. Bartholow
Its Managing Director
_____________________________________
Christopher J. Perry
_____________________________________
Robert F. Perille
_____________________________________
M. Ann O'Brien
_____________________________________
Ford S. Bartholow
_____________________________________
Jeffrey M. Mann
_____________________________________
Matthew W. Clary
_____________________________________
Thomas E. Van Pelt, Jr.
INDOSUEZ CAPITAL FUNDING I, LIMITED
By: _____________________________________
Name:
Its Collateral Manager
Amendment No. 1 to Series E Warrants
<PAGE> 7
INDOSUEZ HIGH YIELD PARTNERS
By: _____________________________________
John G. Popp
Its Partner
OBIE & CO.
By: _____________________________________
Texas Commerce Bank NA
Trust Department
Amendment No. 1 to Series E Warrants
<PAGE> 8
WARRANT CERTIFICATE
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
thus may not be offered for sale, sold, transferred or
otherwise disposed of unless registered under the Securities
Act of 1933, as amended, or unless an exemption from such
registration is available. Further, such transfer is subject
to the conditions specified in the Series E Note Purchase
Agreement dated May 1, 1995 pursuant to which such securities
were issued and sold by Champion Healthcare Corporation (the
"Company") and the D Stockholders Agreement dated as of
December 31, 1993, as amended, copies of which agreements are
on file and may be inspected at the principal office of the
Company. A copy of each agreement will be furnished by the
Company to the holder hereof upon request and without charge.
Under certain circumstances specified in such Series E Note
Purchase Agreement, the Company has agreed to deliver to the
holder hereof a new certificate, not bearing this legend, for
all or part of the number of the securities evidenced hereby,
as the case may be, registered in the name of such holder or
its designated nominee."
Issue Date: June 12, 1995 Warrants to Purchase
Void after 5:00 P.M. Central Time Shares 2,700
No. E-8
December 31, 2003,
Unless extended as
provided for herein
WARRANT CERTIFICATE REPRESENTING
WARRANTS TO PURCHASE COMMON STOCK OF
CHAMPION HEALTHCARE CORPORATION
Champion Healthcare Corporation, a Delaware corporation (the
"Company"), hereby certifies that, for value received, CHRISTOPHER J. PERRY the
holder of these Warrants (the "Warrants," and each right to purchase a share of
Common Stock, a "Warrant") is entitled, subject to the terms set forth below at
any time, or from time to time, to purchase from the Company up to Two THOUSAND
SEVEN HUNDRED (2,700) fully paid and nonassessable shares of Common Stock of
the Company. These Warrants and all rights hereunder, to the extent such rights
shall not have been exercised, shall terminate and become null and void at the
later of times set forth in Section I A below. For purposes of these Warrants,
the term "Common Stock" shall henceforth have the meaning set forth in the
<PAGE> 9
Series E Note Purchase Agreement dated May 1, 1995 by and among the Company and
the Purchasers listed on Schedule I thereto (the "Purchase Agreement").
Defined terms not otherwise defined herein shall have the meaning set
forth in the Purchase Agreement.
These Warrants shall be subject to the terms set forth in the Purchase
Agreement and to the following terms and conditions:
SECTION 1. EXERCISE OF WARRANT; EXERCISE PRICE; ADJUSTMENTS RELATIVE
TO EXERCISE OF WARRANT.
A. Exercise of Warrants. Subject to the conditions set forth in
this Section 1, the holder of any Warrant may, at such holder's option,
exercise such holder's rights under all or any part of the Warrants to purchase
one share of Common Stock in exchange for one Warrant (the "Warrant Shares") at
a price of $9.00 per share (the "Exercise Price"), subject to adjustments
payable in cash or by application of principal of, or accrued interest on,
Notes, or by tendering a number of Warrants with a Warrant Value (hereinafter
defined) equal to the Exercise Price, or a combination thereof, as set forth
herein, at any time and from time to time prior to the later of (i) 5:00 p.m.,
Houston, Texas time, on December 31, 2003 or (ii) 5:00 p.m., Houston, Texas
time on the last date that the Notes are outstanding. The Warrant Shares and
the Exercise Price are subject to certain adjustments as set forth in this
Section 1, and the terms "Warrant Shares" and "Exercise Price" as used herein
shall as of any time be deemed to include all such adjustments to be given
effect as of such time in accordance with the terms hereof.
B. Adjustment of Exercise Price Upon Issuance of Common Stock. If
and whenever after the date hereof the Company shall issue or sell any shares
of its Common Stock (except upon the exercise of the Warrants) for a
consideration per share less than the Exercise Price in effect immediately
prior to the time of such issue or sale or the Market Price at the time of such
issue or sale, then, forthwith upon each such issue or sale, the Exercise Price
with respect to the exercise of any Warrant subsequent to such event shall be
reduced (but not increased, except as otherwise specifically provided in
paragraph IB(3)) to the lower of the prices (calculated to the nearest cent)
determined as follows:
(a) by dividing (i) an amount equal to the sum of (A) the
aggregate number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the then existing Exercise
Price, and (B) the consideration, if any, received by the Company upon
such issue or sale, by (ii) the aggregate number of shares of Common
Stock of all classes outstanding immediately after such issue or sale;
and
(b) by multiplying the Exercise Price in effect immediately
prior to the time of such issue or sale by a fraction, the numerator
of which shall be the sum of (i) the aggregate number of shares of
Common Stock outstanding immediately prior to such issue or sale
multiplied by the Market Price in-immediately prior to such issue or
sale plus (ii) the consideration received
<PAGE> 10
by the Company upon such issue or sale, and the denominator of which
shall be the product of (iii) the aggregate number of shares of Common
Stock of all classes outstanding immediately after such issue or sale,
multiplied by (iv) the Market Price immediately prior to such issue or
sale.
No adjustment of the Exercise Price, however, shall be made in an
amount less than 1% of the Exercise Price, but any such lesser adjustment shall
be carried forward and shall be made at the time of and together with the next
subsequent adjustment.
For the purposes of this paragraph IB, the following paragraphs IB(1)
through IB(IO) shall also be applicable:
(1) Issuance of Rights or Options. In case at any time after
the date hereof the Company shall in any manner grant (whether
directly or by assumption in a merger or otherwise, except in the
circumstances described in paragraph IC below) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock
or any stock or securities convertible into or exchangeable for Common
Stock (such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), whether or not such rights or
options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of
such rights or options, plus, in the case of such rights or options
which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such rights or options) shall be less than the
Exercise Price in effect immediately prior to the time of the granting
of such rights or options (or less than the Market Price, determined
as of the date of granting such rights or options, as the case may
be), then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such rights or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued
for such price per share. Except as provided in paragraph IB (3), no
further adjustment of the Exercise Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon
exercise of such rights or options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities.
<PAGE> 11
(2) Issuance of Convertible Securities. In case at
any time after the date hereof the Company shall in any manner
issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than the Exercise Price in effect immediately prior to the
time of such issue or sale (or less than the Market Price,
determined as of the date of such issue or sale of such
Convertible Securities, as the case may be), then the total
maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been
issued for such price per share; provided, however, that (a)
except as otherwise provided in paragraph IB(3), no further
adjustment of the Exercise Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any
rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments
of the Exercise Price have been or are to be made pursuant to
other provisions of this paragraph IB, no further adjustment
of the Exercise Price shall be made by reason of such issue or
sale.
(3) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in any
right or option referred to in paragraph IB(1), the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Securities
referred to in paragraph IB(1) or IB(2), or the rate at which any Convertible
Securities referred to in paragraph IB(1) or IB(2) are convertible into or
exchangeable for Common Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Exercise Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Exercise Price which would have been in effect at such time
had such rights, options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or sold, provided
that in no event shall any such increase result in an Exercise Price higher
than the Exercise Price which would have been in effect at the time of such
adjustment had such right, option or Convertible Security never been granted,
issued or sold. On the expiration of any such option or right referred to in
paragraph IB(1) or the termination of any such right to convert or exchange any
such Convertible Securities referred to in paragraph IB(1) or IB(2), the
Exercise Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Exercise Price which would
have been in effect at the time of such expiration or termination had such
right, option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been granted, issued or sold,
and the Common Stock issuable thereunder shall no longer be deemed to be
outstanding. If the purchase price provided for in any such right or option
referred to in paragraph IB(1) or the rate at which any Convertible Securities
referred to in paragraph IB(1) or IB(2) are convertible into or exchangeable
for Common Stock shall be reduced at any time
<PAGE> 12
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of shares of Common Stock upon
the exercise of any such right or option or upon conversion or exchange of any
such Convertible Securities, the Exercise Price then in effect hereunder shall,
if not already adjusted, forthwith be adjusted to such amount as would have
obtained had such right, option or Convertible Securities never been issued as
to such shares of Common Stock and had adjustments been made upon the issuance
of the shares of Common Stock delivered as aforesaid, but only if as a result of
such adjustment the Exercise Price then in effect hereunder is thereby reduced.
(4) Stock Dividends. In case at any time the Company shall declare a
dividend or make any other distribution upon or by reference to ownership of
any class or series of stock of the Company payable in shares of Common Stock
or Convertible Securities, any shares of Common Stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(5) Consideration for Stock. In case at any time any shares of Common
Stock or Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount paid by the
purchaser therefor, without deduction therefrom of any expenses incurred or any
underwriting discounts and commissions or concessions paid or allowed by the
Company in connection therewith. In case at any time any shares of Common Stock
of any class or Convertible Securities or any rights or options to purchase any
such shares of Common Stock or Convertible Securities shall be issued or sold
for a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be deemed to be the fair value of such
consideration as determined reasonably and in good faith by the Board of
Directors of the Company, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case at any time any shares of Common Stock of any
class or Convertible Securities or any rights or options to purchase such
shares of Common Stock or Convertible Securities shall be issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration received therefor shall be deemed to
be the fair value as determined reasonably and in good faith by the Board of
Directors of the Company of such portion of the assets and business of the
nonsurviving corporation as such Board may determine to be attributable to such
shares of Common Stock, Convertible Securities, rights or options, as the case
may be. In case at any time any rights or options to purchase any shares of
Common Stock or Convertible Securities shall be issued in connection with the
issue and sale of other securities of the Company, together comprising one
integral transaction in which no consideration is allocated to such rights or
options by the parties thereto, such rights or options shall be deemed to have
been issued for an amount of consideration equal to the fair value thereof as
determined reasonably and in good faith by the Board of Directors of the
Company.
(6) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in shares of Common Stock or in
Convertible Securities, or (ii) to subscribe for or purchase shares of Common
Stock or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold as a result of the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
<PAGE> 13
subscription or purchase, as the case may be, unless such dividend or other
distribution or right to subscribe when exercised is to be measured by the
"Market Price" in effect on the date such dividend or other distribution or
right to subscribe is exercised, in which case such date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
so issued or sold.
(7) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purposes of this paragraph IB.
(8) Definition of Market Price. "Market Price" shall mean, for any
day, the average of the final sale prices of the Common Stock on all exchanges
on which the Common Stock may at the time be listed or the final bid prices on
the NASDAQ National Market System or NASDAQ over-the-counter market, in each
such case, unless otherwise provided herein, averaged over a period of 20
consecutive business days ending 2 days prior to the day as of which "Market
Price" is being determined; provided, however, that in connection with a firm
underwriting of a public offering of Common Stock, "Market Price" for purposes
of the issuance of shares of Common Stock pursuant to such underwritten public
offering shall mean the initial public offering price in such underwritten
offering. If at any time the Common Stock is not listed on any such exchange or
quoted in any such domestic over-the-counter market, the "Market Price" for
purposes of such issuance shall be determined as follows: (i) in the case of
any issuance of Common Stock, or rights or options or Convertible Securities
exercisable for or convertible into shares of Common Stock, in a financing
effected as a placement including one or more institutional investors in an
arms-length negotiated transaction exempt from the registration provisions of
the Securities Act and in which at least a majority of the investors or
purchasers are not Affiliates of the Company, the "Market Price" for purposes
of such issuance shall be the price at which such securities are issued
(provided that the price being paid by any Affiliate is the same as that being
paid by the non-Affiliates); (ii) in the case of any issuance of any such
securities in an acquisition or business combination, the "Market Price" shall,
to the extent not otherwise determined pursuant to any other provision of this
Section 1, be as determined reasonably and in good faith by or pursuant to the
directions and authorization of the Board of Directors of the Company as of a
date which is within 30 days preceding the date of which such determination is
to be effective; (iii) in the case of any issuance of any such securities
(other than an issuance to which clause (i) or (ii) above applies) in an amount
which is less than 1% of the number of shares of Common Stock of the Company
then outstanding on a fully diluted basis, "Market Price" for purposes of such
issuance shall be as determined reasonably and in good faith by or pursuant to
the directions and authorization of the Board of Directors of the Company as of
a date which is within 30 days preceding the date as of which such
determination is to be effective and (iv) in the case of any issuance of
securities to which the provisions of any of clauses (i), (ii) and (iii) above
do not apply, the "Market Price" for purposes of such issuance shall be deemed
to be the fair value thereof as determined by an investment banking firm
mutually acceptable to the Company and the holders of Warrants initially
exercisable for a majority of all the shares of Common Stock issuable upon the
exercise of all the then outstanding Warrants. The cost of such investment
banking firm shall be borne by the Company.
<PAGE> 14
(9) Determination of Market Price under Certain Circumstances.
Anything herein to the contrary notwithstanding, in case at any time after the
Closing Date the Company shall issue any shares of Common Stock or Convertible
Securities, or any rights or options to purchase any such Common Stock or
Convertible Securities, in connection with the acquisition by the Company of
the stock or assets of any other corporation or the merger of any other
corporation into the Company under circumstances where on the date of the
issuance of such shares of Common Stock or Convertible Securities or such
rights or options the consideration received for such Common Stock or deemed to
have been received for the Common Stock into which such Convertible Securities
or such rights or options are convertible is less than the Market Price of the
Common Stock but on the date the number of shares of Common Stock or
Convertible Securities (or in the case of Convertible Securities other than
stock, the aggregate principal amount of Convertible Securities) or the number
of such rights or options was determined (as set forth in a binding agreement
between the Company and the other party to the transaction) the consideration
received for such Common Stock or deemed to have been received for the Common
Stock into which such Convertible Securities or such rights or options are
convertible would not have been less than the Market Price thereof, such shares
of Common Stock shall not be deemed to have been issued for less than the
Market Price of the Common Stock.
(10) Certain Issues Excepted. Anything to the contrary herein
notwithstanding, the Company shall not be required to make any adjustment to
the Exercise Price in respect to the following described securities issued or
reserved for issuance by the Company
(A) upon conversion of 3,500,000 shares of Series A Preferred
Stock;
(B) upon conversion of 2,769,109 shares of Series A-1 Preferred
Stock;
(C) upon the exercise of options granted to certain officers
of the Company to purchase up to an aggregate of 180,000 shares of Common Stock
at an exercise price of $1.00 per share;
(D) upon the exercise of warrants exercisable to purchase
1,260,000 shares of Common Stock issued pursuant to the Note and Stock
Purchase Agreement dated May 27, 1992;
(E) upon the exercise of warrants exercisable to purchase
98,434 shares of Common Stock issued to Equus Investments 11, L.P. and Sprout
Growth, L.P., pursuant to the Warrant Purchase Agreement dated December 31,
1990 among the Company, Equus Investments 11, L.P. and Sprout Growth, L.P. and
the Warrant Purchase Agreement dated December 31, 1990 among the Corporation,
Equus Investments 11, L.P., and Charles R. Miller;
(F) upon conversion of (i) an aggregate 1,577,547 shares of
Series BB Preferred Stock, (ii) an aggregate 448,81 1 shares of Series C
Preferred Stock, and (iii) of an aggregate 2,157,319 shares of Series D
Preferred Stock, all in accordance with the Certificate of Incorporation as of
the date hereof;
<PAGE> 15
(G) upon exercise of options granted to certain officers of
the Company to purchase up to an aggregate of 300,000 shares of Common Stock
pursuant to the Employee Stock Option plan No. 2 dated May 27, 1992;
(H) under the Subscription Agreement dated as of February 10,
1990, as amended, between the Company and James G. VanDevender for 100,000
shares of Common Stock to be initially purchased;
(I) upon exercise of options granted by the Company to certain
officers to purchase up to an aggregate of 150,000 shares of Common Stock, at
an exercise price of $4.00 per share;
(J) pursuant to a stock dividend, subdivision or split-up
whereunder an adjustment is made pursuant to paragraph ID;
(K) upon the exercise of options to acquire up to 60,000 shares
of Common Stock granted to members of the Board of Directors of the Company
pursuant to the Champion Healthcare Corporation Directors' Stock Option Plan;
(L) upon the exercise of warrants exercisable to purchase 132,500
shares of Common Stock issued pursuant to the Bridge Loan Agreement dated April
29, 1993;
(M) upon the exercise of options to acquire up to 200,000
shares of Common Stock pursuant to the Employee Stock Option Plan No. 3;
(N) upon the exercise of options to acquire up to 200,000
shares of Common Stock pursuant to the Physicians Stock Option Plan;
(O) upon the exercise of warrants exercisable to purchase
25,000 shares of Common Stock issued to Virginia Retirement System pursuant to
the Fifth Amendment dated December 2, 1993 to Note and Stock Purchase Agreement
dated May 27, 1992;
(P) upon the exercise of any warrant issued pursuant to the
Series D Note and Stock Purchase Agreement dated December 31, 1993;
(Q) upon exercise of any Warrant issued pursuant to the
Purchase Agreement;
(R) upon the exercise of options to be exercisable to purchase
300,000 shares of Common Stock pursuant to the Senior Executive Stock Option
Plan No. 4, dated January 5, 1994;
(S) upon the exercise of options to be exercisable to purchase
144,500 shares of Common Stock pursuant to the Selected Executive Stock Option
Plan No. 5, dated May 25, 1995;
(T) upon the exercise of options to be exercisable to purchase
245,070 shares of Common Stock pursuant to the 1988 Non-Qualified Stock Option
Plan; and
<PAGE> 16
(U) upon the issuance or provision for issuance of not more
than 96,250 shares of Common Stock as a part of the terms of the acquisition of
the operations of several hoi-ne healthcare companies including Brookside
Health Group, Inc.
provided, however, that to the extent any such option or other right (except in
G, 1, K, M, N, R, S and T above) to acquire any share of Common Stock shall
expire or be canceled prior to the exercise thereof, the Common Stock issuable
pursuant thereto or any subsequent option or other right granted to acquire
such Common Stock, shall no longer be excepted by this paragraph IB(IO); and
provided further that the number of such shares of Common Stock may be adjusted
from time to time in connection with any subdivision or combination or similar
event which results in a proportional increase or decrease in all shares of
Common Stock and Warrant Shares.
C. Liquidating Dividends; Purchase Rights. (a) In case at any
time after the date hereof the Company shall declare a dividend or make any
other distribution upon the shares of Common Stock of any class payable
otherwise than in shares of Common Stock or Convertible Securities, otherwise
than out of consolidated earnings or consolidated earned surplus (determined in
accordance with generally accepted accounting principles, including the making
of appropriate deductions for minority interests, if any, in subsidiaries), and
otherwise than in the securities to which the provisions of clause (b) below
apply, the Company shall pay over to each holder of Warrants, immediately upon
the exercise thereof on or after the dividend payment date, the securities and
other property (including cash) which such holder would have received (together
with all distributions thereon) if such holder had exercised the Warrants held
by it on the record date fixed in connection with such dividend, and the
Company shall take whatever steps are necessary or appropriate to keep in
reserve at all times such securities and other property as shall be required to
fulfill its obligations hereunder in respect of the shares issuable upon the
exercise of all the Warrants. For the purposes of the foregoing, a dividend
other than in cash shall be considered payable out of consolidated earnings or
consolidated retained earnings only to the extent that such earnings or
retained earnings are charged an amount equal to the fair value of such
dividend as determined by the Board of Directors of the Company.
(b) If at any time or from time to time on or after the date
hereof the Company shall grant, issue or sell any options or rights (other than
Convertible Securities) to purchase stock, warrants, securities or other
property pro rata to the holders of Common Stock of all classes ("Purchase
Rights"), then if the holder of Warrants shall be entitled to an adjustment
pursuant to paragraph IB above, then in lieu of such adjustment, each holder of
Warrants shall be entitled, at such holder's option, to acquire (whether or not
such holder's Warrants shall have been exercised), upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could
have acquired if such holder had held the number of shares of Common Stock
issuable upon the exercise of such Warrants, immediately prior to the time or
times at which the Company granted, issued or sold such Purchase Rights.
D. Subdivision or Combination of Stock. In case the Company shall
at any time (i) subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
of Common Stock for which this Warrant is exercisable shall be proportionately
increased, and conversely, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect immediately prior
to such combination shall be proportionately increased and the number of
Warrant Shares of Common Stock for which this Warrant is exercisable shall be
proportionately decreased.
<PAGE> 17
E. Changes in Common Stock. If any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with another corporation, or sale, transfer or other
disposition of all or substantially all of its properties to another
corporation, shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby each holder of Warrants
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions herein specified and in lieu of the shares of the
Common Stock of the Company immediately theretofore issuable upon the exercise
of the Warrants, such shares of stock, securities or properties, if any, as may
be issuable or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore issuable upon the exercise of the Warrants
had such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of each
holder of Warrants to the end that the provisions hereof (including without
limitation provisions for adjustment of the Exercise Price) shall thereafter be
applicable, as nearly equivalent as may be practicable in relation to any
shares of stock, securities or properties thereafter deliverable upon the
exercise thereof. The Company shall not effect any such consolidation, merger,
sale, transfer or other disposition, unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing or
otherwise acquiring such properties shall assume, by written instrument
executed and mailed or delivered to the holders of Warrants at the last address
of such holders appearing on the books of the Company, the obligation to
deliver to such holders such shares of stock, securities or properties as, in
accordance with the foregoing provisions, such holders may be entitled to
acquire. The above provisions of this subparagraph shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
transfers or other dispositions.
F. Notice of Adjustment. Upon any adjustment of the Exercise
Price, then and in each such case the Company shall promptly certify and upon
the written request of holders of Warrants initially exercisable for a majority
of all shares of Common Stock issuable upon the exercise of all Warrants then
outstanding, obtain a certificate of a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company (who may be the regular auditors at the Company) certifying the
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares of Common Stock issuable upon the exercise of the
Warrant or Warrants held by each holder of Warrants, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The Company shall promptly mail a copy of such
certification to each holder of Warrants.
G. Certain Events. If any event occurs as to which in the opinion
of the Board of Directors of the Company the other provisions of this Section I
are not strictly applicable or if strictly applicable would not fairly protect
the exercise rights of the holders of the Warrants in accordance with the
essential intent and principles of such provisions, then such Board of
Directors shall appoint a firm-n of independent certified public accountants
(which may be the regular auditors of the Company) of recognized national
standing, which shall give their opinion upon the adjustment, if any, on a
basis consistent with such essential intent and principles, necessary to
preserve, without dilution, the rights of the holders of the Warrants. Upon
receipt of such opinion by the Board of Directors, the Company shall forthwith
make the adjustments described therein; provided, however, that no such
adjustment pursuant to this paragraph IG shall have the effect of increasing
the Exercise Price as otherwise determined pursuant to this Section I except in
the event of a combination of shares of the type contemplated in paragraph ID
and then in no event to an amount larger than the Exercise Price as adjusted
<PAGE> 18
pursuant to paragraph IH.
H. Prohibition of Certain Actions. The Company will not (a)
authorize or issue, or agree to authorize or issue, any shares of its capital
stock of any class preferred as to dividends or as to the distribution of
assets upon voluntary or involuntary liquidation, dissolution or winding-up of
the Company unless the rights of the holders thereof shall be limited to a
fixed sum or percentage of par value in respect of participation in dividends
and in the distribution of such assets, (b) take any action which would result
in any adjustment of the Exercise Price if the total number of shares of Common
Stock issuable after such action upon exercise of all of the Warrants would
exceed the total number of shares of Common Stock then authorized by the
Company's Articles of Incorporation, or (c) authorize more than one class of
Common Stock.
I. Stock to Be Reserved. The Company will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon the exercise of Warrants as herein provided, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants, and the Company will maintain at all times all other
rights and privileges sufficient to enable it to fulfill all its obligations
hereunder. The Company covenants that all shares of Common Stock which shall be
so issuable shall, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable, free from preemptive or similar rights on the part of
the holders of any shares of capital stock or securities of the Company, and
free from all Liens and charges with respect to the issue thereof; and without
limiting the generality of the foregoing, the Company covenants that it will
from time to time take all such action as may be required to assure that the
par value, if any, per share of the Common Stock is at all times equal to or
less than the then effective Exercise Price. The Company will take all such
action as may be necessary to assure that such shares of Common Stock may be so
issued without violation by the Company of any applicable law or regulation, or
of any requirements of any domestic securities exchange upon which the Common
Stock may be listed. Without limiting the foregoing, the Company will take all
such action as may be necessary to assure that, upon exercise of any of the
Warrants, an amount equal to the lesser of (a) the par value of each share of
Common Stock outstanding immediately prior to such exercise, or (b) the
Exercise Price, shall be credited to the Company's stated capital account for
each share of Common Stock issued upon such exercise, and that the balance of
the principal amount of each Warrant exercised shall be credited to the
Company's capital surplus account.
J. Registration and Listing of Common Stock. If any shares of Common Stock
required to be reserved for the purpose of the exercise of the Warrants
hereunder require registration with or approval of any governmental authority
under any Federal or state law (other than the Securities Act) before such
shares may be issued upon such exercise, the Company will, at its expense and
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved, as the case may be. Shares of Common Stock
issuable upon the exercise of the Warrants shall be registered by the Company
under the Securities Act or similar statute then in effect if required by
Article X of the Purchase Agreement and subject to the conditions stated in
such Article. If and so long as the Common Stock is listed on any national
securities exchange, the Company will, at its expense, obtain promptly and
maintain the approval for listing on each such exchange upon official notice of
issuance, of shares of Common Stock issuable upon the exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities exchange,
will register under the Exchange Act and will maintain such listing of, any
other securities that at any time are issuable upon the exercise of the
Warrants, if and at the time that any securities of the same class shall be
listed on such national securities exchange by the Company or shall require
<PAGE> 19
registration under the Exchange Act.
K. Issue Tax. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrants shall be made without charge to the
holders of the Warrants exercised for any issuance tax in respect thereto.
L. Closing of Books. The Company will at no time close its
transfer books against the transfer of any Warrant or of any shares of Common
Stock issued or issuable upon the exercise of any Warrant in any manner which
interferes with the timely exercise of such Warrant.
M. Notice to Holders of Warrants. In case at any time the Company
shall take any action referred to in paragraph IC, ID, or IE (other than would
require any adjustment in the Exercise Price), then the Company shall give
prompt written notice of any such action to each holder of Warrants and of the
effects of such action under the Warrant Certificate.
N. Antidilution Adjustments under Other Securities. Without
limiting any other rights available hereunder to the holders of Warrants, if
there is an antidilution adjustment (x) under any security which is convertible
into Common Stock of the Company whether issued prior to or after the Closing
Date (except for the shares of Series A Preferred Stock, Series BB Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock) or (y) under any
right, option or warrant to purchase Common Stock of the Company whether issued
prior to or after the Closing Date (other than the Warrants), which (in the
case of clause (x) or (y)) results in a reduction in the exercise or purchase
price with respect to such security, right, option or warrant to an amount less
than the then current Exercise Price or results in an increase in the number of
shares obtainable under such security, right, option or warrant which has an
effect equivalent to lowering a conversion or exercise price to an amount less
than the then current Exercise Price, then an adjustment shall be made under
this paragraph I(N) to the then current Exercise Price hereunder. Any such
adjustment under this paragraph I(N) shall be whichever of the following
results in a lower current Exercise Price:
(A) a reduction in the current Exercise Price equal to
the percentage reduction in such exercise or purchase price with
respect to such security, right, option or warrant, or
(B) a reduction in the current Exercise Price which will
result in the same percentage increase in the number of shares of
Common Stock available under this paragraph I(N) as the
percentage increase in the number of shares available under such
security, right, option or warrant.
Any such adjustment under this paragraph I(N) shall only be made if it would
result in a lower current Exercise Price than that which would be determined
pursuant to any other antidilution adjustment otherwise required under this
paragraph I as a result of the event or circumstance which triggered the
adjustment to the security, right, option or warrant described in clause (x) or
(y) above and if any such adjustment is so made under this paragraph I(N), then
such other antidilution adjustment otherwise required under this paragraph I
shall not be made as a result of such event or circumstance.
<PAGE> 20
SECTION 2. METHOD OF EXERCISE OF WARRANTS.
The Warrants may be exercised by the surrender of this
Certificate, with the Form of Subscription attached hereto (or a reasonable
facsimile thereof) duly executed by the holder, to the Company at its principal
office (or, if such exercise is in connection with an underwritten public
offering of Common Stock subject to this Warrant, at the location at which the
underwriting agreement requires that such shares be delivered), accompanied by
payment of the Exercise Price for the number of shares of Common Stock
specified. The Warrants may be exercised for less than the full number of
shares of Common Stock called for hereby by surrender of this Certificate in
the manner and at the place provided above, accompanied by payment for the
number of shares of Common Stock being purchased. If the Warrants should be
exercised in part only, the Company shall, upon surrender of this Warrant
Certificate for cancellation, execute and deliver a new Warrant Certificate
evidencing the right of the holder to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant Certificate
as provided in this Section 2, in proper form for exercise, accompanied by the
full Exercise Price, for the shares covered by such Form of Subscription, in
cash or certified or bank cashier's check or Notes (with an instruction to
apply unpaid principal thereof or interest thereon as part or all of the
Exercise Price), or by tendering a number of additional Warrants with a Warrant
Value at least equal to the Exercise Price or a combination thereof, the holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the company shall then be closed or that certificates representing such Common
Stock shall not then be actually delivered to the holder. The "Warrant Value"
shall mean, with respect to any Warrant the positive remainder, if any, of the
Market Price per share minus the then applicable Exercise Price. Warrants may
be exercised using either the principal amount of or accrued interest on Notes
or both, notwithstanding any subordination provisions relating to the Notes and
notwithstanding such Notes are called or scheduled for repayment or prepayment
for any reason, until such repayment or prepayment occurs.
As soon as practicable after the exercise of these Warrants in
whole or in part and, in any event, within ten days thereafter (unless such
exercise shall be in connection with a public offering of Common Stock subject
to this Warrant, in which event concurrently with such exercise), the Company
at its expense will cause to be issued in the name of and delivered to the
holder a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock (and any unexercised Warrants) to which
the holder shall be entitled upon such exercise. Each certificate for shares of
Common Stock so delivered shall be in such denominations as may be requested by
the holder and shall be registered in the name of the holder or such other name
as the holder may designate.
SECTION 3. MUTILATED OR MISSING WARRANT CERTIFICATES.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant
Certificate, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification (an unsecured agreement being satisfactory in the
case of an institutional holder) and upon surrender and cancellation of this
Warrant Certificate, if mutilated, the Company will execute and deliver a new
Warrant Certificate of like tenor and date.
<PAGE> 21
SECTION 4. MISCELLANEOUS.
A. Specific Performance. The parties agree that irreparable
damage will result in the event that the agreements set forth in this Warrant
Certificate are not specifically enforced, and the parties agree that any
damage available at law for a breach of this Warrant Certificate would not be
an adequate remedy. Therefore, the provisions hereof and the obligations of the
parties hereunder shall be enforceable in a court of equity, or other tribunal
with jurisdiction, by a decree of specific performance, and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies and all other remedies provided for in this Warrant Certificate shall,
however, be cumulative and not exclusive and shall be in addition to any other
remedies which a party may have under this Warrant Certificate otherwise.
SECTION 5. GOVERNING LAW.
This Warrant Certificate shall be construed and enforced in
accordance with the laws of the State of Delaware, without regard to its choice
of law provisions.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, as of the day and year first above written.
CHAMPION HEALTHCARE CORPORATION
By: ________________________________
James G. VanDevender
Executive Vice President
<PAGE> 22
FORM OF SUBSCRIPTION
DATE:
To: Champion Healthcare Corporation
The Undersigned, the holder of the attached Warrants, hereby irrevocably elects
to exercise all or part of the purchase right represented by such Warrants for,
and to purchase thereunder, _________________________ _ shares of Common Stock
of Champion Healthcare Corporation (the "Company") and herewith makes payment of
$______________ ________________ to the Company, evidenced by delivery of
_____________________________________________________________ , and requests
that the certificate of such shares be issued in the name of, and be delivered
to ________________________________________________________, whose address is
__________________________________________________________________.
____________________________________
(Name of Holder)
____________________________________
(Authorized Signatory)
____________________________________
(Address)
<PAGE> 1
FORM 10-K
Champion Healthcare Corporation.
Exhibit 11 -- Statement RE: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Primary:
--------
Weighted average common shares outstanding 4,255 1,457 1,122
Net effect of dilutive stock options and warrants--
based on the treasury stock method using average
market price (1) -- -- --
--------- ---------- ---------
Total primary shares 4,255 1,457 1,122
========= ========== =========
Net income (loss) $ 2,314 $ 2,243 $ (12,153)
Preferred stock dividend requirement (11,060) (4,490) (1,589)
Accretion of preferred stock issuance cost (271) (220) (63)
--------- ---------- ---------
Loss applicable to common stock $ (9,017) $ (2,467) $ (13,805)
========= ========== =========
Loss before extraordinary items $ (1.86) $ (1.69) $ (11.21)
Extraordinary items (0.26) -- (1.10)
---------- ---------- ---------
Loss per share $ (2.12) $ (1.69) $ (12.31)
========== ========== =========
Fully Diluted:
-------------
Weighted average common shares outstanding 4,255 1,457 1,122
Net effect of dilutive stock options and warrants--
based on the treasury stock method using the year-
end market price, if higher than average market
price 729 778 456
Assumed conversion of preferred stock (2) 10,006 8,317 4,335
---------- ----------- ---------
Total fully diluted shares 14,990 10,552 5,913
========== ========== =========
Net income (loss) $ 2,314 $ 2,243 $ (12,153)
========== ========== =========
Income (loss) before extraordinary items $ 0.23 $ 0.21 $ (1.85)
Extraordinary items (0.08) -- (0.21)
---------- ---------- ---------
Income (loss) per share $ 0.15 $ 0.21 $ (2.06)
========== ========== =========
</TABLE>
(1) The effect of options was anti-dilutive for the years ended December 31,
1995, 1994 and 1993.
(2) At December 31, 1995, 1994 and 1993, the Company had 2,605,714, 10,400,725
and 9,564,611 shares of preferred stock outstanding.
<PAGE> 1
Exhibit 21
CHAMPION HEALTHCARE CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION DOING BUSINESS AS
------------------------------------ --------------- ------------------------------
<S> <C> <C>
CHC-A of Midland, Inc. Texas Physicians & Surgeons Hospital
CHC-B of Midland, Inc. Texas Westwood Medical Center
CHC Finance, Inc. Texas N/A
Baytown Medical Center, Inc. Texas BayCoast Medical Center
CHC/Psychiatric Healthcare Delaware N/A
Corporation
Psychiatric Healthcare Corporation Delaware Crossroads Regional Hospital
of Louisiana
Psychiatric Healthcare Corporation Delaware Lakeland Regional Hospital
of Missouri
Champion Healthcare Corporation of North Dakota N/A
North Dakota, Inc.
CareServices of America, Inc. Delaware N/A
CHC-Salt Lake City, Inc. Utah Coalville Ambulance
Magna Health Center
Northeast Family Health Center
Park City Ambulance
Salt Lake Internal Medicine
Salt Lake Regional Medical
Center
Salt Lake Regional Medical
Services
Southeast Center for Family
Medicine
Southwest Center for Family
Medicine
Southwest Emergency Clinic
Sports Medicine and Specialty
Clinics
Utah Physician Medicine
CHC-Jordan Valley, Inc. Utah N/A
Champion Healthcare Holdings, Inc. Delaware N/A
CHC of Virginia, Inc. Virginia N/A
CHC - Prattville, Inc. Alabama N/A
CHC - Nursing Center, Inc. Alabama N/A
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Champion Healthcare Corporation, Inc. on Form S-8 (File No. 33-62137 and
33-61549) of (i) our report dated February 27, 1996, on our audits of the
consolidated financial statements and financial statement schedules of Champion
Healthcare Corporation as of December 31, 1995 and 1994, and for the years
ended December 31, 1995, 1994, and 1993, (ii) our report dated February 16,
1996 on our audits of the financial statements of Dakota Heartland Health
System as of December 31, 1995 and 1994, and for the year ended December 31,
1995, which reports are included in this Annual Report on Form 10-K.
Houston, Texas /s/ Coopers & Lybrand L.L.P.
March 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,583
<SECURITIES> 0
<RECEIVABLES> 33,262
<ALLOWANCES> 10,116
<INVENTORY> 3,470
<CURRENT-ASSETS> 50,579
<PP&E> 158,382
<DEPRECIATION> 10,733
<TOTAL-ASSETS> 291,260
<CURRENT-LIABILITIES> 40,738
<BONDS> 162,447
<COMMON> 119
46,029
0
<OTHER-SE> 31,750
<TOTAL-LIABILITY-AND-EQUITY> 291,260
<SALES> 0
<TOTAL-REVENUES> 167,520<F1>
<CGS> 0
<TOTAL-COSTS> 137,895
<OTHER-EXPENSES> 409<F2>
<LOSS-PROVISION> 12,016
<INTEREST-EXPENSE> 13,618
<INCOME-PRETAX> 3,582
<INCOME-TAX> 150
<INCOME-CONTINUING> 3,432
<DISCONTINUED> 0
<EXTRAORDINARY> (1,118)<F3>
<CHANGES> 0
<NET-INCOME> 2,314
<EPS-PRIMARY> (2.12)
<EPS-DILUTED> 0<F4>
<FN>
<F1>TOTAL REVENUES INCLUDE OTHER REVENUE OF $4,020,000.
<F2>OTHER EXPENSES INCLUDE DEPRECIATION AND AMORTIZATION EXPENSE OF $9,290,000.
OTHER EXPENSES ALSO INCLUDE A CREDIT OF $8,881,000, REPRESENTING EQUITY IN THE
EARNINGS OF DAKOTA HEARTLAND HEALTH SYSTEM.
<F3>LOSS ON EARLY EXTINGUISHMENT OF DEBT.
<F4>FULLY DILUTED INCOME PER SHARE IS NOT PRESENTED AS THE RESULTS ARE
ANTIDILUTIVE.
</FN>
</TABLE>
