- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8865
SIERRA HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of
incorporation or organization)
88-0200415
(I.R.S. Employer
Identification No.)
2724 NORTH TENAYA WAY
LAS VEGAS, NV
(Address of principal executive offices)
89128
(Zip Code)
(702) 242-7000
(Registrant's telephone number, including area code)
N/A
Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of April 30, 1996 there were 17,670,000 shares of common stock outstanding.
- -------------------------------------------------------------------------------
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996, and December 31, 1995............. 3
Condensed Consolidated Statements of Operations -
Three months ended March 31, 1996, and March 31, 1995.. 4
Condensed Consolidated Statements of Cash Flows Three months
ended March 31, 1996, and March 31, 1995...5
Notes to Condensed Consolidated Financial Statements......6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........7
Part II - OTHER INFORMATION
Item l. Legal Proceedings........................................12
Item 2. Changes in Securities....................................12
Item 3. Defaults upon Senior Securities..........................12
Item 4. Submission of Matters to a Vote of Security Holders......12
Item 5. Other Information........................................12
Item 6. Exhibits and Reports on Form 8-K.........................13
Signatures.................................................................14
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents.......................................... $ 60,772,000 $ 57,044,000
Short-term Securities.............................................. 73,216,000 72,579,000
Accounts Receivable (Less: Allowance for Doubtful
Accounts: 1996 - $4,664,000, 1995 - $5,000,000) ................ 21,954,000 21,723,000
Prepaid Expenses and Other Assets.................................. 28,285,000 24,071,000
------------ ------------
Total Current Assets............................................ 184,227,000 175,417,000
------------ ------------
LAND, BUILDING AND EQUIPMENT.......................................... 124,629,000 122,725,000
Less: Accumulated Depreciation..................................... 33,876,000 31,549,000
------------ ------------
Land, Building and Equipment - Net.............................. 90,753,000 91,176,000
------------ ------------
OTHER ASSETS:
Long-term Securities .............................................. 227,519,000 234,698,000
Restricted Cash and Securities .................................... 12,377,000 12,482,000
Reinsurance Recoverable (Less Current Portion)..................... 22,210,000 24,952,000
Other. ........................................................... 34,236,000 36,421,000
------------ -----------
Total Other Assets.............................................. 296,342,000 308,553,000
------------ ------------
TOTAL ASSETS.......................................................... $571,322,000 $575,146,000
============ ============
CURRENT LIABILITIES:
Accounts Payable and Other Accrued Liabilities..................... $ 22,237,000 $ 21,576,000
Accrued Payroll and Taxes.......................................... 11,609,000 14,174,000
Medical Claims Payable............................................. 38,528,000 37,463,000
Current Portion of Reserves for Losses and
Loss Adjustment Expense ........................................ 52,103,000 54,679,000
Unearned Premium Revenue........................................... 13,888,000 22,260,000
Current Portion of Long-term Debt.................................. 6,978,000 7,108,000
------------ ------------
Total Current Liabilities....................................... 145,343,000 157,260,000
RESERVE FOR LOSSES AND LOSS
ADJUSTMENT EXPENSE (Less Current Portion) ........................ 131,110,000 127,639,000
LONG-TERM DEBT (Less Current Portion)................................. 69,111,000 71,257,000
OTHER LIABILITIES .................................................... 12,574,000 11,275,000
------------ ------------
TOTAL LIABILITIES..................................................... 358,138,000 367,431,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value, 1,000,000 Shares
Authorized, None Issued
Common Stock, $.005 Par Value, 40,000,000 Shares Authorized;
Shares Issued: 1996 - 17,767,000; 1995 - 17,677,000;............ 88,000 88,000
Additional Paid-in Capital.......................................... 149,136,000 147,240,000
Treasury Stock, 100,200 Common Shares............................... (130,000) (130,000)
Unrealized Holding Gain on Available-for-Sale Securities............ 3,068,000 9,659,000
Retained Earnings................................................... 61,022,000 50,858,000
------------ ------------
Total Stockholders' Equity.................................... 213,184,000 207,715,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $571,322,000 $575,146,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31 March 31
1996 1995
------------ --------
OPERATING REVENUES:
<S> <C> <C>
Medical Premiums...................................................... $90,605,000 $75,548,000
Specialty Product Revenue............................................. 30,939,000 23,075,000
Professional Fees..................................................... 7,572,000 3,818,000
Investment and Other Revenue.......................................... 6,896,000 5,831,000
------------ ------------
Total.............................................................. 136,012,000 108,272,000
----------- ------------
OPERATING EXPENSES:
Medical Expenses...................................................... 73,951,000 57,720,000
Specialty Product Expenses............................................ 30,523,000 22,621,000
General, Administrative and Other..................................... 17,163,000 15,109,000
------------ ------------
Total.............................................................. 121,637,000 95,450,000
----------- ------------
OPERATING INCOME.......................................................... 14,375,000 12,822,000
OTHER INCOME (EXPENSE):
Minority Interests ................................................... 388,000 501,000
Interest Expense and Other, Net....................................... (1,197,000) (1,537,000)
------------ ------------
Total.............................................................. (809,000) (1,036,000)
------------ ------------
INCOME BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS .............................................. 13,566,000 11,786,000
PROVISION FOR INCOME TAXES................................................ 3,402,000 3,147,000
----------- ------------
INCOME FROM CONTINUING OPERATIONS ........................................ 10,164,000 8,639,000
NET LOSS ON DISCONTINUED OPERATIONS ...................................... 964,000
---------------- -------------
NET INCOME ............................................... $ 10,164,000 $ 7,675,000
============ ============
EARNINGS PER SHARE:
Income From Continuing Operations..................................... $.58 $.50
Loss on Discontinued Operations ...................................... .06
------------ ----------
Net Income ........................................................ $.58 $.44
========== =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING................................ 17,627,000 17,298,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31 March 31
1996 1995
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income.............................................................. $10,164,000 $ 7,675,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization........................................ 2,468,000 2,296,000
Provision for Doubtful Accounts...................................... 536,000 44,000
Effect from Discontinued Operations ................................. 633,000
Changes in Assets and Liabilities ...................................... (7,210,000) (6,720,000)
---------- ----------
Net Cash Provided by Operating Activities .............................. 5,958,000 3,928,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures.................................................... (1,993,000) (3,002,000)
Land, Building and Equipment Dispositions, Net.......................... 79,000 7,000
Increase in Short-term Securities....................................... (622,000) (4,627,000)
Decrease (Increase) in Long-term Securities............................. 460,000 (3,381,000)
Decrease (Increase) in Restricted Cash and Securities................... 195,000 (794,000)
Decrease in Financed Premiums Receivable ............................... 2,463,000
-------------- -----------
Net Cash Provided by (Used for) Investing Activities.............. (1,881,000) (9,334,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-term Borrowings...................................... 875,000
Payments on Debt and Capital Leases..................................... (1,868,000) (589,000)
Exercise of Stock in Connection with Stock Plans........................ 1,519,000 1,800,000
----------- ----------
Net Cash Provided by (Used for) Financing Activities................. (349,000) 2,086,000
----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.................................................... 3,728,000 (3,320,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 57,044,000 38,045,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $60,772,000 $34,725,000
=========== ===========
Three Months Ended
Supplemental Condensed Consolidated March 31 March 31
Statements of Cash Flows Information: 1996 1995
------------------------------------------------------------------ -------------- ---------
Cash paid during the period for Interest
(net of amount Capitalized)............................................. $ 2,503,000 $ 2,746,000
Cash paid during the period for Income Taxes.............................. 650,000
Non-cash Investing and Financing Activities:
Additions (Reductions) to Funds Withheld by Ceding
Insurance Company and Future Policy Benefits......................... 111,000 (379,000)
Tax Benefits of Stock Issued for Exercise of Options ................... 377,000 815,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements include the consolidated
accounts of Sierra Health Services, Inc. ("Sierra", a holding Company,
together with its subsidiaries, collectively referred to as the
"Company"). The financial statements also include the operations of HMO
Texas L.C. ("HMO Texas"). The Company currently owns a 50% interest in
HMO Texas and manages the HMO's operations. HMO Texas has an agreement
with a key employee whereby he may be granted up to a 5% equity interest
in HMO Texas if certain employment requirements are fulfilled in the
future. All material intercompany balances and transactions have been
eliminated. These statements have been prepared in conformity with the
generally accepted accounting principles used in preparing the Company's
annual audited consolidated financial statements but do not contain all
of the information and disclosures that would be required in a complete
set of audited financial statements. They should, therefore, be read in
conjunction with the Company's audited consolidated financial statements
and notes thereto for the years ended December 31, 1995 and 1994. In the
opinion of management, all adjustments, consisting only of recurring
adjustments necessary for a fair statement of the results of operations
for the three- month period ended March 31, 1996, have been made.
2. On October 31, 1995, the Company issued approximately 2.7 million shares
of its common stock in exchange for all of the outstanding stock of CII
Financial, Inc. ("CII"). The merger was accounted for as a pooling of
interests and, accordingly, the Company's consolidated financial
statements have been restated to include the accounts and operations of
CII for all periods prior to the merger.
3. In April, 1996, Sierra obtained a $50.0 million unsecured line of credit
from Bank of America National Trust & Savings Association for a term of
five years at an interest rate indexed from the London InterBank
Offering Rate ("LIBOR") plus 32 basis points. Such rate would have been
5.7625% at March 31, 1996. The line of credit, if drawn upon, will be
used for general corporate purposes, including acquisitions, and will be
available for additional working capital, if necessary.
4. Amounts in the accompanying Condensed Consolidated Statement of
Operations for the three months ended March 31, 1995 have been
reclassified to conform with the current period presentation.
Page 6
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated financial condition and results of operations. The
discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and Related Notes thereto. Any forward-looking information
contained in this Management's Discussion and Analysis of Financial Condition
and Results of Operations should be considered in connection with certain
cautionary statements contained in the Company's Current Report on Form 8-K
filing dated March 4, 1996. Such cautionary statements are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
and identify important risk factors that could cause the Company's actual
results to differ from those expressed in any projected, estimated or
forward-looking statements relating to the Company.
On October 31, 1995, the Company acquired CII, a workers' compensation
insurance company, for approximately $76.3 million of common stock in a
transaction accounted for as a pooling of interests. The information contained
in this discussion and analysis has been restated to include the results of CII.
Results of Operations, three months ended March 31, 1996, compared to three
months ended March 31, 1995.
The Company's total operating revenues for the three months ended March
31, 1996 increased 25.6% to $136.0 million, from $108.3 million for the three
months ended March 31, 1995. The increase was primarily due to medical premium
revenue increases of approximately $15.1 million, or 19.9%, from the Company's
HMO and managed indemnity insurance subsidiaries. Such additional premium
revenue resulted principally from an 18.3% increase in member months (the number
of months of each period that an individual is enrolled in a plan). The
Company's HMO and insurance subsidiaries' premium rates increased approximately
1.6% overall primarily due to a 3.7% increase in its capitation rate for its
Medicare members established by the Health Care Financing Administration
("HCFA"). The Company realized minimal rate changes for the HMO subsidiaries'
commercial groups and the managed indemnity subsidiary. Specialty product
revenue increased $7.9 million, or 34.1%, in the three months ended March 31,
1996 compared to the same three-month period in the prior year. The increase was
primarily due to specialty product revenue growth in the workers' compensation
insurance market of approximately $7.3 million and a $600,000 increase in the
specialty product revenue relating to administrative services for the three
months ended March 31, 1996, compared to the same three-month period in the
prior year. Professional fees increased by $3.8 million, or 98.3% primarily due
to the opening of new medical clinics in 1995 and the acquisition of a medical
facility in October 1995. Investment and other revenue increased $1.1 million,
or 18.3%, due to certain investment gains recognized in the first quarter of
1996, as well as an increase in the balance of invested funds.
Page 7
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued).
Results of Operations, three months ended March 31, 1996, compared to three
months ended March 31, 1995 (continued).
Total medical expenses increased by approximately $16.2 million over the
same three-month period last year. This 28.1% increase resulted primarily from
the consolidated member month growth discussed above as well as clinical
expansions and increases associated with professional fee growth. These factors,
as well as an increase in Medicare members as a percentage of total members,
resulted in an increase in medical expenses as a percentage of medical premiums
and professional fees ("Medical Loss Ratio") from 72.7% to 75.3%. The cost of
providing medical care to Medicare members generally requires a greater
percentage of the premium received. Specialty product expenses increased
$7.9 million, or 34.9% due primarily to the 34.1% increase in specialty
product revenue discussed above. Specialty product revenue and expense
is primarily related to workers' compensation insurance business. In the
first quarter of 1996, the Company had a combined loss ratio of 98.7% on
its specialty product business. On the CII workers' compensation
insurance business, included therein, the combined ratio was 104.3% for the
first quarter of 1996. Workers' compensation claims are paid over several
years. Until payment is made, the Company invests the monies,
earning a yield on the invested balance.
General, administrative and other ("G&A") costs increased $2.1 million,
or 13.6%, compared to the first quarter of 1995. As a percentage of revenues,
however, G&A costs for the first quarter of 1996 decreased to 12.6% from 14.0%
during the comparable period in 1995. Of the $2.1 million increase in G&A, $1.5
million consisted of compensation expense resulting primarily from additional
employees supporting expanded services. Legal and legislative expenses increased
approximately $200,000, and broker and premium tax expenses increased
approximately $400,000 due to increased medical premiums. The Company markets
its products primarily to employer groups and labor unions through its internal
sales personnel and independent insurance brokers. Such brokers receive
commissions based on the premiums received from each group. The Company's
agreements with its member groups are usually for twelve months and are subject
to annual renewal. For the fiscal quarter ended March 31, 1996 the Company's ten
largest commercial HMO employer groups were, in the aggregate, responsible for
less than 15% of its total revenues. Although none of such employer groups
accounted for more than 3% of total revenues for that period, the loss of one or
more of the larger employer groups could, if not replaced with similar
membership, have a material adverse effect on the Company's business. During the
first quarter of 1996, an employer group previously included as one of the
Company's largest HMO commercial groups did not renew its contract. The effect
of this non-renewal was offset in large part by the signing of new commercial
and union groups with similar total membership.
The Company's effective tax rate for the first quarter of 1996 was
approximately 25.1% compared to 26.7% in the first quarter of 1995. Such tax
rates are the result of the Company's investment in tax preferred investments
and the change in the deferred tax valuation allowance which is due primarily to
the use of net operating loss carryovers.
Net income for the three months ended March 31, 1996, increased 32.5% to
$10.2 million from $7.7 million for the comparable period in 1995. The
approximate $2.5 million increase in earnings was primarily due to increased
operating revenues, decreased G&A expenses as a percentage of revenues, a
decrease in the effective tax rate and the effects of the operations of the
disposed subsidiary. Income from continuing operations for the three-month
period ended March 31, 1996 increased 17.7% from $8.7 million to $10.2 million,
in the comparable period in the prior year. During 1995, CII sold its interest
in an unprofitable subsidiary. The net loss on the operations of the disposed
subsidiary was approximately $1.0 million in the quarter ended March 31, 1995.
Page 8
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued).
Liquidity and Capital Resources
The Company's cash, cash equivalents and non-restricted securities
decreased by $2.8 million to $361.5 million at March 31, 1996, from $364.3
million at December 31, 1995. At March 31, 1996, the Company had working capital
of $38.9 million.
The Company's cash flow from operating activities during the three
months ended March 31, 1996 resulted primarily from $10.2 million of net income
from continuing operations, $2.5 million in depreciation and amortization and
$500,000 in provision for doubtful accounts. This source of cash was offset by a
$7.2 million net change in operating assets and liabilities, excluding cash and
cash equivalents. The decrease in cash which resulted from the change in
operating assets and liabilities was primarily due to decreases in unearned
revenue, as well as accounts receivable and other current assets. These
decreases in cash were offset by increases in the reserve for losses and loss
adjustment expense, decreases in other assets and increases in medical claims
payable.
The $2.2 million used by investing and financing activities since
December 31, 1995 primarily consisted of $1.9 million in capital expenditures
including construction costs associated with a medical facility scheduled to be
completed in 1996, and other capital needs to support the Company's growth.
Additionally, $1.9 million used for the reduction of debt was offset in part by
$1.5 million received in connection with the purchase of stock through the
Company's stock plans. During the period Sierra bought back $1,143,000 of CII
Debentures.
The holding company may receive dividends from its HMO and insurance
subsidiaries which generally must be approved by certain state insurance
departments. The Company's HMO and insurance subsidiaries are required by state
regulatory agencies to maintain certain deposits and must also meet certain net
worth and reserve requirements. The HMO and insurance subsidiaries had
restricted assets on deposit in various states totaling $12.4 million, as of
March 31, 1996. The HMO and insurance subsidiaries must also meet requirements
to maintain minimum stockholder's equity, on a statutory basis, ranging from
$200,000 to $5.2 million. Of the cash and cash equivalents and short-term
securities held at March 31, 1996, $44.1 million is designated for use only by
the regulated subsidiaries. Such amounts are available for transfer to the
holding company from the HMO and insurance subsidiaries only to the extent that
they can be remitted in accordance with terms of existing management
agreements and by dividends. Remaining amounts are available on an unrestricted
basis. The holding company will not receive dividends from its regulated
subsidiaries that would cause violation of statutory net worth and reserve
requirements.
The Company has a 1996 capital budget of approximately $25.0 million,
primarily for the construction of a new 59,000 square-foot medical facility,
computer hardware and software, furniture and equipment, and other requirements
needed for the Company's projected growth and expansion. Completion of the
medical facility is expected in late 1996 at an estimated cost of $7.3 million.
The Company's liquidity needs over the next 12 months will primarily be for the
capital items noted above to support growing membership, as well as debt service
and expansion of the Company's operations.
Page 9
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued).
Liquidity and Capital Resources (continued)
The Company is in the final stages of preparing a response to the
government's request for proposal for providing managed health care services to
the 665,000 CHAMPUS eligibles living in 12 northeastern states plus the District
of Columbia that comprise Region 1. The Company expects final notification of
its Region 1 bid results by the end of 1996. Notification regarding the CHAMPUS
bid for Regions 7 and 8, which the Company made as part of a consortium of
managed care companies, is expected in June 1996. If the consortium is awarded
that contract, the Company will be providing health care services to the
approximately 93,000 CHAMPUS eligibles in Nevada and parts of Missouri. The
Company expects total expenses under both contract proposals to approximate $5
million to $6 million. The Company believes that existing working capital,
operating cash flow and, if necessary, equipment leasing, and amounts available
under its credit facility will be sufficient to meet its liquidity needs.
Additionally, subject to significant unanticipated cash requirements,
the Company believes that its existing working capital and operating cash flow
and, if necessary, its access to new credit facilities, will enable it to meet
its liquidity needs on a longer term basis.
In April, 1996, Sierra obtained a $50.0 million unsecured line of credit
from Bank of America National Trust & Savings Association for a term of five
years at an interest rate equal to the LIBOR plus 32 basis points. Such rate
would have been 5.7625% at March 31, 1996. The line of credit, if drawn upon,
will be used for general corporate purposes, including acquisitions, and will be
available for additional working capital, if necessary.
In September 1991, CII issued convertible subordinated debentures (the
"Debentures") due September 15, 2001. The Debentures bear interest at 7 1/2%
which is due semi-annually on March 15 and September 15. Each $1,000 in
principal is convertible into 16.921 shares of the Company's common stock at a
conversion price of $59.097 per share. The Debentures are general unsecured
obligations of CII only and were not guaranteed by Sierra. CII is currently
subject to the reporting requirements of the Securities Exchange Act of 1934;
however, CII has initiated the process to delist the debentures from the
American Stock Exchange.
The Company's membership at March 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Number of Members at Period Ended
March 31, 1996 March 31, 1995
-------------- --------------
HMO
<S> <C> <C>
Commercial................................................ 119,222 107,874
Medicare.................................................. 26,462 20,607
Managed Indemnity........................................... 32,056 26,309
Medicare Supplement......................................... 17,462 10,512
Administrative Services..................................... 303,001 161,435
------- -------
Total Members............................................... 498,203 326,737
======= =======
</TABLE>
Page 10
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued).
Health Care Reform
Numerous proposals relating to health care and insurance reform have
been and may continue to be introduced in the United States Congress and in
state legislatures. At this time, the Company cannot determine which
legislation, if any, will be enacted or what effect such legislation may have on
the Company.
Inflation
Health care costs generally continue to rise at a rate faster than the
Consumer Price Index. The Company has been able to somewhat lessen the impact of
such inflation by managing medical costs. There can be no assurance, however,
that in the future the Company's ability to manage medical costs will not be
negatively impacted by items such as technological advances, utilization changes
and catastrophic items, which could, in turn, result in medical cost increases
continuing to equal or exceed premium increases.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Sierra held its Annual Meeting of Stockholders on May 9, 1996 in
Las Vegas, Nevada.
The following persons were elected directors for a two-year term
ending in 1998 based on the voting results below:
<TABLE>
<CAPTION>
Broker
Name For Withheld Abstain Non-votes
<S> <C> <C> <C> <C>
Charles L. Ruthe 16,910,801 182,906 0 0
William J. Raggio 16,309,852 783,855 0 0
Erin E. MacDonald 16,912,964 180,743 0 0
</TABLE>
The following persons' terms as directors continued after the
meeting and end in 1997.
Anthony M. Marlon, M.D.
Thomas Y. Hartley
The stockholders also ratified the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the year
ending 1996. The voting results were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
<S> <C> <C> <C> <C>
17,025,730 26,942 41,035 0
</TABLE>
Item 5. Other Information
None
Page 12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Credit Agreement Dated as of April 11, 1996 among
Sierra Health Services, Inc., as Borrower, Bank
of America National Trust and Savings
Association, as Agent and Issuing Bank, and The
Other Financial Institutions Party Hereto for a
$50.0 million Line of Credit.
(11) Computation of earnings per share.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated
March 4, 1996 with the Securities and Exchange
Commission in connection with certain cautionary
statements made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform
Act of 1995.
Page 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA HEALTH SERVICES, INC.
(Registrant)
Date May 14, 1996 JAMES L. STARR
------------------ --------------------
James L. Starr
Vice President of Finance
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Page 14
EXHIBIT 10
CREDIT AGREEMENT
Dated as of April 11, 1996
among
SIERRA HEALTH SERVICES, INC.,
as Borrower,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
and
Issuing Bank
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS.........................................1
1.01 Certain Defined Terms................................................1
1.02 Other Interpretive Provisions.......................................22
1.03 Accounting Principles...............................................23
ARTICLE II
THE CREDITS........................................24
2.01 Amounts and Terms of Commitments....................................24
2.02 Loan Accounts.......................................................24
2.03 Procedure for Borrowing.............................................24
2.04 Conversion and Continuation Elections...............................25
2.05 Voluntary Termination or Reduction of
Commitments.........................................................27
2.06 Optional Prepayments................................................27
2.07 Mandatory Prepayments of Loans;
Mandatory Commitment Reductions.....................................27
2.08 Repayment...........................................................28
2.09 Interest............................................................28
2.10 Fees .............................................................29
(a) Agency Fee...........................................29
(b) Commitment Fees......................................29
2.11 Computation of Fees and Interest....................................30
2.12 Payments by the Company.............................................30
2.13 Payments by the Banks to the Agent..................................31
2.14 Sharing of Payments, Etc............................................32
2.15 Security............................................................32
2.16 Extension of Revolving
Termination Date....................................................32
ARTICLE III
THE LETTERS OF CREDIT..............................33
3.01 The Letter of Credit Subfacility....................................33
3.02 Issuance, Amendment and Renewal
of Letters of Credit................................................34
3.03 Risk Participations, Drawings and
Reimbursements......................................................36
3.04 Repayment of Participations.........................................38
3.05 Role of the Issuing Bank............................................39
3.06 Obligations Absolute................................................39
3.07 Cash Collateral Pledge..............................................41
3.08 Letter of Credit Fees...............................................41
3.09 Uniform Customs and Practice........................................42
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY.............42
4.01 Taxes .............................................................42
-i-
<PAGE>
Section Page
4.02 Illegality..........................................................43
4.03 Increased Costs and Reduction of Return.............................44
4.04 Funding Losses......................................................44
4.05 Inability to Determine Rates........................................45
4.06 Certificates of Banks...............................................46
4.07 Survival............................................................46
ARTICLE V
CONDITIONS PRECEDENT...............................46
5.01 Conditions of Initial Credit Extensions.............................46
(a) Credit Agreement and Notes...........................46
(b) Resolutions; Incumbency..............................46
(c) Organization Documents; Good Standing................46
(d) Legal Opinions.......................................47
(e) Payment of Fees......................................47
(f) Certificate..........................................47
(g) Collateral Documents.................................47
(h) Regulatory Compliance................................48
(i) Other Documents......................................48
5.02 Conditions to All Credit Extensions.................................48
(a) Notice, Application..................................49
(b) Continuation of Representations
and Warranties................................................49
(c) No Existing Default..................................49
ARTICLE VI
REPRESENTATIONS AND WARRANTIES.....................49
6.01 Corporate Existence and Power.......................................49
6.02 Corporate Authorization; No Contravention...........................50
6.03 Authorization, Approval, etc........................................50
6.04 Binding Effect......................................................51
6.05 Litigation..........................................................51
6.06 No Default..........................................................51
6.07 Compliance with Laws and ERISA......................................51
6.08 Use of Proceeds; Margin Regulations.................................52
6.09 Title to Property and Collateral; No Liens..........................52
6.10 As to Pledged Shares................................................53
6.11 Taxes .............................................................53
6.12 Financial Condition.................................................53
6.13 Environmental Matters...............................................54
6.14 Collateral Documents................................................54
6.15 Regulated Entities..................................................54
6.16 No Burdensome Restrictions..........................................54
6.17 Copyrights, Patents, Trademarks
and Licenses, etc...................................................54
6.18 Subsidiaries........................................................55
6.19 Insurance...........................................................55
6.20 Swap Obligations....................................................55
6.21 Full Disclosure.....................................................55
-ii-
<PAGE>
Section Page
6.22 Business Activity...................................................56
6.23 Licensing, Etc......................................................56
ARTICLE VII
AFFIRMATIVE COVENANTS..............................56
7.01 Financial Statements................................................56
7.02 Certificates; Other Information.....................................57
7.03 Notices.............................................................58
7.04 Preservation of Corporate Existence, Etc............................59
7.05 Maintenance of Property.............................................60
7.06 Insurance...........................................................60
7.07 Payment of Obligations..............................................60
7.08 Compliance with Laws................................................61
7.09 Compliance with ERISA...............................................61
7.10 Inspection of Property and
Books and Records...................................................61
7.11 Environmental Laws..................................................61
7.12 Use of Proceeds.....................................................61
7.13 Further Assurances..................................................61
7.14 Dividends of Subsidiaries During Default............................62
7.15 Acquisitions........................................................62
ARTICLE VIII
NEGATIVE COVENANTS.................................63
8.01 Limitation on Liens.................................................63
8.02 Disposition of Assets...............................................65
8.03 Consolidations and Mergers..........................................65
8.04 Loans and Investments...............................................66
8.05 Limitation on Indebtedness..........................................66
8.06 Transactions with Affiliates........................................67
8.07 Use of Proceeds.....................................................67
8.08 Contingent Obligations..............................................68
8.09 Lease Obligations...................................................68
8.10 Restricted Payments.................................................68
8.11 ERISA .............................................................69
8.12 Change in Business..................................................69
8.13 Accounting Changes..................................................69
8.14 Financial Covenants.................................................69
8.15 Limitation on Payment Restrictions
Affecting Subsidiaries..............................................70
8.16 Pledged Shares......................................................70
ARTICLE IX
EVENTS OF DEFAULT..................................70
9.01 Event of Default....................................................70
(a) Non Payment..........................................70
(b) Representation or Warranty...........................70
(c) Specific Defaults....................................71
(d) Other Defaults.......................................71
-iii-
<PAGE>
Section Page
(e) Cross Default........................................71
(f) Insolvency; Voluntary Proceedings....................71
(g) Involuntary Proceedings..............................71
(h) ERISA................................................72
(i) Monetary Judgments...................................72
(j) Non Monetary Judgments...............................72
(k) Change of Control....................................72
(l) Loss of Licenses.....................................72
(m) HMO Event............................................73
(n) Prospective Premium Default..........................73
(o) Adverse Change.......................................73
(p) Invalidity of Subordination
Provisions....................................................73
9.02 Remedies............................................................73
9.03 Rights Not Exclusive................................................74
ARTICLE X
THE AGENT..........................................74
10.01 Appointment and Authorization; "Agent".............................74
10.02 Delegation of Duties...............................................75
10.03 Liability of Agent.................................................75
10.04 Reliance by Agent..................................................76
10.05 Notice of Default..................................................76
10.06 Credit Decision....................................................76
10.07 Indemnification of Agent...........................................77
10.08 Agent in Individual Capacity.......................................77
10.09 Successor Agent....................................................78
10.10 Withholding Tax....................................................78
ARTICLE XI
MISCELLANEOUS......................................80
11.01 Amendments and Waivers.............................................80
11.02 Notices............................................................81
11.03 No Waiver; Cumulative Remedies.....................................82
11.04 Costs and Expenses.................................................82
11.05 Company Indemnification............................................82
11.06 Payments Set Aside.................................................83
11.07 Successors and Assigns.............................................83
11.08 Assignments, Participations, etc...................................84
11.09 Set-off............................................................85
11.10 Automatic Debits of Fees...........................................86
11.11 Notification of Addresses,
Lending Offices, Etc...............................................86
11.12 Counterparts.......................................................86
11.13 Severability.......................................................86
11.14 No Third Parties Benefited.........................................86
11.15 Governing Law and Jurisdiction.....................................86
11.16 Waiver of Jury Trial...............................................87
11.17 Entire Agreement...................................................88
-iv-
<PAGE>
SCHEDULES
Schedule 2.01 Commitments
Schedule 5.01(g) Excluded Subsidiaries
Schedule 6.03 Required Approvals
Schedule 6.05 Litigation
Schedule 6.12 Permitted Liabilities
Schedule 6.13 Environmental Matters
Schedule 6.18 Subsidiaries and Minority Interests
Schedule 6.19 Insurance Matters
Schedule 8.01 Permitted Liens
Schedule 8.05 Permitted Indebtedness
Schedule 8.08 Contingent Obligations
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
Exhibit G Form of Pledge Agreement
-v-
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of April 11, 1996, among
SIERRA HEALTH SERVICES, INC., a Nevada corporation (the "Company"), the several
financial institutions from time to time party to this Agreement (collectively,
the "Banks"; individually, a "Bank"), and Bank of America National Trust and
Savings Association, as Issuing Bank and as Agent for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a
revolving credit facility with letter of credit subfacility upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. The following terms have the
following meanings:
"Acquisition" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that the Company or the Subsidiary is the
surviving entity.
"Actual Knowledge" shall mean, as to any matter with respect to any
Person, the actual knowledge of such matter by a Responsible Officer of such
Person, it being understood in any event that "actual knowledge" shall be deemed
to exist upon receipt of a notice of such matter by a Responsible Officer.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
-1-
<PAGE>
"Agent" means BofA in its capacity as agent for the Banks hereunder,
and any successor agent arising under Section 10.09.
"Agent Related Persons" means BofA and any successor agent arising
under Section 10.09 and any successor letter of credit issuing bank hereunder,
together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth on
Schedule 11.02 or such other address as the Agent may from time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Regulatory Requirements" refers to any requisite filing or
approval requirements of any state insurance regulatory authorities having
jurisdiction over any of the Subsidiaries that must be satisfied or obtained by
the Agent or the Lender Parties as a condition to exercising or transferring
direct or indirect voting or other control over such Subsidiaries or
transferring or otherwise disposing of the Pledged Shares, Pledged Property or
Collateral with respect to such Subsidiaries.
"Applicable Spread" means the rates per annum set forth below opposite
the Company's Leverage Ratio; provided, that with respect to Base Rate Loans the
Applicable Spread shall mean 0.0%:
Leverage Ratio LIBOR Spread
Less than 1.0 0.275%
1.0 through 1.49 0.325%
1.5 through 1.99 0.425%
2.0 or greater 0.650%
The Applicable Spread shall be based on the Leverage Ratio as set forth in the
most recent Compliance Certificate, and shall be effective from and including
the date the Agent receives such Compliance Certificate to but excluding the
date on which the Agent receives the next Compliance Certificate; provided,
however, that if the Agent does not receive a Compliance Certificate by the date
required by Section 7.02(b), the Applicable Spread shall, effective as of such
date, be the highest Applicable Spread to but excluding the date the Agent
receives such Compliance Certificate. Subject to the foregoing proviso, until
the delivery of the first Compliance Certificate after the Closing Date, the
Applicable Spread shall be 0.325%.
"Assignee" has the meaning specified in subsection 11.08(a).
-2-
<PAGE>
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated
reasonable cost of internal legal services and all disbursements of internal
counsel.
"Bank" has the meaning specified in the introductory clause hereto.
References to the "Banks" shall include BofA, including in its capacity as
Issuing Bank; for purposes of clarification only, to the extent that BofA may
have any rights or obligations in addition to those of the Banks due to its
status as Issuing Bank, its status as such will be specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect for
such day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." (The "reference rate" is a rate set by BofA
based upon various factors including BofA's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced
rate.)
Any change in the reference rate announced by BofA shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" means a Revolving Loan, or an L/C Advance, that bears
interest based on the Base Rate.
"BofA" means Bank of America National Trust and Savings Association, a
national banking association.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans
of the same Type made to the Company on the same day by the Banks under Article
II, and, other than in the case of Base Rate Loans, having the same Interest
Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.03.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in San Francisco are authorized or required by law to
close and, if the applicable Business Day relates to any LIBOR Rate Loan, means
such a day on which dealings are carried on in the applicable offshore dollar
interbank market.
"Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force
-3-
<PAGE>
of law, in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"Capital Expenditures" means, for any period, the aggregate amount of
all expenditures of the Company and its Subsidiaries for fixed or capital assets
made during such period which, in accordance with GAAP, would be classified as
capital expenditures.
"Capital Lease" means any lease of property which in accordance with
GAAP should be capitalized on the lessee's balance sheet or disclosed in a
footnote thereto as a capitalized lease.
"Cash Collateralize" means to pledge and deposit with or deliver to the
Agent, for the benefit of the Agent, the Issuing Bank and the Banks, as
additional collateral for the L/C Obligations, cash or deposit account balances
pursuant to documentation in form and substance satisfactory to the Agent and
the Issuing Bank (which documents are hereby consented to by the Banks).
Derivatives of such term shall have corresponding meaning. The Company shall
grant to the Agent, for the benefit of the Agent, the Issuing Bank and the
Banks, a security interest in all such cash and deposit account balances. Cash
collateral shall be maintained in blocked deposit accounts at BofA.
"Change of Control" shall be deemed to have occurred if any Person or
group (as defined in Section 13(d)(3) of the Exchange Act) acquires
(beneficially or of record) 25% or more of the voting or economic interests in
the fully diluted capital stock of the Company.
"CII Acquisition" means the transaction pursuant to which the Company
acquired CII Financial, Inc.
"CII Discontinued Operations" means, for the twelve-month period ended
December 31, 1995, those expenses totalling $6,600,000 as detailed in the
Company's 1995 audited statement of operations under the line item "Net
operating loss on Discontinued operations and Net loss on Disposal of
Discontinued Operations".
"CII Transaction Expenses" means, for the twelve-month period ended
December 31, 1995, those expenses totalling $11,614,000 as detailed in the
Company's 1995 audited statement of operations under the line item "Acquisition
and integration expense".
"Closing Date" means the date on which all conditions precedent set
forth in Section 5.01 are satisfied or waived by all Banks (or, in the case of
subsection 5.01(e), waived by the Person entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
-4-
<PAGE>
"Collateral" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by the Company and its Subsidiaries in
or upon which a Lien now or hereafter exists in favor of the Banks, or the Agent
on behalf of the Banks, whether under this Agreement or under any other
documents executed by any such Person and delivered to the Agent or the Banks.
"Collateral Documents" means, collectively, (i) the Pledge Agreement
and all other security agreements, mortgages, deeds of trust, patent and
trademark assignments, lease assignments, guarantees and other similar
agreements between the Company or any Subsidiary or any Guarantor and the Banks
or the Agents for the benefit of the Banks now or hereafter delivered to the
Banks or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the Uniform Commercial Code or comparable
law) against the Company or any Subsidiary as debtor in favor of the Banks or
the Agent for the benefit of the Banks as secured party, and (ii) any
amendments, supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Commitment", as to each Bank, has the meaning specified in
Section 2.01.
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C.
"Consolidated Tangible Assets" means, at any time, (a) the total assets
of the Company and its Subsidiaries, minus (b) the aggregate net book value at
such time of all assets of the Company and its Subsidiaries that should be
treated as intangible assets in accordance with GAAP, (including, without
limitation, goodwill, patents, trade names, trade marks, copyrights, franchises,
experimental expense, organization expense, unamortized debt discount and
expense, deferred assets (other than prepaid insurance, prepaid taxes and
deferred tax assets) treasury stock and the excess of cost of shares acquired
over book value of related assets).
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, with or without recourse, (a) with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation (the
"primary obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise acquire such
primary obligations or any security therefor, (ii) to advance or provide funds
for the payment or discharge of any such primary obligation, or to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, (iii) to purchase property,
securities or
-5-
<PAGE>
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation, or (iv) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof (each, a "Guaranty
Obligation"); (b) with respect to any Surety Instrument issued for the account
of that Person or as to which that Person is otherwise liable for reimbursement
of drawings or payments; (c) to purchase any materials, supplies or other
property from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be made
regardless of whether delivery of such materials, supplies or other property is
ever made or tendered, or such services are ever performed or tendered, or (d)
in respect of any Swap Contract. The amount of any Contingent Obligation shall,
in the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such Guaranty
Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and in the case of other
Contingent Obligations other than in respect of Swap Contracts, shall be equal
to the maximum reasonably anticipated liability in respect thereof and, in the
case of Contingent Obligations in respect of Swap Contracts, shall be equal to
the Swap Termination Value.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section
2.04, the Company (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Convertible Debt" means the Indebtedness in respect of those certain 7
1/2% Convertible Subordinated Debentures Due 2000 of CII Financial, Inc., in an
outstanding principal amount of $55,657,000.
"Credit Extension" means and includes (a) the making of any Revolving
Loans hereunder, and (b) the Issuance of any Letters of Credit hereunder.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
-6-
<PAGE>
"Dollars", "dollars" and "$" each mean lawful money of the
United States.
"EBIT" of any Person for any period means net income for such period
plus all amounts deducted in determining such net income on account of Interest
Expense and taxes, and (solely with respect to determinations made for the first
three fiscal quarters ending in calendar year 1996) (i) up to $11,614,000 in CII
Acquisition Expenses and (ii) up to $6,600,000 in respect of CII Discontinued
Operations, in each case to the extent expensed but not capitalized prior to
January 1, 1996, all as determined for such Person and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"EBITDA" of any Person means net income plus all amounts deducted in
determining such net income on account of Interest Expense, taxes, depreciation
expense and amortization expense, and (solely with respect to determinations
made for the first three fiscal quarters ending in calendar year 1996) (i) up to
$11,614,000 in CII Acquisition Expenses and (ii) up to $6,600,000 in respect of
CII Discontinued Operations, in each case to the extent expensed but not
capitalized prior to January 1, 1995, all as determined for such Person and its
Subsidiaries on a consolidated basis in accordance with GAAP. For purposes of
determining the Leverage Ratio, EBITDA of the Company shall be calculated as of
the last day of the most recently ended fiscal quarter for the period of four
consecutive full fiscal quarters then ended (the "Measurement Period"), and such
calculation shall include, on a pro forma basis, the EBITDA of any Person
acquired by the Company pursuant to an Acquisition during the Measurement
Period, as if such Acquisition had occurred on the first day of the Measurement
Period.
"Effective Amount" means (i) with respect to any Revolving Loans on any
date, the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Revolving Loans occurring on
such date; and (ii) with respect to any outstanding L/C Obligations on any date,
the amount of such L/C Obligations on such date after giving effect to any
Issuances of Letters of Credit occurring on such date and any other changes in
the aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any Letters of
Credit or any reductions in the maximum amount available for drawing under
Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or
-7-
<PAGE>
agency located in the United States; and (c) a Person that is primarily engaged
in the business of commercial banking and that is (i) a Subsidiary of a Bank,
(ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person
of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non negligent, sudden or non
sudden, accidental or non accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from Property,
whether or not owned by the Company.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters; including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972,
the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery
Act, the Toxic Substances Control Act and the Emergency Planning and Community
Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or
-8-
<PAGE>
notification that a Multiemployer Plan is in reorganization; (d) the filing of a
notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e)
an event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Company or any
ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in
the definition of "LIBOR Rate".
"Event of Default" means any of the events or circumstances
specified in Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"Excluded Subsidiary" means HMO Texas, 2314 Partnership, and any other
Subsidiary of the Company or of another Subsidiary of the Company that (a) is
not a Significant Subsidiary and (b) would not, if aggregated with all other
Excluded Subsidiaries, constitute a Significant Subsidiary.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.10(a).
"Fixed Charges" means, for any period of four consecutive fiscal
quarters and without duplication, the sum of (i) Interest Expense and fees paid
on, and amortization of debt discount in respect of, all Indebtedness during
such period plus (ii) rental payments made under operating leases during such
period plus (iii) the aggregate principal amount of all current maturities of
Funded Indebtedness (including the principal portion of rentals under Capital
Leases) paid by the Company and its Subsidiaries during such period (excluding
prepayments of principal not required under the loan documents relating to such
Indebtedness), plus
-9-
<PAGE>
(iv) cash dividends paid by the Company during such period, all as determined
for the Company and its Subsidiaries on a consolidated basis in accordance with
GAAP.
"Fixed Charges Coverage Ratio" means, at any date, the ratio of (i) Net
Cash Flow for the four consecutive fiscal quarters ending on or prior to such
date to (ii) Fixed Charges for such period.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"Funded Indebtedness" means, as of any date, when used with reference
to any Person, without duplication, (i) Indebtedness of such Person which by its
terms matures in, or at such Person's option can be extended for, one year or
more from the date of the creation or incurrence thereof (including current
portions of such long-term Indebtedness), including all hedging agreements and
letters of credit entered into in connection with such Indebtedness, (ii) such
Person's Capital Lease obligations classified as long-term liabilities under
GAAP and (iii) Guaranty Obligations of such Person of Indebtedness of other
Persons of the character referred to in clauses (i) and (ii) above.
"Further Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, net income taxes and franchise taxes), and all
liabilities with respect thereto, imposed by any jurisdiction on account of
amounts payable or paid pursuant to Section 3.01.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligation" has the meaning specified in the
definition of "Contingent Obligation."
-10-
<PAGE>
"Hazardous Materials" means all those substances that are regulated by,
or which may form the basis of liability under, any Environmental Law, including
any substance identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"Health Care Business" shall mean (a) the provision, administration or
arrangement of health care services, related ancillary products or both,
directly or through an HMO, a provider, a regulated health care service
contractor or any other business which in the ordinary course provides,
administers or arranges for such services, products or both, (b) the provision,
administration or arrangement of health, life and related insurance, (c) the
provision or management of health care services (including medical management
claims services and management through medical information services), (d) the
provision, administration or arrangement of health care through a hospital,
outpatient, urgent care, clinical, home health or hospice environment, (e) the
provision, administration or arrangement of workers' compensation services both
fully insured and administrative in nature, (f) any business activities directly
related and incidental to any of the foregoing, and (g) any other business
activity which is related, ancillary or incidental to any of the foregoing and
in which the Company is engaged on the Closing Date.
"HMO" shall mean any Person which operates as a health
maintenance organization.
"HMO Event" shall mean failure by the Company or any of its HMO
Subsidiaries to comply in any material respect with any of the terms and
provisions of any applicable HMO Regulation pertaining to the fiscal soundness,
solvency or financial condition of the Company or any of its HMO Subsidiaries,
or the assertion in writing, after the Closing Date, by an HMO Regulator that it
intends to take administrative action against the Company or any of its HMO
Subsidiaries to revoke or modify any Governmental Approval of, or to enforce the
fiscal soundness, solvency or financial provisions or requirements of such HMO
Regulations against, the Company or any of its HMO Subsidiaries, if such action,
modification or enforcement is reasonably likely to have a Material Adverse
Effect.
"HMO Regulations" shall mean all Requirements of Law applicable to any
HMO Subsidiary under federal or state law and any regulations, orders and
directives promulgated or issued pursuant to the foregoing.
"HMO Regulator" means any Person charged with the administration,
oversight or enforcement of an HMO Regulation, whether primarily, secondarily,
or jointly.
-11-
<PAGE>
"HMO Subsidiary" shall mean any current or future Subsidiary of the
Company that is either an HMO or a regulated health care service contractor.
"HMO Texas" means HMO Texas, L.C., a Texas limited liability company
which is an indirect Subsidiary of the Company.
"Honor Date" has the meaning specified in subsection 3.03(b).
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all obligations with respect to Capital Leases; (g)
all Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (h) all
Guaranty Obligations in respect of Indebtedness or obligations of others of the
kinds referred to in clauses (a) through (g) above. For all purposes of this
Agreement, the Indebtedness of any Person shall include all recourse
Indebtedness of any partnership or joint venture or limited liability company in
which such Person is a general partner or a joint venturer or a member.
"Indemnified Liabilities" has the meaning specified in Section
11.05.
"Indemnified Person" has the meaning specified in Section
11.05.
"Independent Auditor" has the meaning specified in subsection
7.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors, or (b)
any general
-12-
<PAGE>
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors generally
or any substantial portion of its creditors; undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code.
"Interest Expense" of the Company and its Subsidiaries for any period
means the aggregate amount of interest paid, accrued or scheduled to be paid or
accrued in respect of any Indebtedness (including the interest portion of
rentals under Capital Leases) and all but the principal component of payments in
respect of conditional sales, equipment trust or other title retention
agreements or under a Capital Lease paid, accrued or scheduled to be paid or
accrued by the Company and its Subsidiaries during such period, in each case
determined in accordance with GAAP and excluding periodic maintenance,
insurance, taxes and similar charges not properly characterized as interest
expense under GAAP.
"Interest Payment Date" means, as to any LIBOR Rate Loan, the last day
of each Interest Period applicable to such Loan and, as to any Base Rate Loan,
the last Business Day of each calendar quarter and each date such Loan is
converted into another Type of Loan, provided, however, that if any Interest
Period for a LIBOR Rate Loan exceeds three months, the date that falls three
months after the beginning of such Interest Period and after each Interest
Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, three or six months thereafter as selected by the
Company in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan that
begins on the last 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 end on the last Business Day
of the calendar month at the end of such Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond the
Revolving Termination Date.
-13-
<PAGE>
"Investment" has the meaning specified in Section 8.04.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Issuance Date" has the meaning specified in subsection
3.01(a).
"Issue" means, with respect to any Letter of Credit, to issue or to
extend the expiry of, or to renew or increase the amount of, such Letter of
Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding
meanings.
"Issuing Bank" means BofA in its capacity as issuer of one or more
Letters of Credit hereunder, together with any replacement letter of credit
issuer arising under subsection 10.01(b) or Section 10.09.
"L/C Advance" means each Bank's participation in any L/C Borrowing in
accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for amendment of
outstanding standby letters of credit as shall at any time be in use at the
Issuing Bank, as the Issuing Bank shall request.
"L/C Application" means an application form for issuances of standby
letters of credit as shall at any time be in use at the Issuing Bank, as the
Issuing Bank shall request.
"L/C Borrowing" means an extension of credit resulting from a drawing
under any Letter of Credit which shall not have been reimbursed on the date when
made nor converted into a Borrowing of Revolving Loans under subsection 3.03(b).
"L/C Commitment" means the commitment of the Issuing Bank to Issue, and
the commitment of the Banks severally to participate in, Letters of Credit from
time to time Issued or outstanding under Article III, in an aggregate amount not
to exceed on any date the amount of $20,000,000, as the same shall be reduced as
a result of a reduction in the L/C Commitment pursuant to Section 2.06; provided
that the L/C Commitment is a part of the combined Commitments, rather than a
separate, independent commitment.
"L/C Obligations" means at any time the sum of (a) the aggregate
undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of
all unreimbursed drawings under all Letters of Credit, including all outstanding
L/C Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
-14-
<PAGE>
relating to any Letter of Credit, including any of the Issuing Bank's standard
form documents for letter of credit issuances.
"Lender Party" has the meaning specified in the Pledge
Agreement.
"Lending Office" means, as to any Bank, the office or offices of such
Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on Schedule 11.02, or such other office or
offices as such Bank may from time to time notify the Company and the Agent.
"Letters of Credit" means any standby letters of credit Issued by the
Issuing Bank pursuant to Article III.
"Leverage Ratio" of any Person means the ratio of Total Debt
to EBITDA.
"LIBOR Rate" means, for any Interest Period, with respect to LIBOR Rate
Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/16th of 1%) determined by the Agent as follows:
LIBOR Rate = LIBOR divided by (1.00 - Eurodollar Reserve Percentage)
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to any Bank) under
regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined by the
Agent to be the arithmetic mean (rounded upward to the next 1/16th of
1%) of the rates of interest per annum notified to the Agent by BofA as
the rate of interest at which dollar deposits in the approximate amount
of the amount of the Loan to be made or continued as, or converted
into, a LIBOR Rate Loan by BofA and having a maturity comparable to
such Interest Period would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m. (London
time) two Business Days prior to the commencement of such Interest
Period.
-15-
<PAGE>
The LIBOR Rate shall be adjusted automatically as to all LIBOR
Rate Loans then outstanding as of the effective date of any change in
the Eurodollar Reserve Percentage.
"LIBOR Rate Loan" means a Loan that bears interest based on the LIBOR
Rate.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) option, pre-emptive right or preferential arrangement of
any kind or nature whatsoever having substantially the same effect as any of the
foregoing in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a Capital Lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law), any
contingent or other agreement to provide any of the foregoing (but not including
the interest of a lessor under an operating lease), and including, in the case
of stock, stockholder agreements, voting trust agreements and similar
arrangements.
"Loan" means an extension of credit by a Bank to the Company under
Article II or Article III in the form of a Revolving Loan or L/C Advance.
"Loan Documents" means this Agreement, any Notes, the Collateral
Documents, the Fee Letter, the L/C-Related Documents, and all other documents
delivered to the Agent or any Bank in connection herewith.
"Majority Banks" means at any time Banks then holding in excess of 50%
of the then aggregate unpaid principal amount of the Loans, or, if no such
principal amount is then outstanding, Banks then having in excess of 50% of the
Commitments.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Company or the Company and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of the
Company to perform under any Loan Document and to avoid any Event of Default; or
(c) a material adverse effect upon (i) the legality, validity, binding effect or
enforceability against the Company of any Loan Document, or (ii) the perfection
or priority of any Lien granted under any of the Collateral Documents.
-16-
<PAGE>
"Multiemployer Plan" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Net Cash Flow" means, with respect to any Person for any period of
four consecutive fiscal quarters, (i) EBIT for such period plus (ii) rental
payments made under operating leases during such period, minus (iii) taxes
actually paid in cash during such period, all as determined for the Company and
its Subsidiaries on a consolidated basis in accordance with GAAP.
"Net Worth" of any Person means the amount, if any, by which Total
Assets exceed Total Liabilities.
"Note" means a promissory note executed by the Company in favor of a
Bank pursuant to subsection 2.02(b), in substantially the form of Exhibit F.
"Notice of Borrowing" means a notice in substantially the form
of Exhibit A.
"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company to any
Bank, the Agent, or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"Organization Documents" means, for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
any shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"Other Taxes" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents.
"Participant" has the meaning specified in subsection
11.08(d).
-17-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to
which it makes, is making, or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five (5) plan years.
"Permitted Acquisitions" means Acquisitions by the Company or any of
its Subsidiaries of Persons and/or assets involved (or to be used) in connection
with the Health Care Business; provided, that (i) any Acquisition involving a
merger to which the Company or any of its Subsidiaries is a party must provide
that the Company or such Subsidiary is the surviving corporation in such merger,
(ii) immediately before and after giving effect to the consummation of each
Acquisition, no Default has occurred and is continuing or will exist; (iii) for
each such Acquisition, the prior, effective written consent or approval to such
Acquisition of the board of directors or equivalent governing body of the
acquiree has been obtained, and (iv) the Company shall have complied with the
requirements of Section 7.15, if applicable.
"Permitted Liens" has the meaning specified in Section 8.01.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company sponsors or maintains or to which the Company makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Pledge Agreement" means each Pledge Agreement executed and delivered
by the Company or a Pledgor Subsidiary pursuant to Section 5.0.1(g),
substantially in the form of Exhibit G hereto, as amended, supplemented,
restated or otherwise modified from time to time.
"Pledged Collateral" has the meaning specified in the Pledge
Agreement.
"Pledged Property" has the meaning specified in the Pledge
Agreement.
"Pledged Shares" has the meaning specified in the Pledge
Agreement.
-18-
<PAGE>
"Pledgor Subsidiary" means any Subsidiary of the Company or of another
Subsidiary executing and delivering a Pledge Agreement.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks.
"Prospective Premium Default" shall mean the institution, with respect
to the Company or any of its Subsidiaries by an HMO Regulator pursuant to
applicable HMO Regulations, of a restriction on the fees or premiums that any
HMO Subsidiary of the Company may charge that is likely to cause the Company to
be in default of one or more of the financial covenants in Section 8.14 of this
Agreement during one or more of the four fiscal quarters of the Company
following the effective date of such restriction; provided that, in determining
such likelihood, due consideration shall be given of actions the Company
proposes to take, or to have any HMO Subsidiary take, in response to such
restriction to the extent such actions have been communicated to the Banks
within 30 days after such effective date and so long as no other Default
(whether or not related to such restriction) shall then have occurred and be
continuing.
"Regulatory Tangible Net Equity" shall mean, for any HMO, "tangible net
equity," "net worth" or such similar financial concept as defined by any HMO
Regulation promulgated by any HMO Regulator as shall be applicable to HMOs.
"Regulatory Tangible Net Equity Requirement" shall mean, as to any HMO,
the minimum level at which an HMO is required by any applicable HMO Regulation
or HMO Regulator to maintain its Regulatory Tangible Net Equity.
"Reportable Event" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the
president of the Company, the chief financial officer or any other officer
having substantially the same authority and responsibility; or, with respect to
compliance with financial covenants, the chief financial officer, the treasurer
or the assistant treasurer of the Company, or any other officer having
substantially the same authority and responsibility.
-19-
<PAGE>
"Revolving Loan" has the meaning specified in Section 2.01, and may be
a Base Rate Loan or a LIBOR Rate Loan (each, a "Type" of Revolving Loan).
"Revolving Termination Date" means the earlier to occur of:
(a) the fifth (5th) anniversary of the Closing Date (as
such date may be extended pursuant to Section 2.16); and
(b) the date on which the Commitments terminate in
accordance with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Significant Subsidiary" shall mean any Subsidiary of the Company of
which (i) the revenues (directly and together with its Subsidiaries) for the
most recent fiscal year of the Company were at least five percent (5%) of the
Company's consolidated revenues for such fiscal year or (ii) the consolidated
total assets as of the last day of the most recent fiscal year of the Company
were at least five percent (5%) of the Company's consolidated total assets as of
such date.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which 50% or more of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Company.
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"Swap Contract" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap or
option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or any
combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
-20-
<PAGE>
"Swap Termination Value" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined by the Company
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Swap Contracts (which may include any Bank).
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, respectively, taxes imposed on or measured by its net income by the
jurisdiction (or any political subdivision thereof) under the laws of which such
Bank or the Agent, as the case may be, is organized or maintains a lending
office.
"Total Assets" of any Person means all property (whether real,
personal, tangible, intangible or mixed) that, in accordance with GAAP should be
included in determining total assets as shown on the asset portion of the
balance sheet of such Person.
"Total Debt" of any Person means, without duplication, the sum of all
Indebtedness and Contingent Obligations of such Person as of the date of
determination.
"Total Liabilities" of any Person means all obligations that, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liabilities side of the balance sheet of such Person.
"2314 Partnership" means 2314 West Charleston Partnership, a Nevada
general partnership of which the general partner is Southwest Realty, Inc., a
Nevada corporation which is a wholly owned subsidiary of the Company.
"Type" has the meaning specified in the definition of
"Revolving Loan."
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"United States" and "U.S." each means the United States of
America.
-21-
<PAGE>
"Wholly Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of each
class having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Company, or by one or more of the
other Wholly Owned Subsidiaries, or both.
1.02 Other Interpretive Provisions. (a) The meanings of
defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(iv) The term "property" includes any kind of
property or asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the
interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use
several different limitations, tests or measurements to regulate
the same or similar matters. All such limitations, tests and
-22-
<PAGE>
measurements are cumulative and shall each be performed in accordance with their
terms. Unless otherwise expressly provided, any reference to any action of the
Agent or the Banks by way of consent, approval or waiver shall be deemed
modified by the phrase "in its/their sole discretion."
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Agent, the
Company and the other parties, and are the products of all parties. Accordingly,
they shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.03 Accounting Principles. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal
quarter" refer to such fiscal periods of the Company.
ARTICLE II
THE CREDITS
2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on
the terms and conditions set forth herein, to make loans to the Company (each
such loan, a "Revolving Loan") from time to time on any Business Day during the
period from the Closing Date to the Revolving Termination Date, in an aggregate
amount not to exceed at any time outstanding the amount set forth on Schedule
2.01 (such amount as the same may be reduced under Section 2.05 or as a result
of one or more assignments under Section 10.08, the Bank's "Commitment");
provided, however, that, after giving effect to any Borrowing of Revolving
Loans, the Effective Amount of all outstanding Revolving Loans and the Effective
Amount of all L/C Obligations, shall not at any time exceed the combined
Commitments; and provided further, that the Effective Amount of the Revolving
Loans of any Bank plus the participation of such Bank in the Effective Amount of
all L/C Obligations shall not at any time exceed such Bank's Commitment. Within
the limits of each Bank's Commitment, and subject to the other terms and
conditions hereof, the Company may borrow under this section 2.01, prepay under
Section 2.06 and reborrow under this section 2.01.
2.02 Loan Accounts. (a) The Loans made by each Bank and the Letters of
Credit Issued by the Issuing Bank shall be evidenced by one or more accounts or
records maintained by such Bank or Issuing Bank, as the case may be, in the
ordinary course of business. The accounts or records maintained by the Agent,
the Issuing Bank and each Bank shall be conclusive absent manifest error of the
amount
-23-
<PAGE>
of the Loans made by the Banks to the Company and the Letters of Credit Issued
for the account of the Company, and the interest and payments thereon. Any
failure to so maintain such accounts or records, or any error in doing so, shall
not, however, limit or otherwise affect the obligation of the Company hereunder
to pay any amount owing with respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent, the
Loans made by such Bank may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Bank shall endorse on the schedules annexed
to its Note(s) the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by the Company with respect thereto.
Each such Bank is irrevocably authorized by the Company to endorse its Note(s)
and each Bank's record shall be conclusive absent manifest error; provided,
however, that the failure of a Bank to make, or an error in making, a notation
thereon with respect to any Loan shall not limit or otherwise affect the
obligations of the Company hereunder or under any such Note to such Bank.
2.03 Procedure for Borrowing. (a) Each Borrowing of Revolving Loans
shall be made upon the Company's irrevocable written notice delivered to the
Agent in the form of a Notice of Borrowing (which notice must be received by the
Agent prior to 9:00 a.m. (San Francisco time) (i) three Business Days prior to
the requested Borrowing Date, in the case of LIBOR Rate Loans; and (ii) one
Business Day prior to the requested Borrowing Date, in the case of Base Rate
Loans, specifying:
(A) the amount of the Borrowing, which shall be
in an aggregate minimum amount of $1,000,000 or any multiple of
$500,000 in excess thereof;
(B) the requested Borrowing Date, which shall
be a Business Day;
(C) the Type of Loans comprising the Borrowing;
and
(D) if such Borrowing is comprised of LIBOR Rate
Loans, the duration of the Interest Period applicable to such Loans
included in such notice. If the Notice of Borrowing fails to specify
the duration of the Interest Period for any Borrowing comprised of
LIBOR Rate Loans, such Interest Period shall be three months.
(b) The Agent will promptly notify each Bank of its receipt of
any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share
of each Borrowing available to the Agent for the account of the
Company at the Agent's Payment Office by 11:00 a.m. (San Francisco
-24-
<PAGE>
time) on the Borrowing Date requested by the Company in funds immediately
available to the Agent. The proceeds of all such Loans will then be made
available to the Company by the Agent by wire transfer in accordance with
written instructions provided to the Agent by the Company of like funds as
received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent
shall otherwise consent, there may not be more than five (5) different Interest
Periods in effect.
2.04 Conversion and Continuation Elections. (a) The Company
may, upon irrevocable written notice to the Agent in accordance
with subsection 2.04(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the
case of LIBOR Rate Loans, to convert any such Loans (or any part
thereof in an amount not less than $1,000,000, or that is in an
integral multiple of $500,000 in excess thereof) into Loans of any
other Type; or
(ii) elect as of the last day of the applicable Interest
Period, to continue any Revolving Loans having Interest Periods
expiring on such day (or any part thereof in an amount not less than
$1,000,000, or that is in an integral multiple of $500,000 in excess
thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such LIBOR Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Company to continue such Loans as, and convert such Loans into, LIBOR
Rate Loans, shall terminate.
(b) The Company shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later than 9:00 a.m.
(San Francisco time) at least (i) three Business Days in advance of the
Conversion/ Continuation Date, if the Loans are to be converted into or
continued as LIBOR Rate Loans; and (ii) one Business Day in advance of the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be
converted or continued;
(C) the Type of Loans resulting from the
proposed conversion or continuation; and
-25-
<PAGE>
(D) other than in the case of conversions into Base
Rate Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to LIBOR Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such LIBOR Rate Loans, or if any Default or Event of
Default then exists, the Company shall be deemed to have elected to convert such
LIBOR Rate Loans into Base Rate Loans effective as of the expiration date of
such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of
a Notice of Conversion/ Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
(e) Unless the Majority Banks otherwise consent, during the
existence of a Default or Event of Default, the Company may not elect to have a
Loan converted into or continued as a LIBOR Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, unless the Agent shall otherwise consent, there may not be more than
three (3) different Interest Periods in effect.
2.05 Voluntary Termination or Reduction of Commitments. The Company
may, upon not less than five Business Days' prior notice to the Agent, terminate
the Commitments, or permanently reduce the Commitments by an aggregate minimum
amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, (a) the Effective Amount of all Revolving Loans and L/C
Obligations together would exceed the amount of the combined Commitments then in
effect, or (b) the Effective Amount of all L/C Obligations then outstanding
would exceed the L/C Commitment. Once reduced in accordance with this Section,
the Commitments may not be increased. Any reduction of the Commitments shall be
applied to each Bank according to its Pro Rata Share. If and to the extent
specified by the Company in the notice to the Agent, some or all of the
reduction in the combined Commitments shall be applied to reduce the L/C
Commitment. All accrued commitment and letter of credit fees to, but not
including, the effective date of any reduction or termination of Commitments,
shall be paid on the effective date of such reduction or termination.
2.06 Optional Prepayments. Subject to Section 4.04, the
Company may, at any time or from time to time, upon not less than
-26-
<PAGE>
one Business Day's irrevocable notice to the Agent, ratably prepay Loans in
whole or in part, in minimum amounts of $1,000,000 or any multiple of $500,000
in excess thereof. Such notice of prepayment shall specify the date and amount
of such prepayment and the Type(s) of Loans to be prepaid. The Agent will
promptly notify each Bank of its receipt of any such notice, and of such Bank's
Pro Rata Share of such prepayment. If such notice is given by the Company, the
Company shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein, together with
accrued interest to each such date on the amount prepaid and any amounts
required pursuant to Section 4.04. Amounts so prepaid may be reborrowed subject
to the applicable provisions of this Agreement.
2.07 Mandatory Prepayments of Loans; Mandatory Commitment Reductions.
If on any date the Effective Amount of L/C Obligations exceeds the L/C
Commitment, the Company shall Cash Collateralize on such date the outstanding
Letters of Credit in an amount equal to the excess of the maximum amount then
available to be drawn under the Letters of Credit over the Aggregate L/C
Commitment. Subject to Section 4.04, if on any date after giving effect to any
Cash Collateralization made on such date pursuant to the preceding sentence, the
Effective Amount of all Revolving Loans then outstanding plus the Effective
Amount of all L/C Obligations exceeds the combined Commitments, the Company
shall immediately, and without notice or demand, prepay the outstanding
principal amount of the Revolving Loans and L/C Advances by an amount equal to
the applicable excess.
2.08 Repayment. The Company shall repay to the Banks on the Revolving
Termination Date the aggregate principal amount of Loans outstanding on such
date.
2.09 Interest. (a) Each Revolving Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the LIBOR Rate or the Base Rate, as the case may be (and
subject to the Company's right to convert to other Types of Loans under Section
2.04), plus the Applicable Spread.
(b) Interest on each Revolving Loan shall be paid in arrears
on each Interest Payment Date. Interest shall also be paid on the date of any
prepayment of Loans under Section 2.06 or 2.07 for the portion of the Loans so
prepaid and upon payment (including prepayment) in full thereof and, during the
existence of any Event of Default, interest shall be paid on demand of the Agent
at the request or with the consent of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, the Company shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal
-27-
<PAGE>
amount of all outstanding Obligations, at a rate per annum which is determined
by adding 2% per annum to the Applicable Spread then in effect for such Loans
and, in the case of Obligations not subject to an Applicable Spread, at a rate
per annum equal to the Base Rate plus 2%; provided, however, that, on and after
the expiration of any Interest Period applicable to any LIBOR Rate Loan
outstanding on the date of occurrence of such Event of Default or acceleration,
the principal amount of such Loan shall, during the continuation of such Event
of Default or after acceleration, bear interest at a rate per annum equal to the
Base Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Company to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Bank would be contrary to
the provisions of any law applicable to such Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such Bank,
and in such event the Company shall pay such Bank interest at the highest rate
permitted by applicable law.
2.10 Fees. In addition to certain fees described in Section
3.08:
(a) Agency Fee. The Company shall pay an agency fee to
the Agent for the Agent's own account, as required by the letter
agreement ("Fee Letter") between the Company and the Agent dated
February 9, 1996.
(b) Commitment Fees. The Company shall pay to the Agent for
the account of each Bank a commitment fee on the average daily unused portion of
such Bank's Commitment, computed on a quarterly basis in arrears on the last
Business Day of each fiscal quarter, equal to the product of (i) the applicable
percentage set forth below opposite the Company's Leverage Ratio and (ii) the
average daily unused portion of such Bank's Commitment during such fiscal
quarter.
Commitment
Leverage Ratio Fee
Less than 1.0 0.09%
1.0 through 1.49 0.11%
1.5 through 1.99 0.15%
2.0 or greater 0.25%
The percentage used to determine the Commitment Fee shall be based on the
Leverage Ratio as set forth in the most recent Compliance Certificate, and shall
be effective from and including the date the Agent receives such Compliance
Certificate to but excluding the
-28-
<PAGE>
date on which the Agent receives the next Compliance Certificate; provided,
however, that if the Agent does not receive a Compliance Certificate by the date
required by Section 7.02(b), the percentage shall, effective as of such date, be
the highest percentage set forth above to but excluding the date the Agent
receives such Compliance Certificate. Subject to the foregoing proviso, until
the delivery of the first Compliance Certificate after the Closing Date, the
percentage shall be 0.11%.
For purposes of calculating utilization under this subsection,
the Commitments shall be deemed used to the extent of the Effective Amount of
Revolving Loans then outstanding, plus the Effective Amount of L/C Obligations
then outstanding. Such commitment fee shall accrue from the Closing Date to the
Revolving Termination Date and shall be due and payable quarterly in arrears on
the 30th day of each March, June, September and December, commencing June 30,
1996 through the Revolving Termination Date, with the final payment to be made
on the Revolving Termination Date; provided that, in connection with any
reduction or termination of Commitments under Section 2.05 or Section 2.07, the
accrued commitment fee calculated for the period ending on such date shall also
be paid on the date of such reduction or termination, with the following
quarterly payment being calculated on the basis of the period from such
reduction or termination date to such quarterly payment date. The commitment
fees provided in this subsection shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article V are not met.
2.11 Computation of Fees and Interest. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of fees and interest shall be made
on the basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall
be conclusive and binding on the Company and the Banks in the absence of
manifest error. The Agent will, at the request of the Company or any Bank,
deliver to the Company or the Bank, as the case may be, a statement showing the
quotations used by the Agent in determining any interest rate and the resulting
interest rate.
2.12 Payments by the Company. (a) All payments to be made
by the Company shall be made without set-off, recoupment or
counterclaim. Except as otherwise expressly provided herein, all
payments by the Company shall be made to the Agent for the account
of the Banks at the Agent's Payment Office, and shall be made in
-29-
<PAGE>
dollars and in immediately available funds, no later than 11:00 a.m. (San
Francisco time) on the date specified herein. The Agent will promptly distribute
to each Bank its Pro Rata Share (or other applicable share as expressly provided
herein) of such payment in like funds as received. Any payment received by the
Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Company prior to
the date on which any payment is due to the Banks that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Company has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the Federal
Funds Rate for each day from the date such amount is distributed to such Bank
until the date repaid.
2.13 Payments by the Banks to the Agent. (a) Unless the Agent receives
notice from a Bank on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least one Business Day prior to the date of
such Borrowing, that such Bank will not make available as and when required
hereunder to the Agent for the account of the Company the amount of that Bank's
Pro Rata Share of the Borrowing, the Agent may assume that each Bank has made
such amount available to the Agent in immediately available funds on the
Borrowing Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to the Company on such date a corresponding
amount. If and to the extent any Bank shall not have made its full amount
available to the Agent in immediately available funds and the Agent in such
circumstances has made available to the Company such amount, that Bank shall on
the Business Day following such Borrowing Date make such amount available to the
Agent, together with interest at the Federal Funds Rate for each day during such
period. A notice of the Agent submitted to any Bank with respect to amounts
owing under this subsection (a) shall be conclusive, absent manifest error. If
such amount is so made available, such payment to the Agent shall constitute
such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If
such amount is
-30-
<PAGE>
not made available to the Agent on the Business Day following the Borrowing
Date, the Agent will notify the Company of such failure to fund and, upon demand
by the Agent, the Company shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing
Date shall not relieve any other Bank of any obligation hereunder to make a Loan
on such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.14 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank's ratable share (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Company agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 11.10) with respect to
such participation as fully as if such Bank were the direct creditor of the
Company in the amount of such participation. The Agent will keep records (which
shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Banks following any such purchases or repayments.
2.15 Security. All obligations of the Company under this Agreement, the
Notes and all other Loan Documents shall be secured in accordance with the
Collateral Documents.
2.16 Extension of Revolving Termination Date. Not less than 30 days nor
more than 60 days before each anniversary of the Closing Date, the Company may,
by written request delivered to the Agent, request that the Revolving
Termination Date be extended by all of the Banks for a period of one year from
the then-current
-31-
<PAGE>
Revolving Termination Date; provided, however, that in no event shall the
Revolving Termination Date extend beyond the seventh anniversary of the Closing
Date. The Agent shall promptly notify the Banks of any such request. Such
extension shall only be effective upon approval thereof in writing by each of
the Agent and all of the Banks and the execution and delivery of such amendments
to the Loan Documents as the Agent may require in connection with such
extension. The Agent and each Bank may accept or reject any request for an
extension in its sole and absolute discretion. The Agent and each Bank shall use
best efforts to accept or reject any such request within 30 days after receiving
notice thereof, provided that any failure by the Agent or a Bank to respond to
such a request shall be deemed to be a rejection thereof.
ARTICLE III
THE LETTERS OF CREDIT
3.01 The Letter of Credit Subfacility. (a) On the terms and conditions
set forth herein (i) the Issuing Bank agrees, (A) from time to time on any
Business Day during the period from the Closing Date to the Revolving
Termination Date to issue Letters of Credit for the account of the Company, and
to amend or renew Letters of Credit previously issued by it, in accordance with
subsections 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of
Credit; and (ii) the Banks severally agree to participate in Letters of Credit
Issued for the account of the Company; provided, that the Issuing Bank shall not
be obligated to Issue, and no Bank shall be obligated to participate in, any
Letter of Credit if as of the date of Issuance of such Letter of Credit (the
"Issuance Date") (1) the Effective Amount of all L/C Obligations plus the
Effective Amount of all Revolving Loans exceeds the combined Commitments, (2)
the participation of any Bank in the Effective Amount of all L/C Obligations
plus the Effective Amount of the Revolving Loans of such Bank exceeds such
Bank's Commitment, or (3) the Effective Amount of L/C Obligations exceeds the
L/C Commitment. Within the foregoing limits, and subject to the other terms and
conditions hereof, the Company's ability to obtain Letters of Credit shall be
fully revolving, and, accordingly, the Company may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit which have expired or
which have been drawn upon and reimbursed.
(b) The Issuing Bank is under no obligation to Issue any
Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or
restrain the Issuing Bank from Issuing such Letter of Credit, or any
Requirement of Law applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from any
Governmental Authority with
-32-
<PAGE>
jurisdiction over the Issuing Bank shall prohibit, or request that the
Issuing Bank refrain from, the Issuance of letters of credit generally
or such Letter of Credit in particular or shall impose upon the Issuing
Bank with respect to such Letter of Credit any restriction, reserve or
capital requirement (for which the Issuing Bank is not otherwise
compensated hereunder) not in effect on the Closing Date, or shall
impose upon the Issuing Bank any unreimbursed loss, cost or expense
which was not applicable on the Closing Date and which the Issuing Bank
in good faith deems material to it;
(ii) the Issuing Bank has received written notice
from any Bank, the Agent or the Company, on or prior to the Business
Day prior to the requested date of Issuance of such Letter of Credit,
that one or more of the applicable conditions contained in Article V is
not then satisfied;
(iii) the expiry date of any requested Letter of
Credit is (A) more than 364 days after the date of Issuance, unless the
Majority Banks have approved such expiry date in writing, or (B) after
the Revolving Termination Date;
(iv) the expiry date of any requested Letter of
Credit is prior to the maturity date of any financial obligation to be
supported by the requested Letter of Credit;
(v) any requested Letter of Credit does not provide
for drafts, or is not otherwise in form and substance acceptable to the
Issuing Bank, or the Issuance of a Letter of Credit shall violate any
applicable policies of the Issuing Bank;
(vi) any requested Letter of Credit is for the
purpose of supporting the issuance of any letter of credit by
any other Person; or
(vi) such Letter of Credit is in a face amount less
than $1,000,000 or to be denominated in a currency other than Dollars.
3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of the
Company received by the Issuing Bank (with a copy sent by the Company to the
Agent) at least four days (or such shorter time as the Issuing Bank may agree in
a particular instance in its sole discretion) prior to the proposed date of
issuance. Each such request for issuance of a Letter of Credit shall be by
facsimile, confirmed immediately in an original writing, in the form of an L/C
Application, and shall specify in form and detail satisfactory to the Issuing
Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be
a Business Day); (ii) the face amount of the Letter of Credit; (iii) the
-33-
<PAGE>
expiry date of the Letter of Credit; (iv) the name and address of the
beneficiary thereof; (v) the documents to be presented by the beneficiary of the
Letter of Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; and (vii) such other matters as the Issuing Bank may require.
(b) At least two Business Days prior to the Issuance of any
Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or
in writing) that the Agent has received a copy of the L/C Application or L/C
Amendment Application from the Company and, if not, the Issuing Bank will
provide the Agent with a copy thereof. Unless the Issuing Bank has received
notice on or before the Business Day immediately preceding the date the Issuing
Bank is to issue a requested Letter of Credit from the Agent (A) directing the
Issuing Bank not to issue such Letter of Credit because such issuance is not
then permitted under subsection 3.01(a) as a result of the limitations set forth
in clauses (1) through (3) thereof or subsection 3.01(b)(ii); or (B) that one or
more conditions specified in Article V are not then satisfied; then, subject to
the terms and conditions hereof, the Issuing Bank shall, on the requested date,
issue a Letter of Credit for the account of the Company in accordance with the
Issuing Bank's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding
and prior to the Revolving Termination Date, the Issuing Bank will, upon the
written request of the Company received by the Issuing Bank (with a copy sent by
the Company to the Agent) at least four days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of amendment, amend any Letter of Credit issued by it. Each
such request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of
amendment of the Letter of Credit (which shall be a Business Day); (iii) the
nature of the proposed amendment; and (iv) such other matters as the Issuing
Bank may require. The Issuing Bank shall be under no obligation to amend any
Letter of Credit if: (A) the Issuing Bank would have no obligation at such time
to issue such Letter of Credit in its amended form under the terms of this
Agreement; or (B) the beneficiary of any such letter of Credit does not accept
the proposed amendment to the Letter of Credit. The Agent will promptly notify
the Banks of the receipt by it of any L/C Application or L/C Amendment
Application.
(d) The Issuing Bank and the Banks agree that, while a Letter
of Credit is outstanding and prior to the Revolving Termination Date, at the
option of the Company and upon the written request of the Company received by
the Issuing Bank (with a copy
-34-
<PAGE>
sent by the Company to the Agent) at least four days (or such shorter time as
the Issuing Bank may agree in a particular instance in its sole discretion)
prior to the proposed date of notification of renewal, the Issuing Bank shall be
entitled to authorize the automatic renewal of any Letter of Credit issued by
it. Each such request for renewal of a Letter of Credit shall be made by
facsimile, confirmed immediately in an original writing, in the form of an L/C
Amendment Application, and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of
notification of renewal of the Letter of Credit (which shall be a Business Day);
(iii) the revised expiry date of the Letter of Credit; and (iv) such other
matters as the Issuing Bank may require. The Issuing Bank shall be under no
obligation so to renew any Letter of Credit if: (A) the Issuing Bank would have
no obligation at such time to issue or amend such Letter of Credit in its
renewed form under the terms of this Agreement; or (B) the beneficiary of any
such Letter of Credit does not accept the proposed renewal of the Letter of
Credit. If any outstanding Letter of Credit shall provide that it shall be
automatically renewed unless the beneficiary thereof receives notice from the
Issuing Bank that such Letter of Credit shall not be renewed, and if at the time
of renewal the Issuing Bank would be entitled to authorize the automatic renewal
of such Letter of Credit in accordance with this subsection 3.02(e) upon the
request of the Company but the Issuing Bank shall not have received any L/C
Amendment Application from the Company with respect to such renewal or other
written direction by the Company with respect thereto, the Issuing Bank shall
nonetheless be permitted to allow such Letter of Credit to renew, and the
Company and the Banks hereby authorize such renewal, and, accordingly, the
Issuing Bank shall be deemed to have received an L/C Amendment Application from
the Company requesting such renewal.
(e) The Issuing Bank may, at its election (or as required by
the Agent at the direction of the Majority Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict
with any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or amendment
to or renewal of a Letter of Credit.
-35-
<PAGE>
3.03 Risk Participations, Drawings and Reimbursements.
(a) Immediately upon the Issuance of each Letter of Credit,
each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees
to, purchase from the Issuing Bank a participation in such Letter of Credit and
each drawing thereunder in an amount equal to the product of (i) the Pro Rata
Share of such Bank, times (ii) the maximum amount available to be drawn under
such Letter of Credit and the amount of such drawing, respectively. For purposes
of subsection 2.01(b), each Issuance of a Letter of Credit shall be deemed to
utilize the Commitment of each Bank by an amount equal to the amount of such
participation.
(b) In the event of any request for a drawing under a Letter
of Credit by the beneficiary or transferee thereof, the Issuing Bank will
promptly notify the Company. The Company shall reimburse the Issuing Bank prior
to 10:00 a.m. (San Francisco time), on each date that any amount is paid by the
Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in an
amount equal to the amount so paid by the Issuing Bank. In the event the Company
fails to reimburse the Issuing Bank for the full amount of any drawing under any
Letter of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the
Issuing Bank will promptly notify the Agent and the Agent will promptly notify
each Bank thereof, and the Company shall be deemed to have requested that Base
Rate Loans be made by the Banks to be disbursed on the Honor Date under such
Letter of Credit, subject to the amount of the unutilized portion of the
Revolving Commitment and subject to the conditions set forth in Section 5.02.
Any notice given by the Issuing Bank or the Agent pursuant to this subsection
3.03(b) may be oral if immediately confirmed in writing (including by
facsimile); provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.
(c) Each Bank shall upon any notice pursuant to subsection
3.03(b) make available to the Agent for the account of the relevant Issuing Bank
an amount in Dollars and in immediately available funds equal to its Pro Rata
Share of the amount of the drawing, whereupon the participating Banks shall
(subject to subsection 3.03(d)) each be deemed to have made a Loan consisting of
a Base Rate Loan to the Company in that amount. If any Bank so notified fails to
make available to the Agent for the account of the Issuing Bank the amount of
such Bank's Pro Rata Share of the amount of the drawing by no later than 12:00
noon (San Francisco time) on the Honor Date, then interest shall accrue on such
Bank's obligation to make such payment, from the Honor Date to the date such
Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in
effect from time to time during such period. The Agent will promptly give notice
of the occurrence of the Honor Date, but failure of the Agent to give any such
notice on the Honor Date or in sufficient time to enable any Bank to effect such
-36-
<PAGE>
payment on such date shall not relieve such Bank from its obligations under this
Section 3.03.
(d) With respect to any unreimbursed drawing that is not
converted into Loans consisting of Base Rate Loans to the Company in whole or in
part, because of the Company's failure to satisfy the conditions set forth in
Section 5.02 or for any other reason, the Company shall be deemed to have
incurred from the Issuing Bank an L/C Borrowing in the amount of such drawing,
which L/C Borrowing shall be due and payable on demand (together with interest)
and shall bear interest at a rate per annum equal to the Base Rate plus 2% per
annum, and each Bank's payment to the Issuing Bank pursuant to subsection
3.03(c) shall be deemed payment in respect of its participation in such L/C
Borrowing and shall constitute an L/C Advance from such Bank in satisfaction of
its participation obligation under this Section 3.03.
(e) Each Bank's obligation in accordance with this Agreement
to make the Loans or L/C Advances, as contemplated by this Section 3.03, as a
result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Issuing Bank and shall not be affected
by any circumstance, including (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against the Issuing Bank, the
Company or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing; provided, however, that each Bank's obligation
to make Loans under this Section 3.03 is subject to the conditions set forth in
Section 5.02.
3.04 Repayment of Participations. (a) Upon (and only upon) receipt by
the Agent for the account of the Issuing Bank of immediately available funds
from the Company (i) in reimbursement of any payment made by the Issuing Bank
under the Letter of Credit with respect to which any Bank has paid the Agent for
the account of the Issuing Bank for such Bank's participation in the Letter of
Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the
Agent will pay to each Bank, in the same funds as those received by the Agent
for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of
such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share
of such funds of any Bank that did not so pay the Agent for the account of the
Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any time
to return to the Company, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made by
the Company to the Agent for the account of the Issuing Bank pursuant to
subsection 3.04(a) in reimbursement of a payment made under the Letter of
-37-
<PAGE>
Credit or interest or fee thereon, each Bank shall, on demand of the Agent,
forthwith return to the Agent or the Issuing Bank the amount of its Pro Rata
Share of any amounts so returned by the Agent or the Issuing Bank plus interest
thereon from the date such demand is made to the date such amounts are returned
by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the
Federal Funds Rate in effect from time to time.
3.05 Role of the Issuing Bank. (a) Each Bank and the Company agree
that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not
have any responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) No Agent Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be liable to
any Bank for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Banks (including the Majority Banks, as
applicable); (ii) any action taken or omitted in the absence of gross negligence
or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) The Company hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided, however, that this assumption is not intended to, and shall
not, preclude the Company's pursuing such rights and remedies as it may have
against the beneficiary or transferee at law or under any other agreement. No
Agent Related Person, nor any of the respective correspondents, participants or
assignees of the Issuing Bank, shall be liable or responsible for any of the
matters described in clauses (i) through (vii) of Section 3.06; provided,
however, anything in such clauses to the contrary notwithstanding, that the
Company may have a claim against the Issuing Bank, and the Issuing Bank may be
liable to the Company, to the extent, but only to the extent, of any direct, as
opposed to consequential or exemplary, damages suffered by the Company which the
Company proves were caused by the Issuing Bank's willful misconduct or gross
negligence or the Issuing Bank's willful failure to pay under any Letter of
Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of a Letter of
Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Bank shall not be responsible
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or
-38-
<PAGE>
in part, which may prove to be invalid or ineffective for any
reason.
3.06 Obligations Absolute. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Revolving Loans, shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this
Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of the Company in
respect of any Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Company may have at any time against any beneficiary or
any transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or
any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under any Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of any Letter of Credit; or any payment made by
the Issuing Bank under any Letter of Credit to any Person purporting to
be a trustee in bankruptcy, debtor-in-possession, assignee for the
benefit of creditors, liquidator, receiver or other representative of
or successor to any beneficiary or any transferee of any Letter of
Credit, including any arising in connection with any Insolvency
Proceeding;
(vi) any exchange, release or non perfection of any
collateral, or any release or amendment or waiver of or
consent to departure from any other guarantee, for all or any
-39-
<PAGE>
of the obligations of the Company in respect of any Letter of
Credit; or
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Company or a guarantor.
3.07 Cash Collateral Pledge. Upon (i) the request of the Agent, (A) if
the Issuing Bank has honored any full or partial drawing request on any Letter
of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B)
if, as of the Revolving Termination Date, any Letters of Credit may for any
reason remain outstanding and partially or wholly undrawn, or (ii) the
occurrence of the circumstances described in Section 2.07 requiring the Company
to Cash Collateralize Letters of Credit, then, the Company shall immediately
Cash Collateralize the L/C Obligations in an amount equal to such L/C
Obligations.
3.08 Letter of Credit Fees. (a) The Company shall pay to the Agent for
the account of each of the Banks a letter of credit fee computed on a quarterly
basis in advance on the first Business Day of each calendar quarter with respect
to the Letters of Credit equal to the product of (i) the applicable percentage
set forth below opposite the Company's Leverage Ratio and (ii) the average daily
maximum amount available to be drawn under the outstanding Letters of Credit for
such quarter, as calculated by the Agent. Such letter of credit fees shall be
due and payable quarterly in advance on the 30th day of each March, June,
September and December, commencing June 30, 1996, through the Revolving
Termination Date, with the final payment to be made on the Revolving Termination
Date.
Letter of
Leverage Ratio Credit Fee
Less than 1.0 0.275%
1.0 through 1.49 0.325%
1.5 through 1.99 0.425%
2.0 or greater 0.650%
The percentage used to determine the letter of credit fee shall be based on the
Leverage Ratio as set forth in the most recent Compliance Certificate, and shall
be effective from and including the date the Agent receives such Compliance
Certificate to but excluding the date on which the Agent receives the next
Compliance Certificate; provided, however, that if the Agent does not receive a
Compliance Certificate by the date required by Section 7.02(b), the percentage
shall, effective as of such date, be the highest percentage set forth above to
but excluding the date the Agent receives such Compliance Certificate. Subject
to the foregoing
-40-
<PAGE>
proviso, until the delivery of the first Compliance Certificate after the
Closing Date, the percentage shall be 0.325%.
(b) The Company shall pay to the Issuing Bank, for its sole
account, a letter of credit fronting fee for each Letter of Credit Issued by the
Issuing Bank equal to .125% of the face amount (or increased face amount, as the
case may be) of such Letter of Credit. Such Letter of Credit fronting fee shall
be due and payable on each date of Issuance of a Letter of Credit.
(c) The Company shall pay to the Issuing Bank, for its sole
account, from time to time on demand the normal issuance, presentation,
amendment and other processing fees, and other standard costs and charges, of
the Issuing Bank relating to letters of credit as from time to time in effect.
3.09 Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.01 Taxes. (a) Any and all payments by the Company to each Bank or the
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for, any Taxes. In addition, the
Company shall pay all Other Taxes.
(b) If the Company shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary
so that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section), such Bank or the Agent, as the case may
be, receives and retains an amount equal to the sum it would have
received and retained had no such deductions or withholdings been made;
(ii) the Company shall make such deductions and
withholdings;
(iii) the Company shall pay the full amount deducted
or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
-41-
<PAGE>
(iv) the Company shall also pay to each Bank or the
Agent for the account of such Bank, at the time interest is paid,
Further Taxes in the amount that the respective Bank specifies as
necessary to preserve the after-tax yield the Bank would have received
if such Taxes, Other Taxes or Further Taxes had not been imposed.
(c) The Company agrees to indemnify and hold harmless each
Bank and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii)
Further Taxes in the amount that the respective Bank specifies as necessary to
preserve the after-tax yield the Bank would have received if such Taxes, Other
Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 30 days after the date the Bank or the Agent makes written demand
therefor.
(d) Within 30 days after the date of any payment by the
Company of Taxes, Other Taxes or Further Taxes, the Company shall furnish to
each Bank or the Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to such Bank or the
Agent.
(e) If the Company is required to pay any amount to any Bank
or the Agent pursuant to subsection (b) or (c) of this Section, then such Bank
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue, if such change in
the sole judgment of such Bank is not otherwise disadvantageous to such Bank.
4.02 Illegality. (a) If any Bank determines that the introduction of
any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make LIBOR
Rate Loans, then, on notice thereof by the Bank to the Company through the
Agent, any obligation of that Bank to make LIBOR Rate Loans shall be suspended
until the Bank notifies the Agent and the Company that the circumstances giving
rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any
LIBOR Rate Loan, the Company shall, upon its receipt of notice of such fact and
demand from such Bank (with a copy to the Agent), prepay in full such LIBOR Rate
Loans of that Bank then outstanding, together with interest accrued thereon and
amounts required under Section 4.04, either on the last day of the Interest
Period
-42-
<PAGE>
thereof, if the Bank may lawfully continue to maintain such LIBOR Rate Loans to
such day, or immediately, if the Bank may not lawfully continue to maintain such
LIBOR Rate Loan. If the Company is required to so prepay any LIBOR Rate Loan,
then concurrently with such prepayment, the Company shall borrow from the
affected Bank, in the amount of such repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain LIBOR
Rate Loans has been so terminated or suspended, the Company may elect, by giving
notice to the Bank through the Agent that all Loans which would otherwise be
made by the Bank as LIBOR Rate Loans shall be instead Base Rate Loans.
4.03 Increased Costs and Reduction of Return. (a) If any Bank
determines that, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance by that Bank
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to such Bank of agreeing to make or making, funding or maintaining
any LIBOR Rate Loans or participating in Letters of Credit, or, in the case of
the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit,
then the Company shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Agent), pay to the Agent for the
account of such Bank, additional amounts as are sufficient to compensate such
Bank for such increased costs.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration such Bank's or
such corporation's policies with respect to capital adequacy and such Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to the Company through the
Agent, the Company shall pay to the Bank, from time to time as specified by the
Bank, additional amounts sufficient to compensate the Bank for such increase.
4.04 Funding Losses. The Company shall reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of:
-43-
<PAGE>
(a) the failure of the Company to make on a timely basis
any payment of principal of any LIBOR Rate Loan;
(b) the failure of the Company to borrow, continue or convert
a Loan after the Company has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of the Company to make any prepayment in
accordance with any notice delivered under Section 2.06;
(d) the prepayment (including pursuant to Section 2.07) or
other payment (including after acceleration thereof) of a LIBOR Rate Loan on a
day that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.04 of any LIBOR
Rate Loan into a Base Rate Loan on a day that is not the last day of the
relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Company to the Banks under this Section and
under subsection 4.03(a), each LIBOR Rate Loan made by a Bank (and each related
reserve, special deposit or similar requirement) shall be conclusively deemed to
have been funded at the LIBOR used in determining the LIBOR Rate for such LIBOR
Rate Loan by a matching deposit or other borrowing in the interbank eurodollar
market for a comparable amount and for a comparable period, whether or not such
LIBOR Rate Loan is in fact so funded.
4.05 Inability to Determine Rates. If the Agent determines that for any
reason adequate and reasonable means do not exist for determining the LIBOR Rate
for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or
that the LIBOR Rate applicable pursuant to subsection 2.09(a) for any requested
Interest Period with respect to a proposed LIBOR Rate Loan does not adequately
and fairly reflect the cost to the Banks of funding such Loan, the Agent will
promptly so notify the Company and each Bank. Thereafter, the obligation of the
Banks to make or maintain LIBOR Rate Loans hereunder shall be suspended until
the Agent revokes such notice in writing. Upon receipt of such notice, the
Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation
then submitted by it. If the Company does not revoke such Notice, the Banks
shall make, convert or continue the Loans, as proposed by the Company, in the
amount specified in the applicable notice submitted by the Company, but such
Loans shall be made, converted or continued as Base Rate Loans instead of LIBOR
Rate Loans.
-44-
<PAGE>
4.06 Certificates of Banks. Any Bank claiming reimbursement or
compensation under this Article IV shall deliver to the Company (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Bank hereunder and such certificate shall be conclusive and binding on
the Company in the absence of manifest error.
4.07 Survival. The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.01 Conditions of Initial Credit Extensions. The obligation of each
Bank to make its initial Credit Extension hereunder is subject to the condition
that the Agent shall have received on or before the Closing Date all of the
following, in form and substance satisfactory to the Agent and each Bank, and in
sufficient copies for each Bank:
(a) Credit Agreement and Notes. This Agreement and the
Notes executed by each party thereto;
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of
directors of the Company and each Pledgor Subsidiary authorizing the
transactions contemplated hereby, certified as of the Closing Date by
the Secretary or an Assistant Secretary of the Company and each such
Pledgor Subsidiary; and
(ii) A certificate of the Secretary or Assistant
Secretary of the Company and each Pledgor Subsidiary certifying the
names and true signatures of the officers of the Company or such
Pledgor Subsidiary (as the case may be) authorized to execute, deliver
and perform, as applicable, this Agreement, and all other Loan
Documents to be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation and
the bylaws of the Company as in effect on the Closing Date, certified
by the Secretary or Assistant Secretary of the Company as of the
Closing Date; and
(ii) a good standing and tax good standing
certificate for the Company and each of its Subsidiaries from the
Secretary of State (or similar, applicable Governmental
-45-
<PAGE>
Authority) of its state of incorporation and each state where the
Company or such Subsidiary (as the case may be) is qualified to do
business as a foreign corporation as of a recent date, together with a
bring-down certificate by facsimile, dated the Closing Date;
(d) Legal Opinions. Opinions of (i) Morgan, Lewis & Bockius,
special California counsel to the Company; (ii) internal Nevada counsel to the
Company; and (iii) local counsel to the Company and its Subsidiaries in such
other jurisdictions where Subsidiaries whose stock is subject to the Pledge
Agreements are organized, each addressed to the Agent and the Banks and
collectively addressing the matters set forth in Exhibit D with respect to the
Company and its Subsidiaries.
(e) Payment of Fees. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, plus such additional amounts of Attorney Costs
as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to
be incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Company and
BofA); including any such costs, fees and expenses arising under or referenced
in Sections 2.10 and 11.04;
(f) Certificate. A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained in
Article IV are true and correct on and as of such date, as though made
on and as of such date;
(ii) no Default or Event of Default exists or would
result from the Credit Extension; and
(iii) there has occurred since December 31, 1994, no
event or circumstance that has resulted or could reasonably be expected
to result in a Material Adverse Effect; and
(g) Collateral Documents. The Pledge Agreements, executed by
the Company and each Pledgor Subsidiary, covering the capital stock of all
Subsidiaries other than those Excluded Subsidiaries listed on Schedule 5.01(g),
in appropriate form for recording, where necessary, together with:
(i) acknowledgment copies of all UCC-1 financing
statements filed, registered or recorded to perfect the security
interests of the Agent for the benefit of the Banks, or other evidence
satisfactory to the Agent that there has been filed, registered or
recorded all financing statements
-46-
<PAGE>
and other filings, registrations and recordings necessary and advisable
to perfect the Liens of the Agent for the benefit of the Banks in
accordance with applicable law;
(ii) written advice relating to such Lien and
judgment searches as the Agent shall have requested, and such
termination statements or other documents as may be necessary to
confirm that the Collateral is subject to no other Liens in favor of
any Persons (other than Permitted Liens);
(iii) all certificates and instruments representing
the Pledged Collateral, stock transfer powers executed in blank with
signatures guaranteed as the Agent or the Banks may specify;
(iv) evidence that all other actions necessary or, in
the opinion of the Agent or the Banks, desirable to perfect and protect
the first priority security interest created by the Pledge Agreements
have been taken;
(v) funds sufficient to pay any filing or recording
tax or fee in connection with any and all UCC-1 financing
statements; and
(vi) evidence that all other actions necessary or, in
the opinion of the Agent or the Banks, desirable to perfect and protect
the first priority Lien created by the Collateral Documents, and to
enhance the Agent's ability to preserve and protect its interests in
and access to the Collateral, have been taken;
(h) Regulatory Compliance. A certificate of a Responsible
Officer on behalf of each of the HMO Subsidiaries to the effect that such HMO
Subsidiary is in compliance in all material respects with the requirements of
all applicable HMO Regulations, including such Regulatory Tangible Net Equity
Requirements as are applicable to such HMO Subsidiary, and with all other
Requirements of Law; and
(i) Other Documents. Such other approvals, opinions,
documents or materials as the Agent or any Bank may request.
5.02 Conditions to All Credit Extensions. The obligation of each Bank
to make any Loan to be made by it (including its initial Loan) and the
obligation of the Issuing Bank to Issue any Letter of Credit (including the
initial Letter of Credit) is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Issuance Date:
(a) Notice, Application. The Agent shall have received
(with, in the case of the initial Loan only, a copy for each Bank)
a Notice of Borrowing or, in the case of any Issuance of any Letter
-47-
<PAGE>
of Credit, the Issuing Bank and the Agent shall have received an L/C Application
or L/C Amendment Application, as required under Section 3.02;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article IV hereof and in the Pledge Agreements
shall be true and correct on and as of such Borrowing Date or Issuance Date (in
all material respects if such date is a date subsequent to the Closing Date)
with the same effect as if made on and as of such Borrowing Date or Issuance
Date (except to the extent such representations and warranties expressly refer
to an earlier date, in which case they shall be true and correct as of such
earlier date); and
(c) No Existing Default. No Default or Event of Default
shall exist or shall result from such Borrowing or Issuance.
Each Notice of Borrowing and L/C Application or L/C Amendment Application
submitted by the Company hereunder shall constitute a representation and
warranty by the Company hereunder, as of the date of each such notice and as of
each Borrowing Date or Issuance Date, as applicable, that the conditions in this
Section 5.02 are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent and each Bank that:
6.01 Corporate Existence and Power. The Company and each of
its Subsidiaries:
(a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation;
(b) has the corporate power and authority and all governmental
licenses, authorizations, consents and approvals to own or hold under lease its
property and other assets, carry on its business as currently conducted by it
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification or license, except where the failure to be so licensed or
qualified would not have, individually or in the aggregate, a Material Adverse
Effect; and
-48-
<PAGE>
(d) is in compliance with all Requirements of Law, except for
such instances of non compliance as would not have, individually or in the
aggregate, a Material Adverse Effect.
6.02 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company of this Agreement, the Pledge Agreements and each
other Loan Document to which the Company or any Pledgor Subsidiary is party,
have been duly authorized by all necessary corporate action, and do not and will
not:
(a) contravene the terms of any of the Company's or the
Pledgor Subsidiaries' Organization Documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which the Company is a party or any order, injunction, writ or
decree of any Governmental Authority to which the Company or any Pledgor
Subsidiary or any of their respective property is subject, except for such
instances as would not have, individually or in the aggregate, a Material
Adverse Effect; or
(c) violate any Requirement of Law.
6.03 Authorization, Approval, etc. Except as set forth on Schedule
6.03, no approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person
(except for recordings or filings in connection with the Liens granted to the
Agent under the Collateral Documents) is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, the
Company or any of its Subsidiaries of the Agreement, the Pledge Agreements or
any other Loan Document including:
(a) the pledge by the Company and the Pledgor
Subsidiaries of any Collateral pursuant to the Pledge Agreements or
the execution, delivery, and performance of the Pledge Agreements
by the Company and the Pledgor Subsidiaries; and
(b) the exercise by the Agent of the voting or other rights
provided for in the Pledge Agreements, or, except with respect to any Pledged
Shares, as may be required in connection with a disposition of such Pledged
Shares by laws affecting the offering and sale of securities generally, the
remedies in respect of the Collateral pursuant to the Pledge Agreements.
6.04 Binding Effect. This Agreement, the Pledge Agreements and each
other Loan Document to which the Company or any Pledgor Subsidiary is a party
constitute the legal, valid and binding obligations of the Company or such
Pledgor Subsidiary (as the case may be), enforceable against the Company or such
Pledgor Subsidiary
-49-
<PAGE>
(as the case may be) in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.05 Litigation. Except as set forth on Schedule 6.05, there are no
actions, suits, proceedings, claims or disputes pending which have been served,
or to the best knowledge of the Company, otherwise pending, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties which:
(a) purport to affect or pertain to this Agreement or
any other Loan Document, or any of the transactions contemplated
hereby or thereby; or
(b) if determined adversely to the Company or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect. No
injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
6.06 No Default. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Company or any of its Subsidiaries
or from the grant or perfection of the Liens of the Agent and the Banks on the
Collateral. As of the Closing Date, neither the Company nor any Subsidiary is in
default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could reasonably be
expected to have a Material Adverse Effect, or that would, if such default had
occurred after the Closing Date, create an Event of Default under subsection
9.01(e).
6.07 Compliance with Laws and ERISA.
(a) Except as set forth on Schedule 6.03, the Company and its
Subsidiaries are in compliance with the requirements of all applicable laws,
rules, regulations and orders of every governmental authority, the non
compliance with which might materially adversely affect the business,
properties, assets, operations, condition (financial or otherwise) or prospects
of the Company or the value of the Collateral or the worth of the Collateral as
collateral security.
(b) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal
or state law. Each Plan which is intended to qualify under Section
-50-
<PAGE>
401(a) of the Code has received a favorable determination letter from the IRS
and to the best knowledge of the Company, nothing has occurred which would cause
the loss of such qualification. The Company and each ERISA Affiliate has made
all required contributions to any Plan subject to Section 412 of the Code, and
no application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(c) There are no pending (and served) or, to the best
knowledge of Company, otherwise pending or threatened claims, actions or
lawsuits, or action by any Governmental Authority, with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a Material Adverse Effect.
(d) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Company nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Company nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v)
neither the Company nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 7.12
and Section 8.07. Neither the Company nor any Subsidiary is generally engaged in
the business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
6.09 Title to Property and Collateral; No Liens. The Company and each
Subsidiary have good record and marketable title in fee simple to, or valid
leasehold interests in, all real property necessary or used in the ordinary
conduct of their respective businesses, except for such defects in title as
could not, individually or in the aggregate, have a Material Adverse Effect. The
Company and the Pledgor Subsidiaries are the legal and beneficial owners of, and
have good and marketable title to (and have full right and authority to pledge,
hypothecate, mortgage and deliver) all the Collateral that is subject to their
respective Pledge Agreements. As of the Closing Date, all the Collateral and
other property of the Company and its Subsidiaries are subject to no Liens,
other than Permitted Liens. Even after the Closing Date,
-51-
<PAGE>
the Collateral shall continue not to be subject to any Liens, other
than Permitted Liens.
6.10 As to Pledged Shares. Except as disclosed in Schedule 6.10, all
Pledged Shares are duly authorized and validly issued, fully paid, and non
assessable, and constitute all of the issued and outstanding shares of capital
stock of the Subsidiaries whose shares have been pledged by the Company and the
Pledgor Subsidiaries under the Pledge Agreements. Other than the Pledged Shares,
no Subsidiary whose shares have been pledged under the Pledge Agreements has
outstanding any capital stock or other securities convertible into or
exchangeable for any of its capital stock, nor will it have outstanding any
rights to subscribe for or to purchase, or any warrants or options for the
purchase of, or any agreements (contingent or otherwise) providing for the
issuance of, or any calls, commitments or claims of any character relating to,
any of its capital stock or any securities convertible into or exchangeable for
any of its capital stock.
6.11 Taxes. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
6.12 Financial Condition. (a) The audited consolidated financial
statements of the Company and its Subsidiaries dated December 31, 1995, and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for the fiscal year ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein;
(ii) fairly present the financial condition of the
Company and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule
6.11, show all material indebtedness and other liabilities, direct or
contingent, of the Company and its consolidated Subsidiaries as of the
date thereof, including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since December 31, 1995, there has been no Material
Adverse Effect.
-52-
<PAGE>
6.13 Environmental Matters. The Company conducts in the ordinary course
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Company has reasonably concluded that, except as specifically
disclosed in Schedule 6.13, such Environmental Laws and Environmental Claims
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.14 Collateral Documents. (a) The provisions of the Pledge Agreements
and the delivery of the Collateral pursuant thereto are effective to create in
favor of the Agent for the benefit of the Banks, a legal, valid and enforceable
first priority security interest in all right, title and interest of the Company
and its Subsidiaries in the Collateral described therein and all proceeds
thereof. Except as contemplated by this Agreement, no filing or other action
will be necessary to perfect or protect such security interest.
(b) All representations and warranties of the Company
and the Pledgor Subsidiaries contained in the Collateral Documents
are true and correct.
6.15 Regulated Entities. None of the Company, any Person controlling
the Company, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
6.16 No Burdensome Restrictions. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
6.17 Copyrights, Patents, Trademarks and Licenses, etc. The Company or
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Company, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Company or any
Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge
-53-
<PAGE>
of the Company, proposed, which, in either case, could reasonably be expected to
have a Material Adverse Effect.
6.18 Subsidiaries. As of the Closing Date, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
6.18 hereto and has no equity investments in any other corporation or entity
constituting 20% or more of the outstanding equity interests in such corporation
or entity other than those specifically disclosed in part (b) of Schedule 6.18.
Set forth in part (c) of Schedule 6.18 is a list of all Excluded Subsidiaries as
of the Closing Date.
6.19 Insurance. Except as specifically disclosed in Schedule 6.19, the
properties of the Company and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Company, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Company or such Subsidiary operates.
6.20 Swap Obligations. Neither the Company nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts. The Company
has undertaken its own independent assessment of its consolidated assets,
liabilities and commitments and has considered appropriate means of mitigating
and managing risks associated with such matters and has not relied on any swap
counterparty or any Affiliate of any swap counterparty in determining whether to
enter into any Swap Contract.
6.21 Full Disclosure. None of the representations or warranties made by
the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Company to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
6.22 Business Activity. Neither the Company nor any of its
Subsidiaries is engaged in any line or lines of business activity
other than the Health Care Business.
6.23 Licensing, Etc. Each HMO Subsidiary maintains (i) all
licenses and certifications required pursuant to any HMO
Regulation; (ii) all certifications and authorizations necessary to
ensure that each of the HMO Subsidiaries is eligible for all
-54-
<PAGE>
reimbursements available under the HMO Regulations to the extent applicable to
HMOs of their type; and (iii) all licenses, permits, authorizations and
qualifications required under the HMO Regulations in connection with the
ownership or operation of HMOs; except where the failure to maintain the items
described in any of the preceding three clauses would not have a Material
Adverse Effect.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
7.01 Financial Statements. The Company shall deliver to the
Agent, in form and detail satisfactory to the Agent and the
Majority Banks, with sufficient copies for each Bank:
(a) as soon as available, but not later than 120 days after
the end of each fiscal year (commencing with the fiscal year ended December 31,
1995 as provided in Section 6.12), a copy of the audited consolidated balance
sheets of the Company and its Subsidiaries as at the end of such year and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, and accompanied by the opinion of Deloitte
& Touche or another nationally-recognized independent public accounting firm
("Independent Auditor") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted or
limited examination by the Independent Auditor of any material portion of the
Company's or any Subsidiary's records;
(b) as soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year (commencing
with the fiscal quarter ended March 31, 1996), a copy of the unaudited
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such quarter and the related consolidated statements of income and cash flows
for the period commencing on the first day and ending on the last day of such
quarter, and certified by a Responsible Officer as fairly presenting, in
accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of the
Company and the Subsidiaries;
-55-
<PAGE>
(c) as soon as available, but not later than 120 days after
the end of each fiscal year (commencing with the fiscal year ended December 31,
1995), a copy of an unaudited consolidating balance sheets of the Company and
its Subsidiaries as at the end of such year and the related consolidating
statements of income for such year, certified by a Responsible Officer as having
been developed and used in connection with the preparation of the financial
statements referred to in subsection 7.01(a); and
(d) as soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year (commencing
with the fiscal quarter ended March 31, 1996), a copy of the unaudited
consolidating balance sheets of the Company and its Subsidiaries, and the
related consolidating statements of income for such quarter, all certified by a
Responsible Officer as having been developed and used in connection with the
preparation of the financial statements referred to in subsection 7.01(b).
7.02 Certificates; Other Information. The Company shall
furnish to the Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.01(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.01(a) and (b), a Compliance
Certificate executed by a Responsible Officer;
(c) promptly, copies of all financial statements and reports
that the Company sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K, 10Q
and 8K) that the Company or any Subsidiary may make to, or file with, the SEC;
(d) promptly following the receipt of the same, a copy of each
notice relating to the loss by the Company or any HMO Subsidiary of any material
operating permit, license or certification by any HMO Regulator;
(e) promptly following the receipt of the same, all
correspondence received by the Company or any Subsidiary (other than
correspondence in draft form) from an HMO Regulator which asserts that the
Company or any HMO Subsidiary is not in substantial compliance with any HMO
Regulation or which threatens the taking of any action against the Company or
any Subsidiary under any HMO Regulation;
-56-
<PAGE>
(f) from time to time upon receipt of a written request by the
Agent or any Bank specifying in reasonable detail the types of documents to be
provided, copies of any and all statements, audits, studies or reports submitted
by or on behalf of the Company or any HMO Subsidiary to any HMO Regulator; and
(g) promptly, such additional information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as the
Agent, at the request of any Bank, may from time to time reasonably request in
writing.
7.03 Notices. The Company shall promptly notify the Agent
and each Bank:
(a) of the occurrence of any Default or Event of Default, and
of the occurrence or existence of any event or circumstance that could, with
reasonable foreseeability, become a Default or Event of Default;
(b) of any matter that has resulted or may reasonably be
expected to result in a Material Adverse Effect, including (i) breach or non
performance of, or any default under, a Contractual Obligation of the Company or
any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or
suspension between the Company or any Subsidiary and any Governmental Authority;
or (iii) the commencement of, or any material development in, any litigation or
proceeding affecting the Company or any Subsidiary; including pursuant to any
applicable Environmental Laws;
(c) of the occurrence of any of the following events affecting
the Company or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Agent and each Bank a copy of any notice with respect
to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to the Company or any ERISA Affiliate with
respect to such event:
(i) an ERISA Event,
(ii) a material increase in the Unfunded Pension
Liability of any Pension Plan,
(iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code
by the Company or any ERISA Affiliate, or
(iv) the adoption of any amendment to a Plan subject
to Section 412 of the Code, if such amendment results in a material
increase in contributions or Unfunded Pension Liability; and
-57-
<PAGE>
(d) of any material change in accounting policies or
financial reporting practices by the Company or any of its
consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written statement by a
Responsible Officer setting forth details of the occurrence referred to therein,
and stating what action the Company or any affected Subsidiary proposes to take
with respect thereto and at what time. Each notice under subsection 7.03(a)
shall describe with particularity any and all clauses or provisions of this
Agreement or other Loan Document that have been (or could with reasonable
foreseeability be) breached or violated.
7.04 Preservation of Corporate Existence, Etc. The Company
shall, and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state
or jurisdiction of incorporation;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business,
including all licenses and certifications required pursuant to any HMO
Regulation, all certifications and authorizations necessary to ensure that each
of the HMO Subsidiaries is eligible for all reimbursements available under the
HMO Regulation to the extent applicable to HMOs of their type, and all licenses,
permits, authorization and qualifications required under the HMO Regulations in
connection with the ownership or operation of HMOs;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non preservation of which could
reasonably be expected to have a Material Adverse Effect.
7.05 Maintenance of Property. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
7.06 Insurance. In addition to insurance requirements set forth in the
Collateral Documents, the Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its
-58-
<PAGE>
properties and business against loss or damage of the kinds customarily insured
against by Persons engaged in the same or similar business, of such types and in
such amounts as are customarily carried under similar circumstances by such
other Persons, of such types and in such amounts as are customarily carried
under similar circumstances by such other Persons; including workers'
compensation insurance, public liability and property and casualty insurance
which amount shall not be reduced by the Company in the absence of 30 days'
prior notice to the Agent. Upon request of the Agent or any Bank, the Company
shall furnish the Agent, with sufficient copies for each Bank, at reasonable
intervals (but not more than once per calendar year) a certificate of a
Responsible Officer of the Company (and, if requested by the Agent, any
insurance broker of the Company) setting forth the nature and extent of all
insurance maintained by the Company and its Subsidiaries in accordance with this
Section or any Collateral Documents (and which, in the case of a certificate of
a broker, were placed through such broker).
7.07 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property; and
(c) all Indebtedness, as and when due and payable, but
subject to any subordination provisions contained in any instrument
or agreement evidencing such Indebtedness.
7.08 Compliance with Laws. The Company shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including all HMO Regulations and the Federal Fair Labor Standards Act), except
such as may be contested in good faith or as to which a bona fide dispute may
exist.
7.09 Compliance with ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
-59-
<PAGE>
7.10 Inspection of Property and Books and Records. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Agent or any Bank to visit and inspect any of
their respective properties, to examine their respective corporate, financial
and operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
the Company and at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; provided, however, when an Event of Default exists the Agent or any
Bank may do any of the foregoing at the expense of the Company at any time
during normal business hours and without advance notice.
7.11 Environmental Laws. The Company shall, and shall cause
each Subsidiary to, conduct its operations and keep and maintain
its property in material compliance.
7.12 Use of Proceeds. The Company shall use the proceeds of the Loans
for general corporate purposes (other than for Acquisitions that are not
Permitted Acquisitions) not in contravention of any Requirement of Law or of any
Loan Document.
7.13 Further Assurances. (a) The Company shall ensure that all written
information, exhibits and reports furnished to the Agent or the Banks do not and
will not contain any untrue statement of a material fact and do not and will not
omit to state any material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in which made,
and will promptly disclose to the Agent and the Banks and correct any defect or
error that may be discovered therein or in any Loan Document or in the
execution, acknowledgement or recordation thereof.
(b) Promptly upon request by the Agent or the Majority Banks,
the Company shall (and shall cause any of its Subsidiaries, including Pledgor
Subsidiaries, to) do, execute, acknowledge, deliver, record, re record, file, re
file, register and re register, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments the
Agent or such Banks, as the case may be, may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
or any other Loan Document, (ii) to subject to the Liens created by
-60-
<PAGE>
any of the Collateral Documents any of the Collateral, properties, rights or
interests covered by any of the Collateral Documents, (iii) to perfect, protect
and maintain the validity, effectiveness and priority of any of the Collateral
Documents and the Liens intended to be created thereby, and (iv) to better
assure, convey, grant, assign, transfer, preserve, protect and confirm to the
Agent and Banks the rights granted or now or hereafter intended to be granted to
the Banks under any Loan Document or under any other document executed in
connection therewith.
7.14 Dividends of Subsidiaries During Default. Promptly upon (but in no
case more than five Business Days after) the occurrence of a Default, the
Company shall cause each HMO Subsidiary of the Company to declare and pay
dividends (in cash, property, or obligations) on, or to make payments or
distributions on account of, the shares of all classes of stock of such entity
in an amount equal to the maximum amount permitted by applicable law at such
time to such Subsidiary for the payment of dividends; provided, however, that no
such Subsidiary shall be required to pay dividends under this Section 7.14 to
the extent that doing so would cause the Regulatory Tangible Net Equity of such
Subsidiary to be less than 105 percent of any Regulatory Tangible Net Equity
Requirement applicable to such Subsidiary.
7.15 Acquisitions. Prior to consummating any Permitted Acquisition for
aggregate consideration (whether consisting of cash, securities, other property,
assumption of Indebtedness or other obligations, or any combination thereof)
having a value in excess of $25,000,000, the Company shall have delivered to the
Agent (in form and detail satisfactory to each Bank and in sufficient copies for
each Bank) the following:
(i) At least 15 days' prior written notice from a Responsible
Officer of the Company, stating the Company's intention to consummate a
Permitted Acquisition, together with a brief summary of the substantive
terms thereof;
(ii) At least 10 days prior to the consummation of such
Permitted Acquisition, a certified copy of the executed purchase
contract or merger agreement relating to such Permitted Acquisition;
and
(iii) An officer's certificate, executed by a Responsible
Officer of the Company, dated the date of consummation of such
Permitted Acquisition, certifying that immediately before and after
giving effect to such Permitted Acquisition (A) no Default has occurred
and is continuing or will exist after giving effect to the Permitted
Acquisition and (B) that the Company will be in compliance on a pro
forma basis with each of the financial ratios specified in Section 8.14
as of the end of the fiscal quarter immediately preceding such
Acquisition for the twelve-month period preceding such fiscal
-61-
<PAGE>
quarter end, together with a reasonably detailed worksheet setting
forth the calculations of such ratios, which calculations shall be
acceptable to the Banks.
Notwithstanding the foregoing or anything in the definition of "Permitted
Acquisition" to the contrary, no individual acquisition for aggregate
consideration (whether consisting of cash, securities, other property,
assumption of Indebtedness or other obligations, or any combination thereof)
having a value in excess of $100,000,000 shall be deemed a "Permitted
Acquisition" unless the Company shall have obtained the prior written consent of
the Agent, at the direction of the Majority Banks.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
8.01 Limitation on Liens. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
(a) any Lien existing on property of the Company or any
Subsidiary on the Closing Date and set forth in Schedule 8.01 securing
Indebtedness outstanding on such date and any refinancing or refunding thereof;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non payment thereof is permitted by Section 7.07, provided that no
notice of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
-62-
<PAGE>
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
(g) purchase money security interests on any property acquired
or held by the Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property; provided that (i) any such Lien
attaches to such property concurrently with or within 20 days after the
acquisition thereof, (ii) such Lien attaches solely to the property so acquired
in such transaction, (iii) the principal amount of the Indebtedness secured
thereby does not exceed 100% of the cost of such property, and (iv) the
principal amount of the Indebtedness secured by any and all such purchase money
security interests shall not at any time exceed $25,000,000;
(h) mortgage liens on any real property acquired or
constructed by the Company or its Subsidiaries subsequent to the Closing Date in
the ordinary course of business, securing Indebtedness incurred or assumed for
the purpose of financing all or any part of the cost of acquiring or
constructing such property; provided that (i) any such Lien attaches to such
property concurrently with or within 20 days after the acquisition thereof, (ii)
such Lien attaches solely to the property so acquired or constructed in such
transaction, (iii) the principal amount of the Indebtedness secured thereby does
not exceed 100% of the fair market value of such property, (iv) such
Indebtedness is without recourse to the Company or any of its Subsidiaries and
(v) the aggregate amount of all such Indebtedness does not exceed $50,000,000;
and
(i) Liens securing obligations in respect of Capital Leases,
limited to the assets subject to such leases, provided that such Capital Leases
are otherwise permitted hereunder.
8.02 Disposition of Assets. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
(a) dispositions of inventory, or used, worn-out or
surplus equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are
-63-
<PAGE>
reasonably promptly applied to the purchase price of such
replacement equipment;
(c) dispositions of tangible assets acquired subsequent
to the Closing Date, to the extent advisable in the best business
judgment of the Company; and
(d) dispositions not otherwise permitted hereunder of tangible
listed on the balance sheet of the Company at December 31, 1995, which are made
for fair market value; provided, that (i) at the time of any disposition, no
Event of Default shall exist or shall result from such disposition, (ii) the
aggregate sales price from such disposition shall be paid in cash, and (iii) the
aggregate value of all assets so sold by the Company and its Subsidiaries prior
to the Revolving Loan Termination Date, together, shall not exceed 10% of the
Consolidated Tangible Assets listed on the December 31, 1995 balance sheet.
8.03 Consolidations and Mergers. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions all or substantially all of its assets (whether now owned
or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge with the Company, provided that
the Company shall be the continuing or surviving corporation, or with any one or
more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be
the continuing or surviving corporation;
(b) any Subsidiary may sell all or substantially all of
its assets (upon voluntary liquidation or otherwise), to the
Company or another Wholly Owned Subsidiary; and
(c) Permitted Acquisitions.
8.04 Loans and Investments. The Company shall not purchase or acquire,
or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of the Company (together, "Investments"), except for:
(a) Investments held by the Company or Subsidiary in the
form of cash equivalents or short term marketable securities;
-64-
<PAGE>
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of
goods or services in the ordinary course of business;
(c) extensions of credit by the Company to any of its
Wholly Owned Subsidiaries or by any of its Wholly Owned
Subsidiaries to another of its Wholly Owned Subsidiaries;
(d) Investments in Subsidiaries other than HMO Texas;
and
(e) other Investments consisting of equity holdings in HMO
Texas, 2314 Partnership and Persons other than Subsidiaries in an aggregate
amount not exceeding 15% of the Company's Net Worth at any one time outstanding.
8.05 Limitation on Indebtedness. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 8.08;
(c) Indebtedness existing on the Closing Date and set
forth in Schedule 8.05;
(d) Indebtedness secured by Liens permitted by
subsections 8.01(g) and (h);
(e) Indebtedness incurred for the purpose of refinancing all
(but not less than all) of the Indebtedness incurred pursuant to subsections (b)
or (c) above; provided, that the aggregate outstanding principal amount of such
Indebtedness shall not at any time exceed the aggregate outstanding principal
amount thereof at the Closing Date, minus the aggregate amount of all payments
and prepayments of principal which as of such time shall have been made after
the date of this Agreement in respect of Indebtedness incurred pursuant to
subsections (b) and (c) or pursuant to this subsection (e); and
(f) additional unsecured Indebtedness not otherwise permitted
under this Section 8.05, in an aggregate principal amount not to exceed
$25,000,000 at any one time outstanding.
8.06 Transactions with Affiliates. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a comparable
arm's-length
-65-
<PAGE>
transaction with a Person not an Affiliate of the Company or such
Subsidiary.
8.07 Use of Proceeds. (a) The Company shall not, and shall not suffer
or permit any Subsidiary to, use any portion of the Loan proceeds or any Letter
of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii)
to repay or otherwise refinance indebtedness of the Company or others incurred
to purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act, or (v) for
any purpose which violated Regulations G, T, U or X of the FRB.
(b) The Company shall not, directly or indirectly, use any
portion of the Loan proceeds or any Letter of Credit (i) knowingly to purchase
Ineligible Securities from the Agent or any of its Affiliates during any period
in which the Agent or any of its Affiliates makes a market in such Ineligible
Securities, (ii) knowingly to purchase during the underwriting or placement
period Ineligible Securities being underwritten or privately placed by the Agent
or any of its Affiliates, or (iii) to make payments of principal or interest on
Ineligible Securities underwritten or privately placed by the Agent or any of
its Affiliates and issued by or for the benefit of the Company or any Affiliate
of the Company. Certain Affiliates of the Agent are registered broker dealers
and permitted to underwrite and deal in certain Ineligible Securities; and
"Ineligible Securities" means securities which may not be underwritten or dealt
in by member banks of the Federal Reserve System under Section 16 of the Banking
Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
8.08 Contingent Obligations. The Company shall not, and
shall not suffer or permit any Subsidiary to, create, incur, assume
or suffer to exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the
ordinary course of business;
(b) Contingent Obligations of the Company and its
Subsidiaries existing as of the Closing Date and listed in Schedule
8.08;
(c) Contingent Obligations under Swap Contracts; and
(d) Contingent Obligations with respect to Surety
Instruments incurred in the ordinary course of business, to the
extent permitted under Section 8.05.
8.09 Lease Obligations. The Company shall not, and shall not
suffer or permit any Subsidiary to, create or suffer to exist any
-66-
<PAGE>
obligations for the payment of rent for any property under lease or agreement to
lease, except for:
(a) leases of the Company and of Subsidiaries in
existence on the Closing Date and any renewal, extension or
refinancing thereof;
(b) operating leases entered into by the Company or any
Subsidiary after the Closing Date in the ordinary course of
business; and
(c) Capital Leases other than those permitted under clause (a)
of this Section, entered into by the Company or any Subsidiary after the Closing
Date to finance the acquisition of equipment.
8.10 Restricted Payments. (a) The Company shall not, and shall not
suffer or permit any Subsidiary to, declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, or
purchase, redeem or otherwise acquire for value any shares of its capital stock
or any warrants, rights or options to acquire such shares, now or hereafter
outstanding (each, a "Restricted Payment") unless
(i) at the time of, and immediately after giving effect to,
such Restricted Payment, no Default or Event of Default shall have
occurred and be continuing, and
(ii) after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments made from the Closing Date
to the date of such Restricted Payment shall not exceed the sum of (x)
25% of net income (or minus 100% of consolidated net income in the case
of a loss) of the Company and its Subsidiaries arising after the
Closing Date and computed on a cumulative consolidated basis plus (y)
50% of the net cash proceeds of any issuance of capital stock of the
Company subsequent to the Closing Date, exclusive of any such issuance
made in connection with a merger or Acquisition.
(b) The Company shall not, and shall not suffer or permit any
Subsidiary to, purchase, redeem, retire or otherwise acquire, or make any
payment, prepayment or defeasance of, more than $25,000,000 of the outstanding
principal of any of the Convertible Notes on a cumulative basis following the
Closing Date for so long as any of the Obligations shall remain outstanding.
8.11 ERISA. The Company shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably expected to result in liability of the Company in
an aggregate amount in
-67-
<PAGE>
excess of $2,000,000; or (b) engage in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
8.12 Change in Business. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business other than the
Health Care Business.
8.13 Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
8.14 Financial Covenants. The Company shall not:
(a) permit its Leverage Ratio to exceed 2.5 to 1.00 as
of the end of any fiscal quarter;
(b) permit its Net Worth to be less than the sum of (i) 85% of
Net Worth at December 31, 1995 plus (ii) 50% of cumulative consolidated net
income (or minus 100% of consolidated net loss) for the period commencing on the
Closing Date and ending on the date of determination, plus (iii) 50% of the
amount by which Net Worth is increased by issuances of equity securities (except
to the extent such issuance is made in connection with an Acquisition or
securities issued pursuant to the Company's long term incentive plans, stock
option plans and employee stock purchase plans);
(c) permit its Fixed Charges Coverage Ratio to be less
than 2.25 to 1.00 as of the end of any fiscal quarter; or
(d) incur, make or enter into any contractual undertaking for
Capital Expenditures in any fiscal year in excess of 6% of the Company's
Consolidated Tangible Assets as of the last day of the most recently ended
fiscal year.
8.15 Limitation on Payment Restrictions Affecting Subsidiaries. Except
as set forth in this Agreement, the Company shall not, and shall not permit any
of its Subsidiaries, directly or indirectly, to create or suffer to exist or
allow to become effective any consensual encumbrance or restriction on the
ability of (i) any of the Subsidiaries of the Company to (a) declare and pay
dividends on such Subsidiaries' stock or pay any obligation, liability or any
Indebtedness owed to the Company or any of its other Subsidiaries, (b) make
loans or advances to the Company or its other Subsidiaries or (c) transfer any
of its properties or assets to the Company or any of its other Subsidiaries, or
(ii) the Company or any of its Subsidiaries to receive or retain vis-a-vis the
transferor any such amounts set forth in clauses (i)(a), (i)(b) or (i)(c) above,
except for encumbrances or restrictions existing under or by reason of HMO
Regulations and other applicable law.
-68-
<PAGE>
8.16 Pledged Shares. The Company shall, and shall cause each of its
Subsidiaries to, pledge to the Agent, for the benefit of the Banks, all of the
shares of capital stock of each of their respective Subsidiaries from time to
time pursuant to a Pledge Agreement. Notwithstanding foregoing, the shares of
Excluded Subsidiaries shall not be required to be so pledged until such time as
the Subsidiaries whose capital stock is not subject to a Pledge Agreement would,
if aggregated, constitute a Significant Subsidiary. Thereafter, the Agent shall
be entitled to require the pledge of the capital stock of any one or more of
such Subsidiaries (other than HMO Texas and 2314 Partnership) as the Majority
Banks may select.
ARTICLE IX
EVENTS OF DEFAULT
9.01 Event of Default. Any of the following shall constitute
an "Event of Default":
(a) Non Payment. The Company fails to pay, (i) when and as
required to be paid herein, any amount of principal of or interest on any Loan
or of any L/C Obligation, or (ii) within three days after the same becomes due,
any fee or any other amount payable hereunder or under any other Loan Document;
or
(b) Representation or Warranty. Any representation or warranty
by the Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Company fails to perform or
observe any term, covenant or agreement contained in any of Section
7.01, 7.02, 7.03 or 7.09 or in Article VIII; or
(d) Other Defaults. The Company fails to perform or observe
any other term or covenant contained in this Agreement or any other Loan
Document, and such default shall continue unremedied for a period of 20 days
after the earlier of (i) the date upon which a Responsible Officer had Actual
Knowledge of such failure or (ii) the date upon which written notice thereof is
given to the Company by the Agent or any Bank; or
(e) Cross-Default. The Company or any Subsidiary (A) fails to
make any payment in respect of any Indebtedness or Contingent Obligation (other
than in respect of Swap Contracts), having an aggregate principal amount of more
than $5,000,000 when due (whether by scheduled maturity, required prepayment,
-69-
<PAGE>
acceleration, demand, or otherwise); or (B) fails to perform or observe any
other condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such Indebtedness or
Contingent Obligation, and such failure continues after the applicable grace or
notice period, if any, specified in the relevant document on the date of such
failure if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
(f) Insolvency; Voluntary Proceedings. The Company or any
Significant Subsidiary (i) ceases or fails to be solvent, or generally fails to
pay, or admits in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the ordinary
course; (iii) commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Significant
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Company's or any
Significant Subsidiary's properties, and any such proceeding or petition shall
not be dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) the Company or any Significant
Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Company or any
Significant Subsidiary acquiesces in the appointment of a receiver, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent therefor),
or other similar Person for itself or a substantial portion of its property or
business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Company under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$2,000,000; the aggregate amount of Unfunded Pension Liability among all Pension
Plans at any time exceeds $2,000,000; or (iii) the Company or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to
-70-
<PAGE>
its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of $2,000,000;
or
(i) Monetary Judgments. One or more non interlocutory
judgments, non interlocutory orders, decrees or arbitration awards is entered
against the Company or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $5,000,000 or more, and the same shall
remain unvacated and unstayed pending appeal for a period of 10 days after the
entry thereof; or
(j) Non Monetary Judgments. Any non monetary judgment, order
or decree is entered against the Company or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Change of Control. There occurs any Change of
Control; or
(l) Loss of Licenses. Any HMO Regulator or any other
Governmental Authority revokes or fails to renew any material license, permit or
franchise of the Company or any Subsidiary, or the Company or any Subsidiary for
any reason loses any material license, permit or franchise, or the Company or
any Subsidiary suffers the imposition of any restraining order, escrow,
suspension or impound of funds in connection with any proceeding (judicial or
administrative) with respect to any material license, permit or franchise; or
(m) HMO Event. An HMO Event shall have occurred and remain
unremedied for the lesser of 30 days after the occurrence of such event or five
days after the duration of any cure period imposed for the cure of such HMO
Event by the HMO Regulator administering the pertinent HMO Regulations; or
(n) Prospective Premium Default. A Prospective Premium
Default shall have occurred; or
(o) Adverse Change. There occurs a Material Adverse
Effect; or
(p) Invalidity of Subordination Provisions. The
subordination provisions of the Convertible Notes or any agreement
or instrument governing any other Subordinated Debt is for any
reason revoked or invalidated, or otherwise cease to be in full
force and effect, or any Person contests in any manner (with a
-71-
<PAGE>
reasonable likelihood of success) the validity or enforceability thereof or
denies that it has any further liability or obligation thereunder, or the
Indebtedness hereunder is for any reason subordinated or does not have the
priority contemplated by this Agreement or such subordination provisions.
9.02 Remedies. If any Event of Default occurs, the Agent
shall, at the request of, or may, with the consent of, the Majority
Banks,
(a) declare the commitment of each Bank to make Loans and any
obligation of the Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate amount
that is or at any time thereafter may become available for drawing under any
outstanding Letters of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letters of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all
rights and remedies available to it and the Banks under the Loan
Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 9.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, the Issuing Bank or any Bank.
NOTWITHSTANDING THE FOREGOING, THE AGENT AND THE BANKS EXPRESSLY ACKNOWLEDGE AND
AGREE THAT ANY TRANSFER OF THE PLEDGED SHARES, OR ANY EXERCISE OF CONTROL WITH
RESPECT THERETO, IS SUBJECT TO, AND SHALL BE EFFECTED SOLELY IN COMPLIANCE WITH,
APPLICABLE REGULATORY REQUIREMENTS; PROVIDED THAT THIS ACKNOWLEDGMENT AND
AGREEMENT IS MADE SOLELY FOR THE BENEFIT OF APPLICABLE GOVERNMENTAL AND
REGULATORY AUTHORITIES AND SHALL NOT BE CONSTRUED AS A COVENANT AS BETWEEN THE
AGENT AND THE BANKS, ON THE ONE HAND, AND THE COMPANY OR ANY OF ITS
SUBSIDIARIES, ON THE OTHER HAND.
-72-
<PAGE>
9.03 Rights Not Exclusive. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
THE AGENT
10.01 Appointment and Authorization; "Agent". (a) Each Bank hereby
irrevocably (subject to Section 10.09) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with
respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Agent may agree at the
request of the Majority Lenders to act for such Issuing Bank with respect
thereto; provided, however, that the Issuing Bank shall have all of the benefits
and immunities (i) provided to the Agent in this Article X with respect to any
acts taken or omissions suffered by the Issuing Bank in connection with Letters
of Credit Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Agent", as used in this Article X, included the Issuing Bank with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
10.02 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to
-73-
<PAGE>
such duties. The Agent shall not be responsible for the negligence or misconduct
of any agent or attorney-in-fact that it selects with reasonable care.
10.03 Liability of Agent. None of the Agent Related Persons shall (i)
be liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No Agent
Related Person shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
10.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Company), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Banks as it deems appropriate
and, if it so requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Majority Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval,
-74-
<PAGE>
acceptance or satisfaction, or required thereunder to be consented
to or approved by or acceptable or satisfactory to the Bank.
10.05 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Banks, unless the Agent shall
have received written notice from a Bank or the Company referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its receipt
of any such notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Majority Banks in
accordance with Article IX; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
10.06 Credit Decision. Each Bank acknowledges that none of the Agent
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent Related Person to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon any Agent Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any Agent
Related Person and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent Related Persons.
-75-
<PAGE>
10.07 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent Related Persons (to the extent not reimbursed by or on behalf of the
Company and without limiting the obligation of the Company to do so), pro rata,
from and against any and all Indemnified Liabilities; provided, however, that no
Bank shall be liable for the payment to the Agent Related Persons of any portion
of such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
shall reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
10.08 Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent or the Issuing
Bank hereunder and without notice to or consent of the Banks. The Banks
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding the Company or its Affiliates (including
information that may be subject to confidentiality obligations in favor of the
Company or such Subsidiary) and acknowledge that the Agent shall be under no
obligation to provide such information to them. With respect to its Loans, BofA
shall have the same rights and powers under this Agreement as any other Bank and
may exercise the same as though it were not the Agent or the Issuing Bank.
10.09 Successor Agent. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, the Majority Banks shall appoint from among
the Banks a successor agent for the Banks. If no successor agent is appointed
prior to the effective date of the resignation of the Agent, the Agent may
appoint, after consulting with the Banks and the Company, a successor agent from
among the Banks. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as
-76-
<PAGE>
Agent, the provisions of this Article X and Sections 11.04 and 11.05 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. If no successor agent has accepted appointment as
Agent by the date which is 30 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Banks shall perform all of the duties of the Agent
hereunder until such time, if any, as the Majority Banks appoint a successor
agent as provided for above. Notwithstanding the foregoing, however, BofA may
not be removed as the Agent at the request of the Majority Banks unless BofA
shall also simultaneously be replaced as "Issuing Bank" hereunder pursuant to
documentation in form and substance reasonably satisfactory to BofA.
10.10 Withholding Tax. (a) If any Bank is a "foreign
corporation, partnership or trust" within the meaning of the Code
and such Bank claims exemption from, or a reduction of, U.S.
withholding tax under Sections 1441 or 1442 of the Code, such Bank
agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, two
properly completed and executed copies of IRS Form 1001 before the
payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of such
Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during which
interest may be paid under this Agreement; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Company to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of
-77-
<PAGE>
Obligations of the Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Company to such Bank, such Bank agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed, or
because such Bank failed to notify the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Bank shall indemnify the Agent fully for all amounts
paid, directly or indirectly, by the Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to the Agent under this Section, together with all costs and
expenses (including Attorney Costs). The obligation of the Banks under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of the Agent.
ARTICLE XI
MISCELLANEOUS
11.01 Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Agent at the written
request of the Majority Banks) and the Company and acknowledged by the Agent,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such waiver, amendment, or consent
-78-
<PAGE>
shall, unless in writing and signed by all the Banks and the
Company and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to Section 8.02);
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (iii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required
for the Banks or any of them to take any action hereunder; or
(e) amend this Section, or Section 2.14, or any
provision herein providing for consent or other action by all
Banks;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Bank in addition to the Majority Banks or all
the Banks, as the case may be, affect the rights or duties of the Issuing Bank
under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Majority Banks or
all the Banks, as the case may be, affect the rights or duties of the Agent
under this Agreement or any other Loan Document, and (iii) the Fee Letters may
be amended, or rights or privileges thereunder waived, in a writing executed by
the parties thereto.
11.02 Notices. (a) All notices, requests, consents, approvals, waivers
and other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by the Company by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on
Schedule 11.02, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices on Schedule 11.02; or, as directed to the Company
or the Agent, to such other address as shall be designated by such party in a
written notice to the other parties, and as directed to any other party, at such
other address as shall be designated by such party in a written notice to the
Company and the Agent.
-79-
<PAGE>
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II, III or X to the Agent shall not be effective
until actually received by the Agent, and notices pursuant to Article III to the
Issuing Bank shall not be effective until actually received by the Issuing Bank
at the address specified for the "Issuing Bank" on the applicable signature page
hereof.
(c) Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Company and the Pledgor Subsidiaries. The Agent and the Banks
shall be entitled to rely on the authority of any Person purporting to be a
Person authorized by the Company or any Pledgor Subsidiary to give such notice
and the Agent and the Banks shall not have any liability to the Company, any
Pledgor subsidiary or other Person on account of any action taken or not taken
by the Agent or the Banks in reliance upon such telephonic or facsimile notice.
The obligation of the Company to repay the Loans and L/C Obligations shall not
be affected in any way or to any extent by any failure by the Agent and the
Banks to receive written confirmation of any telephonic or facsimile notice or
the receipt by the Agent and the Banks of a confirmation which is at variance
with the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
11.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
11.04 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent and
Issuing Bank) within five Business Days after demand (subject to subsection
5.01(e)) for all reasonable costs and expenses incurred by BofA (including in
its capacity as Agent and Issuing Bank) in connection with the development,
preparation, delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including reasonable Attorney Costs incurred by
or on behalf of
-80-
<PAGE>
BofA (including in its capacity as Agent and Issuing Bank) with
respect thereto; and
(b) pay or reimburse the Agent and each Bank within five
Business Days after demand (subject to subsection 5.01(e)) for all reasonable
costs and expenses (including Attorney Costs) incurred by them in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding).
11.05 Company Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify, defend and
hold the Agent Related Persons, and each Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including of experts and agents and
Attorney Costs which all shall be paid upon demand by the Agent) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Agent or replacement of any Bank)
be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of: this Agreement, the Pledge Agreements or any
document contemplated by or referred to herein; the administration of the Loan
Documents; the custody, preservation, use or operation of or the sale of,
collection from, or other realization upon, any of the Collateral; the exercise
or enforcement of any of the rights of the Agent under the Pledge Agreements or
any other Loan Document; the failure by the Company to perform or observe any of
the provisions of the Pledge Agreements or any other Loan Document; the
transactions contemplated hereby; or any other action taken or omitted by any
such Person under or in connection with any of the foregoing, including with
respect to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or Letters of Credit or the use of the proceeds thereof, whether or
not any Indemnified Person is a party thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Provided, that the Company shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person. The agreements in this Section shall survive payment of
all other Obligations.
11.06 Payments Set Aside. To the extent that the Company
makes a payment to the Agent or the Banks, or the Agent or the
-81-
<PAGE>
Banks exercise their right of set-off, and such payment or the proceeds of such
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Agent or such Bank in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred, and (b) each Bank severally agrees to pay to the
Agent upon demand its pro rata share of any amount so recovered from or repaid
by the Agent.
11.07 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
11.08 Assignments, Participations, etc. (a) Any Bank may, with the
written consent of the Company at all times other than during the existence of
an Event of Default and the Agent and the Issuing Bank, which consents shall not
be unreasonably withheld, at any time assign and delegate to one or more
Eligible Assignees (provided that no written consent of the Company, the Agent
or the Issuing Bank shall be required in connection with any assignment and
delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank)
(each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments, the L/C Obligations and the other rights and obligations of such
Bank hereunder, in a minimum amount of $5,000,000; provided, however, that the
Company and the Agent may continue to deal solely and directly with such Bank in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Company
and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee
shall have delivered to the Company and the Agent an Assignment and Acceptance
in the form of Exhibit E ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (iii) the assignor Bank or Assignee has
paid to the Agent a processing fee in the amount of $2,500.
(b) From and after the date that the Agent notifies the
assignor Bank that it has received (and provided its consent with respect to) an
executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of
-82-
<PAGE>
a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent
that rights and obligations hereunder and under the other Loan Documents have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
(d) Any Bank may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Company (a "Participant")
participating interests in any Loans, the Commitment of that Bank and the other
interests of that Bank (the "originating Bank") hereunder and under the other
Loan Documents; provided, however, that (i) the originating Bank's obligations
under this Agreement shall remain unchanged, (ii) the originating Bank shall
remain solely responsible for the performance of such obligations, (iii) the
Company, the Issuing Bank and the Agent shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) no Bank shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Banks
as described in the first proviso to Section 11.01. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections
4.01, 4.03 and 11.05 as though it were also a Bank hereunder, and if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any
Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
-83-
<PAGE>
11.09 Set-off. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Company, any such notice being waived by the Company to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Company against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank agrees promptly to
notify the Company and the Agent after any such set-off and application made by
such Bank; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application.
11.10 Automatic Debits of Fees. With respect to any commitment fee,
arrangement fee, letter of credit fee or other fee, or any other cost or expense
(including Attorney Costs) due and payable to the Agent, the Issuing Bank or
BofA under the Loan Documents, the Company hereby irrevocably authorizes BofA to
debit any deposit account of the Company with BofA in an amount such that the
aggregate amount debited from all such deposit accounts does not exceed such fee
or other cost or expense. If there are insufficient funds in such deposit
accounts to cover the amount of the fee or other cost or expense then due, such
debits will be reversed (in whole or in part, in BofA's sole discretion) and
such amount not debited shall be deemed to be unpaid. No such debit under this
Section shall be deemed a set-off.
11.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
11.12 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.13 Severability. Wherever possible each provision of this Agreement,
the Pledge Agreements or any other instrument agreement required hereunder shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement, the Pledge Agreements or any other
instrument or agreement required hereunder shall be prohibited by or invalid
under such law, such provision shall be ineffective to the extent
-84-
<PAGE>
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of such agreement or instrument.
11.14 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Banks, the
Agent and the Agent Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
11.15 Governing Law and Jurisdiction. (a) THIS AGREEMENT, THE PLEDGE
AGREEMENTS AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF CALIFORNIA EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF ANY SECURITY INTERESTS OR REMEDIES UNDER ANY LOAN DOCUMENTS ARE
GOVERNED BY THE LAWS OF A STATE OTHER THAN CALIFORNIA; PROVIDED THAT THE AGENT
AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION, PROCEEDING OR LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE PLEDGE
AGREEMENTS OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE BANKS
OR THE COMPANY MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF
CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE PLEDGE AGREEMENTS, EACH
OF THE COMPANY, THE BANKS AND THE AGENT HEREBY CONSENTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY AND EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE
AGENT, THE BANKS AND THE COMPANY FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF
PROCESS BY ANY MEANS PERMITTED BY CALIFORNIA LAW INCLUDING BY REGISTERED MAIL,
POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
CALIFORNIA. THE AGENT, THE BANKS AND THE COMPANY HEREBY EXPRESSLY AND
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
THE AGENT, THE BANKS AND THE COMPANY HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE,
-85-
<PAGE>
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH
RESPECT TO THEM OR THEIR PROPERTY, THE AGENT, THE BANKS AND THE COMPANY HEREBY
IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THEIR OBLIGATIONS UNDER THIS
AGREEMENT, THE PLEDGE AGREEMENTS AND THE OTHER LOAN DOCUMENTS.
11.16 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE PLEDGE
AGREEMENTS, THE OTHER LOAN DOCUMENTS, ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE COMPANY, THE PLEDGOR
SUBSIDIARIES, THE BANKS OR THE AGENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY
ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT RELATED PERSON,
PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT, THE PLEDGE AGREEMENTS, OR THE
OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT, THE PLEDGE AGREEMENTS, AND THE OTHER LOAN DOCUMENTS. THE COMPANY
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
AGENT AND THE BANKS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN
DOCUMENT.
11.17 Entire Agreement. This Agreement, together with the Pledge
Agreements and the other Loan Documents, embodies the entire agreement and
understanding among the Company, the Pledgor Subsidiaries, the Banks and the
Agent, and supersedes all prior or contemporaneous agreements and understandings
of such Persons, verbal or written, relating to the subject matter hereof and
thereof.
[remainder of page intentionally left blank]
-86-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Los Angeles, California by their proper and duly
authorized officers as of the day and year first above written.
SIERRA HEALTH SERVICES, INC.
By: /S/ JAMES L. STARR
Title: Vice President and Chief
Financial Officer
[signatures continue on following page]
-87-
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /S/ RUTH Z. EDWARDS
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank
By: /S/ RUTH Z. EDWARDS
Title: Vice President
Commitment: $50,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: /S/ RUTH Z. EDWARDS
Title: Vice President
Address for notices:
555 South Flower Street, 11th Floor
Unit #9173
Los Angeles, CA 90071
Attention: Ruth Z. Edwards
Phone: (213) 228-2678
Fax: (213) 228-2756
Domestic and Offshore Lending
Office:
333 S. Beaudry Ave.
Los Angeles, CA 90017
Attention: Betsy Quinio
Phone: (213) 345-6345
Fax: (213) 345-6550
-88-
<PAGE>
<PAGE>
SUMMARY OF SCHEDULES
Schedule 2.01 sets forth the aggregate amount of the line of credit
available pursuant to the Credit Agreement, which may not be exceeded at any
time.
Schedule 5.01 lists all the subsidiaries of Sierra Health Services
(SHS) whose stock was not required to be pledged as collateral under the Credit
Agreement.
Schedule 6.03 lists the approvals, consents, authorizations or
exemptions that must be obtained from any Governmental Authority in order for
SHS to enter into and perform the Credit Agreement and other Loan Documents, and
any other non-compliance with applicable laws.
Schedule 6.05 lists certain litigation involving SHS or its
subsidiaries.
Schedule 6.10 lists those subsidiaries where less than all of their
outstanding shares were pledged as collateral under the Credit Agreement.
Schedule 6.12 lists those liabilities which SHS is permitted to incur
and maintain pursuant to the terms of the Credit Agreement and not included in
the audited financial statement of SHS and its subsidiaries.
Schedule 6.13 lists any material environmental matters involving SHS or
its subsidiaries.
Schedule 6.18 lists all of SHS subsidiaries, equity investments in
other corporations or entities constituting 20% or more of the outstanding
equity interest in such corporation or entity, and subsidiaries whose shares
were not part of the shares pledged under the Loan Documents.
Schedule 6.19 lists by incorporation to Schedule 6.12, all material
insurance issues involving SHS or its subsidiaries.
Schedule 8.01 lists by incorporation to Schedule 6.12 those liens which
SHS or its subsidiaries may incur or maintain pursuant to the terms of the
Credit Agreement.
Schedule 8.05 lists by incorporation to Schedule 6.12 any indebtedness
which SHS or its subsidiaries may incur or maintain pursuant to the terms of the
Credit Agreement.
Schedule 8.08 lists by incorporation to Schedule 6.12 those contingent
obligations, indebtedness and liens which SHS or its subsidiaries may incur or
maintain pursuant to the terms of the Credit Agreement.
Schedule 11.02 lists the domestic and offshore lending offices and the
addresses and phone numbers for notices, for Bank of America.
-1-
<PAGE>
FORM OF PROMISSORY NOTE
$50,000,000 April 11, 1996
FOR VALUE RECEIVED, the undersigned SIERRA HEALTH SERVICES, INC., a
Nevada Corporation (the "Company"), hereby promises to pay to the order of BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") the principal sum
of Fifty Million Dollars ($50,000,000) or, if less, the aggregate unpaid
principal amount of all Loans made by the Bank to the Company pursuant to the
Credit Agreement, dated as of even date herewith (such Credit Agreement, as it
may be amended, restated, supplemented or otherwise modified from time to time,
being herein after called the "Credit Agreement"), among the Company, the Bank,
the other banks party thereto, and Bank of America National Trust and Savings
Association, as the Agent for the Banks, on the dates and in the amounts
provided in the Credit Agreement. The Company further promises to pay interest
on the unpaid principal amount of the Loans evidenced hereby from time to time
at the rates, on the dates, and otherwise as provided in the Credit Agreement.
The Bank is authorized to endorse the amount and the date on which each
Loan is made, the maturity date therefor and each payment of principal with
respect thereto on the schedules annexed hereto and made a part hereof, or on
continuations thereof which shall be attached hereto and made a part hereof;
provided, that any failure to endorse such information on such schedule or
continuation thereof shall not in any manner affect any obligation of the
Company under the Credit Agreement and this Note (the "Note").
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Credit Agreement, which Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
Terms defined in the Credit Agreement are used herein with their
defined meanings therein unless otherwise defined herein. This Note shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of California applicable to contracts made and to be performed entirely
within such State.
SIERRA HEALTH SERVICES, INC.
By: /S/ JAMES L. STARR
Title: Vice President and Chief
Financial Officer
1
<PAGE>
Schedule A to Note
BASE RATE LOANS
AND REPAYMENT OF BASE RATE LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(2) (3) (4)
Amount Amount
of of Base
(1) Base Rate Rate Notation
Date Loan Loan Repaid Made By
</TABLE>
2
<PAGE>
Schedule B to Note
LIBOR RATE LOANS AND REPAYMENT
OF LIBOR RATE LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(2) (3) (4) (5)
Maturity Date Amount of LIBOR
(1) Amount of LIBOR of LIBOR Rate Loan Notation Made
---- ----
Date Rate Loan Rate Loan Repaid by
</TABLE>
3
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of April 11,
1996, made by SIERRA HEALTH SERVICES, INC., a Nevada corporation (the
"Pledgor"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as agent (together with any successor(s) thereto in such capacity, the "Agent")
for each of the Lender Parties (as defined below).
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among Sierra Health Services,
Inc., a Nevada corporation (the "Company"), the several financial institutions
as are, or may from time to time become, parties thereto (individually a
"Lender" and collectively the "Lenders") and the Agent, the Lenders have
extended Commitments to make Loans to the Company; and
WHEREAS, as a condition precedent to the making of the initial Loans
under the Credit Agreement, the Pledgor is required to execute and deliver this
Pledge Agreement; and
WHEREAS, the Pledgor has duly authorized the execution, delivery
and performance of this Pledge Agreement; and
WHEREAS, it is in the best interests of the Pledgor to execute this
Pledge Agreement inasmuch as the Pledgor will derive substantial direct and
indirect benefits from the Loans made from time to time to the Company by the
Lenders pursuant to the Credit Agreement;
NOW THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders to make Loans to the
Company pursuant to the Credit Agreement, the Pledgor agrees, for the benefit of
each Lender Party, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Pledge Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Agent" is defined in the preamble.
"Collateral" is defined in Section 2.1.
"Company" is defined in the first recital.
"Credit Agreement" is defined in the first recital.
<PAGE>
"Distributions" means all stock dividends, liquidating dividends,
shares of stock resulting from (or in connection with the exercise of) stock
splits, reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with respect to
any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.
"Lender" is defined in the first recital.
"Lender Party" means, as the context may require, any Lender or the
Agent and each of its respective successors, transferees and assigns.
"Lenders" is defined in the first recital.
"Pledge Agreement" is defined in the preamble.
"Pledged Property" means all Pledged Shares and all other pledged
shares of capital stock, all other securities, all assignments of any amounts
due or to become due, all other instruments which are now being delivered by the
Pledgor to the Agent or may from time to time hereafter be delivered by the
Pledgor to the Agent for the purpose of pledge under this Pledge Agreement or
any other Loan Document, and all proceeds of any of the foregoing.
"Pledged Shares" means, collectively, all shares of capital stock of
each now existing or hereafter created or acquired Subsidiary of the Company
(but excluding, subject to Section 8.16 of the Credit Agreement, Excluded
Subsidiaries), including, without limitations, the shares of capital stock
identified in Attachment 1 hereto which are delivered by the Pledgor to the
Agent as Pledged Property hereunder.
"Pledgor" is defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
"U.C.C." means the Uniform Commercial Code as in effect in the
State of California.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined
herein or the context otherwise requires, terms for which meanings are
provided in the U.C.C. are used in this Pledge Agreement, including
its preamble and recitals, with such meanings.
-2-
<PAGE>
ARTICLE II
PLEDGE
SECTION 2.1. Grant of Security Interest. The Pledgor hereby pledges,
hypothecates, mortgages and delivers to the Agent, for its benefit and the
ratable benefit of each of the Lender Parties, and hereby grants to the Agent,
for its benefit and the ratable benefit of the Lender Parties, a continuing
security interest in, all of the following property (the "Collateral"):
(a) all Pledged Shares, including without limitation those
identified in Attachment 1 hereto;
(b) all other Pledged Property, whether now or hereafter
delivered to the Agent in connection with this Pledge Agreement;
(c) all Dividends, Distributions, interest, and other
payments and rights with respect to any Pledged Property; and
(d) all proceeds of any of the foregoing.
SECTION 2.2. Security for Obligations. This Pledge Agreement secures
the payment in full of all Obligations of the Company and/or any Pledgor
Subsidiary now or hereafter existing under the Credit Agreement, the Notes and
each other Loan Document to which the Company and/or any Pledgor Subsidiary is
or may become a party, whether for principal, interest, costs, fees, expenses,
or otherwise, (all such obligations of the Company and/or any Pledgor Subsidiary
being the "Secured Obligations").
SECTION 2.3. Delivery of Pledged Property. All certificates or
instruments representing or evidencing any Collateral, including all Pledged
Shares, shall be delivered to and held by or on behalf of the Agent pursuant
hereto, shall be in suitable form for transfer by delivery, and shall be
accompanied by all necessary instruments of transfer or assignment, duly
executed in blank.
SECTION 2.4. Dividends on Pledged Shares. In the event that any
Dividend is to be paid on any Pledged Share during the continuation of an Event
of Default, then any such Dividend or payment shall be paid directly to the
Agent.
SECTION 2.5. Continuing Security Interest; Transfer of Note.
This Pledge Agreement shall create a continuing security interest in
the Collateral and shall
(a) remain in full force and effect until payment in full
of all Secured Obligations and the termination of all
Commitments,
(b) be binding upon the Pledgor and its successors,
transferees and assigns, and
(c) inure, together with the rights and remedies of the Agent
hereunder, to the benefit of the Agent and each other Lender Party.
-3-
<PAGE>
Without limiting the foregoing clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any Note or Loan held by it to any other Person
or entity in accordance with the provisions of Section 11.08 of the Credit
Agreement, and such other Person or entity shall thereupon become vested with
all the rights and benefits in respect thereof granted to such Lender under any
Loan Document (including this Pledge Agreement) or otherwise, subject, however,
to any contrary provisions in such assignment or transfer, and to the provisions
of Section 11.08 of the Credit Agreement. Upon the payment in full of all
Secured Obligations and the termination of all Commitments, the security
interest granted herein shall terminate and all rights to the Collateral shall
revert to the Pledgor. Upon any such termination, the Agent will, at the
Pledgor's sole expense, deliver to the Pledgor, without any representations,
warranties or recourse of any kind whatsoever, all certificates and instruments
representing or evidencing all Pledged Shares, together with all other
Collateral held by the Agent hereunder, and execute and deliver to the Pledgor
such documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 2.6. Security Interest Absolute. All rights of the
Agent and the security interests granted to the Agent hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and
unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
(b) the failure of any Lender Party or any holder of any
Note
(i) to assert any claim or demand or to enforce any
right or remedy against the Company and/or any Pledgor
Subsidiary or any other Person under the provisions of the
Credit Agreement, any Note, any other Loan Document or
otherwise, or
(ii) to exercise any right or remedy against any
other guarantor of, or collateral securing, any Obligations of
the Company and/or any Pledgor Subsidiary,
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations or any other
extension, compromise or renewal of any Obligation of the Company
and/or any Pledgor Subsidiary or any other Obligor,
(d) any reduction, limitation, impairment or termination of
any Obligations of the Company and/or any Pledgor Subsidiary for any
reason, including any claim of waiver, release, surrender, alteration
or compromise, and shall not be subject to (and the Pledgor hereby
waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability
of, or any other event or occurrence affecting, any Obligations of the
Company and/or any Pledgor Subsidiary,
-4-
<PAGE>
(e) any amendment to, rescission, waiver, or other
modification of, or any consent to departure from, any of the terms of
the Credit Agreement, any Note or any other Loan Document,
(f) any addition, exchange, release, surrender or
nonperfection of any collateral (including the Collateral), or any
amendment to or waiver or release of or addition to or consent to
departure from any guaranty, for any of the Obligations, or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Company
and/or any Pledgor Subsidiary, any surety or any guarantor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Warranties, etc. The Pledgor represents and warrants unto
each Lender Party, as at the date of each pledge and delivery hereunder
(including each pledge and delivery of Pledged Shares) by the Pledgor to the
Agent of any Collateral, as set forth in this Article.
SECTION 3.1.1. Organization, etc. The Pledgor makes and reaffirms the
representations and warranties set forth in Section 6.01 of the Credit Agreement
which are hereby incorporated herein by reference and made a part hereof.
SECTION 3.1.2. Due Authorization, Non-Contravention, etc. The Pledgor
makes and reaffirms the representations and warranties set forth in Section 6.02
of the Credit Agreement which are hereby incorporated herein by reference and
made a part hereof.
SECTION 3.1.3. Validity, etc. The Pledgor makes and reaffirms the
representations and warranties set forth in Section 6.04 of the Credit Agreement
which are hereby incorporated herein by reference and made a part hereof.
SECTION 3.1.4. Ownership, No Liens, etc. The Pledgor makes and
reaffirms the representations and warranties set forth in Section 6.09 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.5. Valid Security Interest. The Pledgor makes and reaffirms
the representations and warranties set forth in Section 6.14(a) of the Credit
Agreement which are hereby incorporated herein by reference and made a part
hereof.
SECTION 3.1.6. As to Pledged Shares. The Pledgor makes and reaffirms
the representations and warranties set forth in Section 6.10 of the Credit
Agreement which are hereby incorporated herein by reference and made a part
hereof.
-5-
<PAGE>
SECTION 3.1.7. Authorization, Approval, etc. The Pledgor makes and
reaffirms the representations and warranties set forth in Section 6.03 of the
Credit Agreement which are hereby incorporated herein by reference and made a
part hereof.
SECTION 3.1.8. Compliance with Laws. The Pledgor makes and reaffirms
the representations and warranties set forth in Section 6.07(a) of the Credit
Agreement which are hereby incorporated herein by reference and made a part
hereof.
ARTICLE IV
COVENANTS
SECTION 4.1. Protect Collateral. Except as authorized in the Credit
Agreement, the Pledgor will not sell, assign, transfer, pledge, or encumber in
any other manner the Collateral (except in favor of the Agent hereunder). The
Pledgor will warrant and defend the right and title herein granted unto the
Agent in and to the Collateral (and all right, title, and interest represented
by the Collateral) against the claims and demands of all Persons whomsoever.
SECTION 4.2. Further Assurances. Pledgor reaffirms the
covenants set forth in Section 7.13 of the Credit Agreement, which
covenants are incorporated herein by reference and made a part hereof.
SECTION 4.3. Stock Powers, etc. The Pledgor agrees that all Pledged
Shares (and all other shares of capital stock constituting Collateral) delivered
by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly
executed undated blank stock powers, or other equivalent instruments of transfer
acceptable to the Agent. The Pledgor will, from time to time upon the request of
the Agent, promptly deliver to the Agent such stock powers, instruments, and
similar documents, satisfactory in form and substance to the Agent, with respect
to the Collateral as the Agent may reasonably request and will, from time to
time upon the request of the Agent after the occurrence of any Event of Default,
promptly transfer any Pledged Shares or other shares of common stock
constituting Collateral into the name of any nominee designated by the Agent,
subject to compliance with Applicable Regulatory Requirements.
SECTION 4.4. Continuous Pledge. The Pledgor will, at all times, keep
pledged to the Agent pursuant hereto all Pledged Shares and all other shares of
capital stock constituting Collateral, all Dividends and Distributions with
respect thereto, and all other Collateral and other securities, instruments,
proceeds, and rights from time to time received by or distributable to the
Pledgor in respect of any Collateral.
SECTION 4.5. Voting Rights; Dividends, etc. The Pledgor agrees:
(a) after any Default or an Event of Default shall have
occurred and be continuing, promptly upon receipt thereof by the
Pledgor and without any request therefor by the Agent, to deliver
(properly endorsed where required hereby or requested by the Agent) to
the Agent all Dividends, Distributions, all interest, all principal,
all other cash payments, and all proceeds of the
-6-
<PAGE>
Collateral, all of which shall be held by the Agent as additional
Collateral for use in accordance with Section 6.3; and
(b) after any Event of Default shall have occurred and be
continuing and the Agent has notified the Pledgor of the Agent's
intention to exercise its voting power under this Section 4.5(b)
(i) the Agent may, subject to Applicable Regulatory
Requirements, exercise (to the exclusion of the Pledgor) the
voting power and all other incidental rights of ownership with
respect to any Pledged Shares or other shares of capital stock
constituting Collateral and the Pledgor hereby grants the
Agent an irrevocable proxy, exercisable only under such
circumstances, to vote the Pledged Shares and such other
Collateral; and
(ii) promptly to deliver to the Agent such additional
proxies and other documents as may be necessary to allow the
Agent to exercise such voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by the Pledgor but which the
Pledgor is then obligated to deliver to the Agent, shall, until delivery to the
Agent, be held by the Pledgor separate and apart from its other property in
trust for the Agent. The Agent agrees that unless an Event of Default shall have
occurred and be continuing and the Agent shall have given the notice referred to
in Section 4.5(b) and complied with Applicable Regulatory Requirements, the
Pledgor shall have the exclusive voting power with respect to any shares of
capital stock (including any of the Pledged Shares) constituting Collateral and
the Agent shall, upon the written request of the Pledgor, promptly deliver such
proxies and other documents, if any, as shall be reasonably requested by the
Pledgor which are necessary to allow the Pledgor to exercise voting power with
respect to any such share of capital stock (including any of the Pledged Shares)
constituting Collateral; provided, however, that no vote shall be cast, or
consent, waiver, or ratification given, or action taken by the Pledgor that
would impair any Collateral or be inconsistent with or violate any provision of
the Credit Agreement or any other Loan Document (including this Pledge
Agreement).
ARTICLE V
THE AGENT
SECTION 5.1. Agent Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:
(a) after the occurrence and continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
-7-
<PAGE>
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with
clause (a) above; and
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
Any attempt by the Agent or any of the Lender Parties to exercise any voting
control or otherwise control any Subsidiary subject to regulation by state
insurance regulatory authorities shall be in accordance with Applicable
Regulatory Requirements.
SECTION 5.2. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 6.4.
SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent
hereunder are solely to protect its interest (on behalf of the Lender Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative
to any Pledged Property, whether or not the Agent has or is deemed to
have knowledge of such matters, or
(b) taking any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Agent is required to exercise
reasonable care in the custody and preservation of any of the Collateral in its
possession; provided, however, the Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral, if it
takes such action for that purpose as the Pledgor reasonably requests in writing
at times other than upon the occurrence and during the continuance of any Event
of Default, but failure of the Agent to comply with any such request at any time
shall not in itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall
have occurred and be continuing:
-8-
<PAGE>
(a) The Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under the U.C.C. (whether or not the U.C.C. applies to the
affected Collateral) and also may, without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Agent's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms
as the Agent may deem commercially reasonable. The Pledgor agrees that,
to the extent notice of sale shall be required by law, at least ten
days' prior notice to the Pledgor of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to
make any sale of Collateral regardless of notice of sale having been
given. The Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
(b) The Agent may
(i) transfer all or any part of the Collateral into
the name of the Agent or its nominee, with or without
disclosing that such Collateral is subject to the lien and
security interest hereunder,
(ii) notify the parties obligated on any of the
Collateral to make payment to the Agent of any amount due or
to become due thereunder,
(iii) enforce collection of any of the Collateral by
suit or otherwise, and surrender, release or exchange all or
any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
(iv) endorse any checks, drafts, or other writings
in the Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral,
and
(vi) execute (in the name, place and stead of the
Pledgor) endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or
any of the Collateral.
(c) Any transfer of, or exercise of control with respect
to, the Collateral by the Agent shall be subject to Applicable
Regulatory Requirements.
SECTION 6.2. Compliance with Restrictions. The Pledgor agrees that in
any sale of any of the Collateral whenever an Event of Default shall have
occurred and be continuing, the Agent is hereby authorized to comply with any
limitation or restriction in connection with such sale as it may be advised by
counsel is necessary in order to avoid any violation of applicable law
(including compliance with such
-9-
<PAGE>
procedures as may restrict the number of prospective bidders and purchasers,
require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Pledgor
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Agent be liable nor accountable to the Pledgor for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
SECTION 6.3. Application of Proceeds. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the Collateral may, in the discretion of the Agent, be held by
the Agent as additional collateral security for, or then or at any time
thereafter be applied (after payment of any amounts payable to the Agent
pursuant to Section 10.07 of the Credit Agreement and Section 6.4) in whole or
in part by the Agent against, all or any part of the Secured Obligations in such
order as the Agent shall elect.
Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations, and the
termination of all Commitments, shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 6.4. Indemnity and Expenses. The Pledgor hereby agrees to and
reaffirms its obligations under Sections 10.07 and 11.05 of the Credit Agreement
which are incorporated herein by reference and made a part hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments, etc. No amendment to or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Pledgor
herefrom shall in any event be effective unless the same shall be given, made or
entered into in accordance with Section 11.01 of the Credit Agreement, which
Section is incorporated herein by reference and made a part hereof.
SECTION 7.3. Protection of Collateral. The Agent may from time to time,
at its option, perform any act which the Pledgor agrees hereunder to perform and
which the Pledgor shall fail to perform after being requested in writing so to
perform (it being understood that no such request need be given after the
occurrence and during the continuance of an Event of Default) and the Agent may
from time to time take any other action which the Agent reasonably deems
necessary
-10-
<PAGE>
for the maintenance, preservation or protection of any of the
Collateral or of its security interest therein.
SECTION 7.4. Notices. All notices and other communications provided for
hereunder shall be delivered in accordance with Section 11.02 of the Credit
Agreement, which Section is incorporated herein by reference and made a part
hereof.
SECTION 7.5. Section Captions. Section captions used in this
Pledge Agreement are for convenience of reference only, and shall not
affect the construction of this Pledge Agreement.
SECTION 7.6. Severability. Wherever possible each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
SECTION 7.7. Governing Law, Entire Agreement, etc. Sections
11.15 and 11.17 of the Credit Agreement are incorporated by reference
herein and made a part hereof.
SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LEGAL
ACTION, PROCEEDING OR LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF THE AGENT, THE LENDER PARTIES OR THE PLEDGOR MAY BE BROUGHT AND MAINTAINED IN
THE COURTS OF THE STATE OF CALIFORNIA OR IN THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. BY THE EXECUTION AND DELIVERY OF THIS PLEDGE AGREEMENT,
THE PLEDGOR HEREBY CONSENTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY AND
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF CALIFORNIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. THE AGENT, THE LENDER PARTIES AND
THE PLEDGOR FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY ANY MEANS
PERMITTED BY CALIFORNIA LAW INCLUDING BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. THE AGENT, THE
LENDER PARTIES AND THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT
REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. TO THE EXTENT THAT THE AGENT, THE LENDER PARTIES AND THE
PLEDGOR HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
THEM OR THEIR PROPERTY, THE AGENT, THE LENDER PARTIES AND THE PLEDGOR HEREBY
IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THEIR OBLIGATIONS UNDER THIS
PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
-11-
<PAGE>
SECTION 7.9. Waiver of Jury Trial. THE PLEDGOR, THE LENDER PARTIES AND
THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS PLEDGE
AGREEMENT, THE OTHER LOAN DOCUMENTS, ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE PLEDGOR, THE LENDER
PARTIES OR THE AGENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE PLEDGOR,
THE LENDER PARTIES AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS PLEDGE AGREEMENT AND
THE OTHER LOAN DOCUMENTS. THE PLEDGOR ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER
PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDER PARTIES ENTERING
INTO THIS PLEDGE AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the day and year first above written.
SIERRA HEALTH SERVICES, INC.
By: /S/ JAMES L. STARR
Title: Chief Financial Officer
Address: 2724 North Tenaya Way
Las Vegas, NV 89128
Facsimile No.: 702-242-7916
Attention: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By /S/ RUTH Z. EDWARDS
Title: Vice President
Address: Agency Management Services
#5596
1455 Market Street
12th Floor
San Francisco, CA 94103
Facsimile No.: (415) 622-4894
Attention: Vice President
-13-
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended
March March
1996 1995
-------------- --------------
<S> <C> <C>
NET INCOME........................................... $10,164,000 $ 7,675,000
EARNINGS PER COMMON SHARE............................ $.58 $.44
Weighted Average Common Shares
Outstanding....................................... 17,627,000 17,298,000
PRIMARY EARNINGS PER COMMON
SHARE AND COMMON SHARE
EQUIVALENTS....................................... 18,057,000 17,571,000
Weighted Average Common and Common
Equivalent Shares Outstanding..................... $.56 $.44
FULLY DILUTED PRIMARY EARNINGS
PER COMMON AND COMMON
SHARE EQUIVALENTS................................. 18,058,000 17,646,000
Weighted Average Common and Common
Equivalent Shares Outstanding Assuming
Full Dilution..................................... $.56 $.43
</TABLE>
Note: Common Equivalent Shares represent the incremental effect of
outstanding stock options and stock appreciation rights.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF CONSOLIDATED OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000754009
<NAME> SIERRA HEALTH SERVICES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 60,772,000
<SECURITIES> 313,112,000
<RECEIVABLES> 26,618,000
<ALLOWANCES> 4,664,000
<INVENTORY> 0
<CURRENT-ASSETS> 184,227,000
<PP&E> 124,629,000
<DEPRECIATION> 33,876,000
<TOTAL-ASSETS> 571,322,000
<CURRENT-LIABILITIES> 145,343,000
<BONDS> 69,111,000
0
0
<COMMON> 88,000
<OTHER-SE> 213,096,000
<TOTAL-LIABILITY-AND-EQUITY> 571,322,000
<SALES> 0
<TOTAL-REVENUES> 136,012,000
<CGS> 0
<TOTAL-COSTS> 121,637,000
<OTHER-EXPENSES> 388,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,197,000
<INCOME-PRETAX> 13,566,000
<INCOME-TAX> 3,402,000
<INCOME-CONTINUING> 10,164,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,164,000
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.00
</TABLE>
