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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 DECEMBER 31, 1994
---------------------------
[ ] 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 0-14181
PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0064895
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5995 Plaza Drive, Cypress, California 90630-5028
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code) (714) 952-1121
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 January 31, 1994, there were 12,264,083 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, outstanding and 15,346,314 shares of
Class B Common Stock, par value $0.01 per share, outstanding.
1
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Part 1: FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PacifiCare Health Systems, Inc.
Condensed Consolidated Balance Sheets
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December 31, September 30,
(Amounts in thousands, 1994 1994
execpt per share data) (Unaudited)
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<S> <C> <C>
Assets
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Current assets:
Cash and equivalents $ 218,590 $ 192,609
Marketable securities 532,735 517,999
Receivables, net 73,720 73,976
Prepaid expenses 10,133 8,883
Deferred income taxes 29,263 28,415
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Total current assets 864,441 821,882
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Property, plant and equipment, net 98,397 97,018
Marketable securities - restricted 16,572 15,994
Goodwill and intangible assets 173,507 167,085
Other assets 5,634 3,569
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$ 1,158,551 $ 1,105,548
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Liabilities and Shareholders' Equity
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Current liabilities:
Medical claims and benefits payable $309,100 $302,900
Accounts payable and accrued liabilities 126,673 108,595
Unearned premium revenue 186,828 170,970
Long-term debt due within one year 8,275 8,175
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Total current liabilities 630,876 590,640
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Long-term debt due after one year 97,590 101,137
Minority interest 413 413
Shareholders' equity:
Preferred shares, par value $1.00 per
share; 10,000 shares authorized;
none issued - -
Class A common shares, par value $0.01
per share; 30,000 shares authorized,
12,258 and 12,238 issued at
December 31, 1994 and September 30,
1994, respectively 123 122
Class B common shares, par value
$0.01 per share; 60,000 shares
authorized, 15,335 and 15,290 issued at
December 31, 1994 and
September 30, 1994, respectively 153 153
Additional paid-in capital 143,083 141,955
Unrealized holding loss on
available-for-sale securities net of tax
effect of $3,314 (4,872) -
Retained earnings 291,185 271,128
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Total shareholders' equity 429,672 413,358
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$ 1,158,551 $ 1,105,548
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</TABLE>
See accompanying notes.
2
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<TABLE>
<CAPTION>
PacifiCare Health Systems, Inc.
Consolidated Statements of Income (unaudited)
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(Amounts in thousands, Three months ended
except per share data) December 31,
----------------------------
1994 1993
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<S> <C> <C>
Revenue:
Commercial premiums $ 332,438 $ 286,788
Government premiums (Medicare and Medicaid) 477,595 348,500
Other income 11,581 10,460
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Total operating revenue 821,614 645,748
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Expenses:
Health care services:
Medical services 322,484 258,547
Hospital services 279,267 217,292
Other services 74,548 59,424
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Total health care services 676,299 535,263
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Marketing, general and administrative expenses 113,191 89,382
Amortization of intangibles 1,258 766
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Operating income 30,866 20,337
Interest income 4,901 6,089
Interest expense (1,684) (486)
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Income before income taxes and cumulative effect
of a change in accounting principle 34,083 25,940
Provision for income taxes 14,026 11,201
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Income before cumulative effect of a change in
accounting principle 20,057 14,739
Cumulative effect on prior years of a change in
accounting principle - 5,658
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Net income $ 20,057 $ 20,397
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Weighted average common shares and
equivalents outstanding used to calculated
earnings per share 28,231 27,813
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Earnings per share:
Before cumulative effect of a change in
accounting principle $ 0.71 $ 0.53
Cumulative effect on prior years of
a change in accounting principle - 0.20
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Earnings per share $ 0.71 $ 0.73
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</TABLE>
See accompanying notes.
3
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<TABLE>
<CAPTION>
PacifiCare Health Systems, Inc.
Consolidated Statements of Cash Flows (unaudited)
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(Amounts in thousands) Three months ended
December 31,
-------------------------
1994 1993
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<S> <C> <C>
Operating activities:
Net income $20,057 $20,397
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,912 4,182
Cumulative effect of a change in
accounting principle - (5,658)
Deferred income taxes 2,466 1,794
Amortization of intangibles 1,258 766
Provision for doubtful accounts 90 16
Loss on disposal of fixed assets 32 322
Other - 15
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable 167 1,582
Prepaid, intangible and other assets (3,315) 2,989
Medical claims and benefits payable 6,200 32,157
Accounts payable and accrued liabilities 16,380 10,167
Unearned premium revenue 15,858 117,550
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Net cash flows provided by operating activities 64,105 186,279
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Investing activities:
(Purchase) sale of marketable securities (22,922) 1,643
Purchase of property, plant and equipment (5,980) (7,049)
Acquisitions, net of cash acquired (5,553) (16,136)
(Purchase) sale of marketable securities -
restricted (578) 90
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Net cash flows used in investing activities (35,033) (21,452)
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Financing activities:
Principal payments on long-term debt (87,292) (1,192)
Borrowings under long-term lines of credit 83,502 -
Proceeds from issuance of common stock 699 625
Purchase and retirement of common stock - (1,077)
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Net cash flows used in financing activities (3,091) (1,644)
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Net increase in cash and equivalents 25,981 163,183
Beginning cash and equivalents 192,609 33,262
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Ending cash and equivalents $ 218,590 $ 196,445
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</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
PacifiCare Health Systems, Inc.
Consolidated Statements of Cash Flows (unaudited)
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(Amounts in thousands) Three months ended
December 31,
-------------------------
1994 1993
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<S> <C> <C>
Supplemental cash flow information
Cash paid during the period for:
Income taxes $ 569 $ 3,057
Interest $ 2,054 $ 303
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Supplemental schedule of noncash investing
and financing activities:
Leases capitalized $ 343 $ 3,817
Tax benefit realized upon exercise of stock options $ 429 $ 429
Compensation awarded in Class B Common Stock $ - $ 849
Details of unrealized holding loss on available-for-sale
securities:
Decrease in marketable securities $ 8,186 $ -
Increase in deferred taxes $ 3,314 $ -
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Decrease in shareholders' equity $ 4,872 $ -
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Details of businesses acquired in purchase transactions:
Fair value of assets acquired $ 7,680 $ 34,399
Less liabilities assumed or created, including
notes to seller 2,127 13,768
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Cash paid for acquisitions 5,553 20,631
Cash acquired in acquisitions - 4,495
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Net cash paid for acquisitions $ 5,553 $ 16,136
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See accompanying notes.
</TABLE>
5
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PACIFICARE HEALTH SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by PacifiCare Health Systems, Inc. (the "Company") without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures, normally
included in the financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
SEC rules and regulations; nevertheless, the management of the Company believes
that the disclosures herein are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's most recent Annual Report on Form 10-K,
filed with the SEC in November 1994 In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the consolidated financial position of the Company with respect
to the interim condensed consolidated financial statements, and the consolidated
results of its operations and its cash flows for the interim periods then ended,
have been included. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
NOTE 2 - MARKETABLE SECURITIES
On October 1, 1994, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This statement
addresses the accounting and reporting for investments in equity and debt
securities. All current unrestricted investments have been designated as
"available for sale" and, their carrying values have been adjusted to fair
market value. Marketable securities-restricted have been designated as held to
maturity and continue to be stated at amortized cost. The cumulative effect of
adopting SFAS No. 115 on October 1, 1994 was a decrease to marketable securities
of $6.3 million, a decrease to shareholders' equity of $3.8 million and an
increase to deferred tax assets of $2.5 million.
NOTE 3 - ACQUISITIONS
The Company completed several acquisitions during fiscal year 1994. In
October 1993, the Company acquired certain assets including approximately 14,000
members from Freedom Plan, Inc. In November 1993, the Company acquired all of
the issued and outstanding capital stock of each of California Dental Health
Plan, Inc. ("CDHP") and Dental Plan Administrators ("DPA"). CDHP is a licensed
provider of prepaid dental and optometric benefits for individuals and groups,
and DPA is an affiliated company of CDHP that provides administrative services
to CDHP and other companies. In December 1993, the Company acquired all of the
issued and outstanding capital stock of Advantage Health Plans, Inc., a
Miami-based health maintenance organization ("HMO") with approximately 20,000
members. In February 1994, the Company acquired all of the issued and
outstanding capital stock of Preferred Health Resources, Inc. ("PHRI"), a
Seattle-based corporation. PHRI owns all of the issued and outstanding capital
stock of Network Health Plan, Inc., a Seattle-based health care services
contractor with approximately 28,000 members, and Network Management
Incorporated, an affiliated company that provides administrative services to the
health plan and other companies. In September 1994, the Company acquired all of
the issued and outstanding capital stock of
6
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Pasteur Health Plans, Inc. ("PHP"), Pasteur Delivery Systems, Inc. ("PDS") and
Interstate Medical Equipment, Inc. ("IME"). PHP is a Miami-based HMO with
approximately 50,000 members. PDS and IME are affiliated companies of PHP that
provide medical and administrative services to PHP and other companies.
The total purchase price for these acquisitions including estimated
contingent purchase payments, is expected to be approximately $97 million. Of
the total purchase price, $92 million has been paid to date. This amount
includes approximately $5.6 million in contingent payments made in the first
quarter of fiscal year 1995. The remaining contingent purchase payments for
these acquisitions will be paid in 1995 if certain events occur. Based on the
fair values of assets acquired and liabilities assumed in connection with these
acquisitions, the preliminary estimate of excess purchase price is approximately
$98 million. A final allocation of purchase price will be determined when
appraisals and other studies are completed and contingent purchase payments are
determined. The transactions have been accounted for as purchases and the
operating results of each completed acquisition are included in the consolidated
financial statements from the date of purchase. Amortization of the excess
purchase price is made over a period not to exceed forty years.
The following table summarizes the unaudited pro forma consolidated results
of the Company as though the completed acquisitions occurred at the beginning of
the periods presented giving effect to the interest income foregone, the costs
associated with the integration of the operations into those of the Company and
the amortization of the excess of the purchase price over the fair value of the
assets acquired. The unaudited pro forma information is not necessarily
indicative of the actual consolidated results of operations that would have
occurred had the completed acquisitions occurred at the beginning of the period
and is not intended to be indicative of results which may occur in the future.
<TABLE>
<CAPTION>
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(Unaudited)
Three months ended
December 31,
(Amounts in thousands, except per share data) 1993
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<S> <C>
Premium revenue $ 674,185
Total operating revenue $ 686,637
Pretax income $ 24,614
Net income $ 19,358
Earnings per share $ 0.70
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<FN>
(1) The unaudited pro forma income before cumulative effect of a change
in accounting principle for the quarter ended December 31, 1993 was $13.7
million or $0.50 per share. The unaudited pro forma cumulative effect on
prior years of a change in accounting principle for the quarter ended
December 31, 1993 is $5.7 million or $0.20 per share (see Note 4 of the
Notes to Condensed Consolidated Financial Statements).
</TABLE>
NOTE 4 - INCOME TAXES
As of October 1, 1993, the Company adopted SFAS No. 109, ACCOUNTING FOR
INCOME TAXES and recorded a benefit for the cumulative effect prior to October
1, 1993 of the change in accounting principle of $5,658,000 or approximately
$0.20 per share. SFAS No. 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS No. 109
generally considers all expected future events other than enactments of changes
in the tax law or rates. Previously, the Company used the SFAS No. 96 asset and
liability approach that gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying
7
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amounts. As permitted by SFAS No. 109, the Company has elected not to restate
the financial statements of prior years.
NOTE 5 - LONG-TERM DEBT
In November 1994, the Company established a $250 million revolving line of
credit with Bank of America National Trust and Savings Association ("B of A")
and a syndicate of banks (the "BofA Credit Line"). The BofA Credit Line was
established to replace the syndicated $130 million credit line with The Chase
Manhattan Bank, N.A. (the "Chase Credit Line"). The BofA Credit Line has a five
year term with interest payable at a rate per annum equal to the London
Interbank Offered Bank Rate plus a margin. The BofA Credit Line is subject to,
among other things, certain financial covenants, including a fixed charge ratio
and a leverage ratio. The Credit Line may be extended beyond its five year
term, but not beyond November 30, 2001. As of December 31, 1994, advances under
the BofA Credit Line were $83 million; the advances were used to pay the balance
owed on the Chase Credit Line.
NOTE 6 - SHAREHOLDERS' EQUITY
In September 1994, the Company commenced a public offering of 750,000
shares of the Company's Class B Common Stock to certain physician groups (the
"groups") which currently contract with the Company. The Company completed this
public offering in December 1994 with six groups entering into agreements to
purchase an aggregate of 90,000 shares of Class B Common Stock at $64.88 per
share. Each group has entered into an irrevocable obligation to purchase a
fixed number of shares of the Class B Common Stock at $64.88 per share payable
over a five year period beginning May 1, 1996.
On December 13, 1993, UniHealth, Inc. ("UniHealth"), the Company's largest
shareholder, completed a public offering of 575,000 shares of the Company's
Class A Common Stock, par value $0.01 per share (the "Class A Common Stock").
The Company did not receive any of the proceeds of this offering. Subsequent to
the offering, UniHealth's ownership of Class A Common Stock was reduced to less
than 50 percent.
NOTE 7 - CONTINGENCIES
The Company is involved in legal actions in the normal course of business,
some of which seek substantial monetary damages, including claims for punitive
damages which are not covered by insurance. After review, including
consultation with counsel, management believes any ultimate liability in excess
of amounts accrued which could arise from the actions would not materially
affect the Company's consolidated financial position or results of operations.
NOTE 8 - SUBSEQUENT EVENTS
In January 1995, Prescription Solutions, the Company's pharmacy benefit
management company, acquired all of the issued and outstanding stock of
Preferred Solutions, a San Jose, California based pharmacy benefit management
company. Also in January 1995, the Company entered into a definitive agreement
to purchase certain assets, including 61,000 members, of ValuCare, a central
California HMO owned and operated by Priority Health Services of Fresno,
California. The ValuCare acquisition is subject to, among other things, various
regulatory approvals, and is expected to close by April 1995.
8
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Part I: FINANCIAL INFORMATION
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents membership data by region and by consumer type as
of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1993
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Government Government
(Medicare & (Medicare &
MEMBERSHIP DATA Commercial Medicaid) Total Commercial Medicaid) Total
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<S> <C> <C> <C> <C> <C> <C>
California 638,090 313,960 952,050 591,652 240,664 832,316
Florida 56,768 11,549 68,317 8,000 12,000 20,000
Oklahoma 112,963 12,590 125,553 107,836 9,809 117,645
Oregon 67,105 40,639 107,744 52,532 29,586 82,118
Texas 62,419 38,557 100,976 57,338 26,874 84,212
Washington 33,274 17,047 50,31 12,352 - 12,352
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Total membership 970,619 434,342 1,404,961 829,710 318,933 1,148,643
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</TABLE>
<TABLE>
<CAPTION>
OPERATING STATISTICS Three months ended
December 31,
------------------
1994 1993
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<S> <C> <C>
Medical loss ratio (health care services as a
percent of premium revenue) 83.5% 84.3%
Marketing, general and administrative expenses
as a percent of operating revenue 13.8% 13.8%
Operating income as a percent of operating revenue 3.8% 3.1%
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</TABLE>
RESULTS OF OPERATIONS
Three months Ended December 31, 1994
Compared to the
Three months Ended December 31, 1993
Total operating revenue increased 27 percent to $822 million for the three
months ended December 31, 1994 from $646 million for the same period in the
prior year. Growth in both the government (Medicare and Medicaid) and
commercial programs, a result of enrollment gains offset slightly by decreases
in premium rates, provided an increase in total operating revenue of $128
million. In addition, approximately $41 million of the remaining increase in
total operating revenue represents the incremental operations included in the
quarter ended December 31, 1994 of acquisitions described in Note 3 of the Notes
to Condensed
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Consolidated Financial Statements. The Company's specialty managed care
products and services and its joint venture medical groups contributed the
remainder of the increase.
For the three months ended December 31, 1994, commercial HMO premiums
increased $42 million to $315 million as compared to the same period in the
prior year. Excluding the effects of acquisitions described above, membership
growth provided the majority of the increase in the commercial HMO program. The
remainder of the increase in commercial premiums was derived from commercial
specialty managed care products and services and joint venture medical groups.
Because of increased competition in the Company's markets, overall commercial
HMO premium rates decreased an average of one percent for the three months ended
December 31, 1994. In California, the decrease was 3 percent. The Company
expects commercial HMO premium rates to remain flat or decrease slightly for the
remainder of fiscal year 1995.
Government premiums rose $129 million to $478 million for the three months
ended December 31, 1994. Excluding the effects of acquisitions described above,
enrollment gains predominately in the Secure Horizons program contributed 86
percent of this increase. Effective January 1, 1995, the Company received a
weighted average premium rate increase of approximately 5.4 percent from the
Health Care Financing Administration ("HCFA") for the areas in which the Company
operates its Secure Horizons program. As a result of increasing competition,
the rate of government membership growth is expected to decline, as compared to
growth rates experienced in prior years.
Total health care service expenses as a percent of premium revenue (the
"medical loss ratio") for the quarter ended December 31, 1994, have decreased to
83.5 percent from 84.3 percent for the same period in the prior year. The
commercial medical loss ratio decreased to 81.7 percent from 83.2 percent while
the government medical loss ratio decreased to 84.8 percent from 85.1 percent.
The Company expects to experience upward pressure on the consolidated medical
loss ratio throughout fiscal 1995. A higher consolidated medical loss ratio is
expected because the government program, which has a higher medical loss ratio,
continues to grow at a faster rate than the commercial program. In addition,
pricing pressures are expected to result in a higher commercial medical loss
ratio while the government medical loss ratio is expected to remain flat because
premium increases are expected to be offset by enhanced benefits and increased
health care costs in new geographic markets.
The decrease in the commercial medical loss ratio for the three months
ended December 31, 1994 is primarily attributable to decreases in outpatient
hospital costs because of seasonally low utilization. As a percentage of
premium revenue, these lower costs were partially offset by higher physician
payments which resulted from changes in product mix resulting from the addition
of dental products and other recent acquisitions (see Note 3 of the Notes to
Condensed Consolidated Financial Statements).
The decrease in the medical loss ratio for the government program for the
three months ended December 31, 1994, as compared to the same period of the
prior year, is primarily related to lower capitation and inpatient hospital
costs.
Marketing, general and administrative expenses increased $24 million to
$113 million for the three months ended December 31, 1994 from $89 million for
the same period in the prior year. As a percentage of operating revenue,
marketing, general and administrative expenses remained the same at 13.8 percent
compared to the same period in the prior year. Future marketing, general and
administrative expenses as a percentage of operating revenue are expected to be
comparable or slightly less than the prior year as the Company obtains
efficiency through process improvement offset by new market expansion.
10
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Earnings per share ("EPS") before the cumulative effect of a change in
accounting principle rose 34 percent to $0.71 for the quarter ended December 31,
1994, compared to EPS of $0.53 for the comparable quarter in the prior year.
These increases are primarily related to membership growth derived substantially
from the government program and a lower commercial medical loss ratio. EPS for
the quarter was reduced by $0.07 per share because marketable securities were
sold for net realized losses of $2.1 million and reinvested to take advantage of
current interest rates. For the quarter ended December 31, 1993, changes in
income tax accounting principles (see Note 3 of the Notes to Condensed
Consolidated Financial Statements) increased EPS by approximately $0.20,
resulting in earnings per share of $0.73.
The Company's ability to expand is dependent, in part, on competitive
premium pricing and its ability to secure cost-effective contracts with
additional physicians or to ensure that existing physician groups expand their
operations to accommodate the Company's new HMO membership. Achieving such
objectives with respect to competitive premium pricing and physician contracts
is becoming difficult due to increasing competition. In addition, the Company's
profitability is dependent, in part, on its ability to maintain effective
control over health care costs while providing members with quality care.
Factors such as health care reform, utilization, new technologies, hospital
costs, major epidemics, and numerous other external influences may affect the
Company's operating results. Accordingly, past financial performance is not
necessarily a reliable indicator of future performance, and investors should not
use historical records to anticipate results or future period trends.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital as of December 31, 1994 was $234 million, an
increase of $3 million from September 30, 1994. Cash generated from operations
decreased by $122 million for the three months ended December 31, 1994 as
compared to the same period in the prior year. The majority of this change is
the result of a decrease of $102 million in the change in unearned premiums due
to the timing of the advanced payment received by the Company from HCFA.
For the three months ended December 31, 1994, the Company made purchases of
marketable securities of $23 million and capital expenditures of $6 million
primarily for computer equipment. These purchases were financed in part by
borrowings under capital leases. The Company anticipates that the level of
capital expenditures will be similar to fiscal year 1994 due to continuing
investments to support the redesign of information systems.
In November 1994, the Company established with B of A and a syndicate of
banks, the B of A Credit Line (see Note 5 of the Notes to Condensed Consolidated
Financial Statements). As of December 31, 1994, advances under the B of A
Credit Line were $83 million. These advances were used to repay the balance
owed on the Chase Credit Line which was established by the Company in January
1994. The Company's capital resources must fund its existing HMO operations,
the introduction of new products and services and the continued development of
its health care related business. In addition, regulators in various states,
including some states where the Company's HMOs operate, are considering revising
existing laws governing HMOs which may result in an increase in the capital
requirements of HMOs. The Company believes its current capital resources
are adequate for those purposes, however, the Company will continue to pursue
new opportunities to raise capital in order to better position itself in a
consolidating industry.
On October 1, 1994, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This statement
addresses the accounting and reporting for investments in equity and debt
securities. All current unrestricted investments have been designated as
"available for sale" and, their carrying values have been adjusted to fair
market value. Marketable securities-restricted have been designated as held to
maturity and continue to be stated at amortized cost. The cumulative effect of
adopting SFAS No. 115 on October 1, 1994 was a decrease to marketable securities
of $6.3 million, a decrease to shareholders' equity of $3.8 million and an
increase to deferred tax assets of $2.5 million.
12
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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
None
Item 5: Other Information
None
Item 6: Exhibits and Reports
a) Exhibit Index
Exhibit 10.1 Credit Line, dated November 30, 1994 among
PacifiCare Health Systems, Inc., Bank of American
National Trust and Savings Association, as Agent
and the other financial institutions named
therein.
Exhibit 10.2 Employment Agreement, dated as of
December 1, 1994, between the Company and Alan
Hoops.
Exhibit 10.3 Employment Agreement, dated as of
December 12, 1994, between the Company and Jeffrey
Folick.
Exhibit 11A Computation of Net Income per Share of Common
Stock - Primary
Exhibit 11B Computation of Net Income per Share of Common
Stock - Fully Diluted
Exhibit 27 Financial Data Schedules
b) No other reports on Form 8-K were filed during the quarter for
which this report is filed.
13
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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.
PACIFICARE HEALTH SYSTEMS, INC.
(Registrant)
Date: February 6, 1995 By: /s/ Alan Hoops
------------------------ ---------------------------
Alan Hoops
President and Chief
Executive Officer
Date: February 6, 1995 By: /s/ Wayne Lowell
------------------------ ---------------------------
Wayne Lowell
Executive Vice President and
Chief Financial Officer
14
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- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of November 30, 1994
among
PACIFICARE HEALTH SYSTEMS, INC.
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
THE CHASE MANHATTAN BANK, N.A.
CITICORP USA, INC.
NATIONSBANK OF TEXAS, N.A.,
as Co-Agents
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Adminstrative Agent
Arranged By
[LOGO] BA SECURITIES, INC.
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TABLE OF CONTENTS
Section Page
Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations. . . . . . . . . . . . . . 18
1.03 Types of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.04 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2. Commitments, Loans, Notes and Prepayments . . . . . . . . . . . . 20
2.01 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.02 Borrowings of Committed Loans. . . . . . . . . . . . . . . . . 20
2.03 Changes of Commitments . . . . . . . . . . . . . . . . . . . . 21
2.04 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.05 Lending Offices. . . . . . . . . . . . . . . . . . . . . . . . 21
2.06 Several Obligations. . . . . . . . . . . . . . . . . . . . . . 22
2.07 Evidences of Debt. . . . . . . . . . . . . . . . . . . . . . . 22
2.08 Optional Prepayments and Continuations of
Committed Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.09 Bid Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 23
2.10 Procedure for Bid Borrowings . . . . . . . . . . . . . . . . . . . 24
2.11 Extension of Maturity Date . . . . . . . . . . . . . . . . . . 28
2.12 Increase in Commitments. . . . . . . . . . . . . . . . . . . . 28
Section 3. Payments of Principal and Interest . . . . . . . . . . . . . . . 29
3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . 29
3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . . . . . 31
4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 31
4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.04 Minimum Amounts. . . . . . . . . . . . . . . . . . . . . . . . 32
4.05 Certain Notices. . . . . . . . . . . . . . . . . . . . . . . . 33
4.06 Non-Receipt of Funds by the Agent. . . . . . . . . . . . . . . 33
4.07 Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . 34
Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . . . . . 36
5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . 36
5.02 Limitation on Types of Loans . . . . . . . . . . . . . . . . . 38
5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.04 Treatment of Affected Loans. . . . . . . . . . . . . . . . . . 39
5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.06 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . 42
6.01 Conditions to Effectiveness of Bank Obligations. . . . . . . . 42
6.02 Initial and Subsequent Loans . . . . . . . . . . . . . . . . . 44
Section 7. Representations and Warranties. . . . . . . . . . . . . . . . . . 44
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Section Page
7.01 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . 44
7.02 Financial Condition. . . . . . . . . . . . . . . . . . . . . . 44
7.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.04 No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.05 Corporate Action . . . . . . . . . . . . . . . . . . . . . . . 45
7.06 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.07 Use of Credit. . . . . . . . . . . . . . . . . . . . . . . . . 46
7.08 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.09 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.10 Certain Regulations. . . . . . . . . . . . . . . . . . . . . . 46
7.11 Material Agreements and Liens. . . . . . . . . . . . . . . . . 47
7.12 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . 47
7.13 Subsidiaries, Etc. . . . . . . . . . . . . . . . . . . . . . . 48
7.14 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . 48
7.15 True and Complete Disclosure . . . . . . . . . . . . . . . . . 48
7.16 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.17 Business Activity. . . . . . . . . . . . . . . . . . . . . . . 49
7.18 Accreditation, Etc . . . . . . . . . . . . . . . . . . . . . . 49
Section 8. Covenants of the Company . . . . . . . . . . . . . . . . . . . . 49
8.01 Financial Statements, Etc. . . . . . . . . . . . . . . . . . . 49
8.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.03 Existence, Etc . . . . . . . . . . . . . . . . . . . . . . . . 53
8.04 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.05 Consolidation, Merger or Sale. . . . . . . . . . . . . . . . . 54
8.06 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . 55
8.07 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.08 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.09 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 58
8.10 Fixed Charges Ratio. . . . . . . . . . . . . . . . . . . . . . 58
8.11 Dividends of Subsidiaries During Default . . . . . . . . . . . 58
8.12 Limitation on Payment Restrictions Affecting Subsidiaries. . . 58
8.13 Prepayments of Indebtedness. . . . . . . . . . . . . . . . . . 59
8.14 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . 59
8.15 Transactions with Affiliates . . . . . . . . . . . . . . . . . 59
8.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 59
8.17 Certain Obligations Respecting Subsidiaries. . . . . . . . . . 60
Section 9. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.01 Appointment and Authorization. . . . . . . . . . . . . . . . . . . 63
10.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . 64
10.03 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . 64
10.04 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . . . 64
10.05 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . 65
10.06 Credit Decision. . . . . . . . . . . . . . . . . . . . . . . . . . 65
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Section Page
10.07 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.08 Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . 67
10.09 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.10 Co-Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.01 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.03 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 70
11.06 Assignments and Participations . . . . . . . . . . . . . . . . . . 70
11.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.08 Agreements Superseded. . . . . . . . . . . . . . . . . . . . . . . 73
11.09 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11.10 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
11.12 Treatment of Certain Information . . . . . . . . . . . . . . . . . 73
11.13 GOVERNING LAW; SUBMISSION TO JURISDICTION. . . . . . . . . . . . . 73
11.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 74
SCHEDULES
2.01 Commitments
7.03 Litigation
7.09 Tax Sharing Agreements
7.11 Material Agreements and Liens
7.13 Subsidiaries and Investments
11.02 Addresses for Notices
EXHIBITS
A-1 Form of Committed Loan Note
A-2 Form of Bid Loan Note
B Form of Opinion of Counsel to the Company
C Form of Confidentiality Agreement
D Form of Competitive Bid Request
E Form of Invitation for Competitive Bids
F Form of Competitive Bid
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CREDIT AGREEMENT
This CREDIT AGREEMENT (this "AGREEMENT") dated as of November 30, 1994,
is made between PacifiCare Health Systems, Inc., a Delaware corporation (the
"COMPANY"); each of the lenders that is a signatory to this Agreement identified
under the caption "BANKS" on the signature pages of this Agreement or which,
pursuant to Section 11.06(b), shall become a "Bank" under this Agreement
(individually, a "Bank" and, collectively, the "BANKS"); and Bank of America
National Trust and Savings Association, as administrative agent for the Banks
(in such capacity, together with its successors in such capacity, the "AGENT")
and The Chase Manhattan Bank, N.A., Citicorp USA, Inc. and NationsBank of Texas,
N.A. as co-agents (in such capacity "CO-AGENTS").
The Company has requested the Banks to extend credit to the Company in
an aggregate principal amount not exceeding $250,000,000 to finance the
operations of the Company, to enable the Company or its Subsidiaries to make
certain acquisitions and for other purposes.
Accordingly, the parties hereto agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ABSOLUTE RATE" has the meaning specified in subsection 2.10(c).
"ABSOLUTE RATE AUCTION" means a solicitation of Competitive Bids setting
forth Absolute Rates pursuant to Section 2.10.
"ABSOLUTE RATE BID LOAN" means a Bid Loan that bears interest at a rate
determined with reference to the Absolute Rate.
"ACQUISITION" shall mean any transaction, or any series of related
transactions, by which any Person, in the transaction or as of the most recent
transaction in a series of transactions, directly or indirectly: (a) acquires
any going concern or all or a substantial part of the assets of any corporation,
partnership or other entity or any division of any such entity; or (b) any such
entity or any division of such an entity becomes a Subsidiary of such Person.
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"ADDITIONAL COST" shall have the meaning assigned to that term in
Section 5.01.
"AFFILIATE" shall mean any Person that directly or indirectly controls,
or is under common control with, or is controlled by, the Company. As used in
this definition, "CONTROL" (including, with its correlative meanings,
"CONTROLLED" BY and "UNDER COMMON CONTROL WITH") shall mean the possession,
directly or indirectly, of power to direct or cause the direction of the
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), PROVIDED that, in any
event, any Person that owns directly or indirectly securities having 20 percent
or more of the voting power for the election of directors or other governing
body of a corporation or 20 percent or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, the definition of "Affiliate" shall not
encompass: (a) any individual solely by reason of his or her being a director,
officer or employee of the Company or any of its Subsidiaries; (b) any of the
Subsidiaries of the Company; and (c) the Agent or any Bank.
"AGENT" shall have the meaning assigned to that term in the introductory
paragraphs to this Agreement.
"AGENT'S PAYMENT OFFICE" means the address set forth for "Notices" on
Schedule 11.02 hereto in relation to the Agent, or such other address as the
Agent may from time to time specify where the Company or any Bank shall make
payments under this Agreement.
"AGENT-RELATED PERSONS" means BofA and any successor agent arising under
Section 10.09, together with their respective Affiliates (including, in the case
of BofA, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"APPLICABLE LENDING OFFICE" shall mean, for each Bank and for each Type
of Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank)
designated for such Type of Loan on Schedule 11.02 or such other office of such
Bank (or of an affiliate of such Bank) as such Bank may from time to time
specify to the Agent and the Company as the office for its Loans of such Type.
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"APPLICABLE MARGIN" means the rates per annum, expressed in basis points
per annum set forth below:
<TABLE>
<CAPTION>
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Leverage Ratings Facility LIBOR
Ratio (see below) Fee Margin
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<S> <C> <C> <C> <C>
Level I N/A A+ or above and A1 or above 8.50 19.00
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Level II less than or equal to 30% N/A 10.00 21.25
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Level III less than or equal to 35% N/A 12.50 25.00
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Level IV less than or equal to 40% N/A 17.50 30.00
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</TABLE>
Ratings indicated are the Company's unsecured long-term debt ratings
by Standard and Poor's Rating Group and Moody's Investors Service, Inc.,
respectively ("Ratings"). For any Quarterly Period commencing after any date
that the Company has notified the Agent pursuant to Section 8.01(j) that it has
received Ratings resulting in the Applicable Margin being based on Level I, the
Applicable Margin shall, commencing with the next Quarterly Period, be the rate
per annum set forth opposite Ratings of the Company above. Upon receipt of a
notice under Section 8.01(j) wherein the Company notifies the Agent of a Ratings
change, the Applicable Margin shall, commencing with the next Quarterly Period,
be the rate per annum set forth above opposite the Leverage Ratio for the
Company as reflected on the most recent compliance certificate received by the
Agent pursuant to Section 8.01 prior to the commencement of such Quarterly
Period.
For any Quarterly Period when the Company does not have Ratings or the
Company's Ratings do not result in an Applicable Margin being based on Level I,
the Applicable Margin for such Quarterly Period shall be the rate per annum set
forth above opposite the Leverage Ratio for the Company as reflected on the most
recent compliance certificate received by the Agent pursuant to Section 8.01
prior to the commencement of such Quarterly Period.
Unless the Applicable Margin is based on Level I at the time, if the
Agent does not receive a compliance certificate by the date required by Section
8.01, the Applicable Margin shall, effective as of such date, be the highest
Applicable Margin to but excluding the date the Agent receives such certificate.
Subject to the foregoing, until the delivery of the first compliance certificate
after the Closing Date or a Ratings notice pursuant to Section 8.01(j)
indicating Ratings which result in an Applicable Margin being based on Level I,
the Applicable Margin shall be that indicated by the certificate delivered
pursuant to Section 6.01(g).
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"APPROVED ACQUISITION" shall mean an Acquisition, consummated or to be
consummated by the Company or any Subsidiary of the Company: (a) which does not
or would not result in the Company or any of its Subsidiaries being engaged to
any substantial extent in any line or lines of business activity other than the
Healthcare Business; (b) immediately after which, each of the Company's HMO
Subsidiaries shall be in compliance with all applicable Regulatory Tangible Net
Equity Requirements and shall be in substantial compliance in all other respects
with any HMO Regulation relevant to such requirement; (c) the terms of which
have been accepted by the board of directors or other managing body of the
target Person (which, if such Person is the debtor in any proceeding under the
Bankruptcy Code, shall be the court having jurisdiction in such case); and (d)
immediately before which and after giving effect to which (i) the
representations and warranties of the Company in Section 7 of this Agreement
shall be true in all material respects and (ii) no Default or Event of Default
shall have occurred and be continuing.
"APPROVED MERGER" shall mean a merger or consolidation consummated or
to be consummated by the Company or any Subsidiary of the Company: (a) wherein
the Company or such Subsidiary shall be the continuing or surviving corporation;
(b) the Company and its Subsidiaries do not incur or assume interest-bearing
Indebtedness (other than Indebtedness, which the non-surviving entity had on its
balance sheet prior to such merger or consolidation); (c) which does not or
would not result in the Company or any of its Subsidiaries being engaged to any
substantial extent in any line or lines of business activity other than the
Healthcare Business; (d) immediately after which, each of the Company's HMO
Subsidiaries shall be in compliance with all applicable Regulatory Tangible Net
Equity Requirements and shall be in substantial compliance in all other respects
with any HMO Regulation relevant to such requirement; (e) the terms of which
have been accepted by the board of directors or other managing body of the
target Person (which, if such Person is the debtor in any proceeding under the
Bankruptcy Code, shall be the court having jurisdiction in such case); and (f)
immediately before which and after giving effect to which (i) the
representations and warranties of the Company in Section 7 of this Agreement
shall be true in all material respects and (ii) no Default or Event of Default
shall have occurred and be continuing.
"ARRANGER" means BA Securities, Inc., a Delaware corporation.
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978.
"BANKS" shall have the meaning assigned to that term in the
introductory paragraphs of this Agreement.
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"BASE RATE" means, for any day, the higher of: (a) 0.50 percent 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 LOANS" shall mean Loans that bear interest at rates based
upon the Base Rate.
"BASIC DOCUMENTS" shall mean, collectively, this Agreement and any
Notes.
"BID BORROWING" means a borrowing hereunder consisting of one or more
Bid Loans made to the Company on the same day by one or more Banks.
"BID LOAN" means a loan by a Bank to the Company under Section 2.09,
which may be a LIBOR Bid Loan or an Absolute Rate Bid Loan.
"BID LOAN BANK" means, in respect of any Bid Loan, the Bank making
such Bid Loan to the Company.
"BID LOAN NOTE" has the meaning specified in Section 2.07(c).
"BOFA" means Bank of America National Trust and Savings Association, a
national banking association.
"BUSINESS DAY" shall mean (a) any day other than a Saturday or Sunday
on which commercial banks are not authorized or required to close in New York
City, New York or Los Angeles, California and (b) if such day relates to a
borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a LIBOR Loan or a notice by
the Company with respect to any such borrowing, payment, prepayment, Conversion
or Interest Period, any day on which dealings in Dollar deposits are carried out
in the London interbank market.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be
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<PAGE>
classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board), and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount of
such obligation, determined in accordance with GAAP (including such Statement
No. 13).
"CASH FLOW" shall mean, for any period, the sum, for the Company and
its Consolidated Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) consolidated net
income (it being understood that such amount shall be calculated before
extraordinary items and income or loss attributable to equity in Affiliates) for
such period PLUS (b) amortization (to the extent deducted in determining net
income) for such period plus (c) the Netted Provision for Taxes for such period
PLUS (d) Interest Expense.
"CLOSING DATE" shall mean the date on which the Company, the Agent and
the Banks have executed and delivered this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986.
"COMMITMENT" shall mean, for each Bank, the obligation of such Bank to
make Loans in an aggregate amount at any one time outstanding up to but not
exceeding the amount set opposite the name of such Bank on SCHEDULE 2.01 (as the
same may be reduced from time to time pursuant to Section 2.03). The aggregate
principal amount of such Commitments is $250,000,000.
"COMMITMENT PERCENTAGE" shall mean, with respect to any Bank, the
ratio of (a) the amount of the Commitment of such Bank to (b) the aggregate
amount of the Commitments of all of the Banks.
"COMMITTED LOAN" means a loan by a Bank to the Company under
Section 2.02, and may be a LIBOR Committed Loan or a Base Rate Loan (each, a
"TYPE" of Committed Loan).
"COMMITTED LOAN NOTES" shall mean the promissory notes provided for by
Section 2.07(b).
"COMPANY" shall have the meaning assigned to that term in the
introductory paragraphs of this Agreement.
"COMPETITIVE BID" means an offer by a Bank to make a Bid Loan in
accordance with subsection 2.10(c).
"COMPETITIVE BID REQUEST" has the meaning specified in
subsection 2.10(a).
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<PAGE>
"CONSOLIDATED CAPITALIZATION" shall mean, at any time, Indebtedness of
the Company and its Consolidated Subsidiaries PLUS the sum for the Company and
its Consolidated Subsidiaries (determined on a consolidated basis in accordance
with GAAP) of Net Worth PLUS Redeemable Preferred.
"CONSOLIDATED SUBSIDIARY" shall mean, for any Person, each Subsidiary
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.
"CONTINUE" "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.08 of a Loan of one Type as a Loan of the
same Type from one Interest Period to the next Interest Period.
"CONVERT" "CONVERSION" and "CONVERTED" shall refer to a conversion
pursuant to Section 2.08 of one Type of Committed Loan into another Type of
Committed Loan, which may be accompanied by the transfer by a Bank (at its sole
discretion) of a Committed Loan from one Applicable Lending Office to another.
"DEBT SERVICE" shall mean, for any period, the sum, for the Company
and its Consolidated Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all payments of
principal of Indebtedness scheduled or required to be made during such period
PLUS (b) all Interest Expense for such period PLUS (c) all Dividend Payments for
such period.
"DEFAULT" shall mean an Event of Default or an event that with notice
or lapse of time or both would become an Event of Default.
"DIVIDEND PAYMENT" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or any of the Company's Subsidiaries or of any
warrants, options or other rights to acquire the same (or to make any payments
to any Person, such as "phantom stock" payments, where the amount is calculated
with reference to the fair market or equity value of the Company or any of its
Subsidiaries), but excluding dividends payable solely in shares of common stock
of the Company or any of the Company's Subsidiaries.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
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"ELIGIBLE ASSIGNEE" means (i) 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; (ii) 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 agency located in the
United States; and (iii) a Person that is primarily engaged in the business of
commercial banking and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a
Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a
Subsidiary.
"ENVIRONMENTAL LAW" shall mean all Governmental Rules relating to the
regulation or protection of human or animal health or safety or of the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes
(including Hazardous Materials) into the indoor or outdoor environment,
including ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
The term "Environmental Law" shall include the terms and conditions of any
Governmental Approval issued under any Environmental Law or with respect to any
Hazardous Material.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including any stockholders, or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" shall mean any corporation or trade or business that
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (c) of the Code of which the Company
is a member.
"EVENT OF DEFAULT" shall have the meaning assigned to that term in
Section 9.
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"FASB" shall mean the Financial Accounting Standards Board.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1 percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to BofA on such Business Day on such
transactions as determined by the Agent.
"FIXED CHARGES RATIO" shall mean, as at any date, the ratio of (a)
Cash Flow for the period of four consecutive fiscal quarters ending on or most
recently ended prior to such date to (b) Debt Service for such period.
"GAAP", shall mean generally accepted accounting principles applied on
a basis consistent with those which, in accordance with the last sentence of
Section 1.02(a), are to be used in making the calculations for purposes of
determining compliance with this Agreement.
"GOVERNMENTAL APPROVALS" shall mean any authorization, consent,
approval, license, lease, ruling, permit, waiver, exemption, filing,
registration or notice by or with any Governmental Person.
"GOVERNMENTAL PERSON" shall mean any national (federal or foreign),
state or local government, any political subdivision or any governmental,
quasi-governmental, judicial, public or statutory instrumentality, authority,
agency, body or entity, including the PBGC, Federal Deposit Insurance
Corporation, the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, any central bank or any comparable authority.
"GOVERNMENTAL RULES" shall mean any law, rule, regulation, ordinance,
order, code, judgment, decree, directive, guideline, policy, or any similar form
of decision of, or any interpretation or administration of any of the foregoing
by, any Governmental Person.
"GUARANTEED" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or to become contingently liable under or with respect to, the
Indebtedness,
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other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) Property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, including
causing a bank or other financial institution to issue a letter of credit or
other similar instrument for the benefit of another Person, but excluding
endorsements for collection or deposit in the ordinary course of business. The
terms "GUARANTEE" and "GUARANTEED" used as verbs shall have correlative
meanings.
"HAZARDOUS MATERIAL" shall mean, collectively, any chemicals,
products, materials or other natural or manufactured substances (a) which are
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants,"
"infectious wastes," "Pollutants" or words of similar import under any
Environmental Law and (b) exposure to which or use of which is now or hereafter
prohibited, limited or regulated under any Environmental Law.
"HMO" shall mean any Person which operates as a health maintenance
organization.
"HEALTHCARE BUSINESS" shall mean the provision or arrangement of
health care services, related ancillary products or both through an HMO, a
regulated healthcare service contractor or any other business which in the
ordinary course provides or arranges for such services, products or both, the
provision of health insurance, the management of health care services, and
business activities related and incidental to the same.
"HMO EVENT" shall mean the 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 Governmental Rules applicable to any
HMO Subsidiary under federal or state law and
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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.
"HMO SUBSIDIARY" shall mean any current or future Subsidiary of the
Company that is either an HMO or a regulated healthcare service contractor.
"INDEBTEDNESS" shall mean, for any Person (without duplication): (a)
obligations created, issued or incurred by such Person for borrowed money
(whether by loan, the issuance and sale of debt securities or the sale of
Property to another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such Property from such Person); (b) obligations of
such Person to pay the deferred purchase or acquisition price of Property or
services, other than trade accounts payable (other than for borrowed money)
arising, and accrued expenses incurred, in the ordinary course of business; (c)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective indebtedness so secured has been assumed by such Person;
(d) obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for the
account of such Person; (e) Capital Lease Obligations of such Person; and (f)
Indebtedness of others Guaranteed by such Person.
"INTEREST EXPENSE" shall mean, for any period, the sum, for the
Company and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) all interest
in respect of Indebtedness accrued or capitalized during such period (whether or
not actually paid during such period) PLUS (b) the net amounts payable (or minus
the net amounts receivable) under Interest Rate Protection Agreements accrued
during such period (whether or not actually paid or received during such
period).
"INTEREST PERIOD" shall mean with respect to any (a) LIBOR Loan, each
period commencing on the date such LIBOR Loan is made or, in the case of any
LIBOR Committed Loan, Converted from a Committed Loan of another Type or the
last day of the next preceding Interest Period for such LIBOR Committed Loan and
ending on the numerically corresponding day in the first, second, third, sixth,
and in the case of LIBOR Bid Loans (and LIBOR Committed Loans if consented to by
all Banks), ninth or twelfth calendar month thereafter, as the Company may
select as provided in Section 4.05, except that each Interest Period for a LIBOR
Loan that commences on the last Business Day of a calendar month (or on any day
for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last
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Business Day of the appropriate subsequent calendar month, and (b) Absolute Rate
Bid Loan, a period of not less than seven days and not more than 365 days as the
Company may select in the applicable Competitive Bid Request. Notwithstanding
the foregoing: (i) no Interest Period for any Loan may end after the Maturity
Date; (ii) each Interest Period that would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, in the case of
an Interest Period for a LIBOR Loan, if such next succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day); and
(iii) notwithstanding clauses (i) and (ii) above, no Interest Period for any
LIBOR Loan shall have a duration of less than one month and no Interest Period
for any Absolute Rate Loan shall have a duration of less than seven days and, if
the Interest Period would otherwise be a shorter period, such Loan shall not be
available under this Agreement for such period.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
For purposes of this Agreement, the "credit exposure" at any time of any Person
under an Interest Rate Protection Agreement to which such Person is a party
shall be determined at such time in accordance with the standard methods of
calculating credit exposure under similar arrangements, taking into account
potential interest rate movements and the respective termination provisions and
notional principal amount and term of such Interest Rate Protection Agreement.
"INVESTMENT" shall mean, for any Person: (a) the acquisition (whether
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including any 'short sale" or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of Property from another Person subject
to an understanding or agreement, contingent or otherwise, to resell such
Property to such Person, but excluding any such advance, loan or extension of
credit having a term not exceeding 90 days representing the purchase price of
inventory or supplies sold by such Person in the ordinary course of business);
(c) the entering into of any Guarantee of, or other contingent obligation with
respect to, any liability (not constituting Indebtedness) of any other Person
and (without duplication) any amount committed to be advanced, lent or extended
to such Person; or (d) the entering into of any Interest Rate Protection
Agreement.
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"INVITATION FOR COMPETITIVE BIDS" means a solicitation for Competitive
Bids, substantially in the form of EXHIBIT E.
"LEVERAGE RATIO" shall mean, at any time, the ratio of (a) the sum of
Indebtedness and Redeemable Preferred to (b) Consolidated Capitalization at such
time.
"LIBOR AUCTION" means a solicitation of Competitive Bids setting forth
a LIBOR Bid Margin pursuant to Section 2.10.
"LIBOR BASE RATE" shall mean, with respect to any LIBOR Bid Loan or
LIBOR Committed Loan for any Interest Period for such Loan, the arithmetic mean
(rounded upwards, if necessary, to the nearest 1/16 of 1 percent), as determined
by the Agent of the respective rates per annum quoted by each Reference Bank at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days prior to the first day of such Interest Period for
the offering by such Reference Bank to leading banks in the London interbank
market of Dollar deposits having a term comparable to such Interest Period and
in an amount comparable to, in the case of LIBOR Bid Loans, the LIBOR Bid Loans
to be borrowed in such Bid Loan borrowing, and, in the case of LIBOR Committed
Loans, the principal amount of the LIBOR Loan to be made by such Reference Bank
for such Interest Period; PROVIDED, HOWEVER, that if any Reference Bank is not
participating in any LIBOR Loan during any Interest Period for such Loan, the
LIBOR Rate for such Loan for such Interest Period shall be determined by
reference to the amount of the Loan that such Reference Bank would have made or
had outstanding had it been participating in such Loan during such Interest
Period. If any Reference Bank does not timely furnish such information for
determination of any LIBOR Base Rate, the Agent shall determine such LIBOR Base
Rate on the basis of the information timely furnished by the remaining Reference
Banks.
"LIBOR BID LOAN" means any Bid Loan that bears interest at a rate
based upon the LIBOR Rate.
"LIBOR BID MARGIN" has the meaning specified in subsection
2.10(c)(ii)(C).
"LIBOR COMMITTED LOANS" shall mean Committed Loans the interest rates
on which are determined on the basis of rates referred to in the definition of
"LIBOR Base Rate" in this Section 1.01.
"LIBOR LOANS" shall mean LIBOR Committed Loans or LIBOR Bid Loans the
interest rates on which are determined on the basis of rates referred to in the
definition of "LIBOR Base Rate" in this Section 1.01.
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"LIBOR RATE" shall mean, for any LIBOR Bid Loan or LIBOR Committed
Loan for any Interest Period for such Loan, a rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1 percent) determined by the Agent to be
equal to the LIBOR Base Rate for such Loan for such Interest Period divided by 1
minus the Reserve Requirement for such Loan for such Interest Period.
"LIEN" shall mean, with respect to any Property, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
Property or any agreement to give, or notice of, any of the foregoing. For
purposes of this Agreement and the other Basic Documents, a Person shall be
deemed to own subject to a Lien any Property that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement (other than an
operating lease) relating to such Property.
"LOANS" shall mean Committed Loans and the Bid Loans.
"MAJORITY BANKS" shall mean, subject to the last paragraph of Section
11.04, Banks having more than 50 percent of the aggregate amount of the
Commitments or, if the Commitments shall have terminated, Banks holding more
than 50 percent of the aggregate unpaid principal amount of the Loans.
"MARGIN STOCK" shall mean "margin stock" within the meaning of
Regulations U and X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, prospects, liabilities
or capitalization of the Company and its Subsidiaries taken as a whole, (b) the
ability of the Company to perform its obligations under any of the Basic
Documents, (c) the validity or enforceability of any of the Basic Documents, (d)
the rights, remedies, powers and privileges of the Banks and the Agent under any
of the Basic Documents or (e) the timely payment of the obligations.
"MATERIAL SUBSIDIARY" shall mean any present or future Subsidiary of
the Company that, as of the date of determination, has assets equal to or
greater than five percent of the consolidated total assets of the Company.
"MATURITY DATE" shall mean November 30, 1999 unless extended pursuant
to Section 2.11 hereof.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and which is covered by Title IV of ERISA.
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<PAGE>
"NET WORTH" shall mean, at any date for any Person, the sum for such
Person and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) the amount of capital stock (less the cost of treasury shares and
Redeemable Preferred), PLUS (b) the amount of additional-paid-in-capital,
surplus and retained earnings (or, in the case of a surplus or retained earnings
deficit, MINUS the amount of such deficit).
"NETTED PROVISION FOR TAXES" shall mean, for any period of
determination, the positive or negative difference of the provision for taxes
deducted in determining net income for such period MINUS the amount of taxes
actually paid during such period.
"NOTES" means the Committed Loan Notes and the Bid Loan Notes.
"OBLIGATIONS" shall mean the principal of any Loan, interest, fees and
any other amount payable by the Company under this Agreement or any Note.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PERMITTED MARKET INVESTMENTS" shall mean any security that (a) is of
a type traded or quoted on any exchange or recognized financial market, (b) can
be readily liquidated or disposed of on such exchanges or markets, (c) other
than in the case of an equity security, is rated by, and has no lower than an
"investment grade," rating from any nationally recognized rating agency and (d)
satisfies the Company's investment guidelines as approved by the Board of
Directors of the Company and in effect on November 1, 1994, as the same may be
amended from time to time by such Board.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
Governmental Person.
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"POST-DEFAULT RATE" shall mean, in respect of any obligation that is
not paid when due (whether at stated maturity, by acceleration, by optional or
mandatory prepayment or otherwise), a rate per annum during the period from and
including the due date to but excluding the date on which such amount is paid in
full equal to 2.0 percent PLUS the Base Rate as in effect
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from time to time (provided that, if the amount so in default is principal of a
LIBOR Loan and its due date is a day other than the last day of the Interest
Period for such Loan, the "Post-Default Rate" for such past due principal shall
be, for the period from and including such due date to but excluding the last
day of the Interest Period, 2 percent PLUS the interest rate for such Loan as
provided in Section 3.02(b) and, thereafter, the rate provided for above in this
definition).
"PROPERTY" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PROSPECTIVE PREMIUM DEFAULT" shall mean the institution, with respect
to the Company or any Subsidiary 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 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.
"QUARTERLY DATES" shall mean the last day of February, May, August
and November in each year, the first of which shall be the first such day after
the Closing Date; PROVIDED that if any such day is not a Business Day, then such
Quarterly Date shall be the next succeeding Business Day (unless such Business
Day falls in a subsequent calendar month, in which event such Quarterly Date
shall be the next preceding Business Day).
"QUARTERLY PERIOD" shall mean (a) the period from the Closing Date to
and including the next succeeding Quarterly Date and (b) thereafter, any period
from the first day after a Quarterly Date to and including the next succeeding
Quarterly Date.
"REDEEMABLE PREFERRED" shall mean any preferred or similar stock (a)
that, by its terms or at the option of the holders, is under any circumstance
redeemable or may be required to be repurchased, or is convertible into
Indebtedness, that requires payments to a sinking fund, on or prior to the
payment in full of the Obligations or (b) that, by reason of the option of the
issuer to take or cause any such action and its other terms, should, in
accordance with GAAP, be treated as debt.
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"REFERENCE BANKS" shall mean BofA, NationsBank of Texas, N.A. and The
Dai-Ichi Kangyo Bank, Ltd. (or their respective Applicable Lending Offices, as
the case may be).
"REGULATIONS A, D, G, T, U AND X" shall mean, respectively,
Regulations A, D, G, T, U and X of the Board of Governors of the Federal Reserve
System.
"REGULATORY CHANGE" shall mean, with respect to any Bank (or its
Applicable Lending Office) and any affiliate of such Bank which is a bank, the
occurrence after the Closing Date of any of the following events: (a) the
adoption of any applicable Governmental Rule; (b) any change in any applicable
Governmental Rule (including Regulation D) or in the interpretation or
administration of any Governmental Rule (including Regulation D) by any
Governmental Person charged with its interpretation or administration; or (c)
the adoption or making of any interpretation, directive, guideline, policy or
request applying to a class of banks including such Bank (and any affiliate of
such Bank which is a bank) of or under any Governmental Rule or in the
interpretation or administration of any Governmental Rule (including Regulation
D) (whether or not having the force of law and whether or not failure to comply
would be unlawful) by any Governmental Person charged with its interpretation or
administration.
"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.
"RELEVANT PARTIES" shall have the meaning assigned to such term in
Section 9(b).
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
LIBOR Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding one billion Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall include any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change with respect to (i) any category of liabilities that includes
deposits by reference to which the LIBOR Base Rate is to be determined as
provided in the definition of "LIBOR Base Rate"
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in this Section 1.01 or (ii) any category of extensions of credit or other
assets that includes LIBOR Loans.
"SEC" shall mean the Securities and Exchange Commission.
"SOLVENT" shall mean, with respect to any Person on any date, that on
such date (i) the fair salable value of the Property of such Person is greater
than the total amount of liabilities, including contingent liabilities, of such
Person, (ii) such Person is able to pay its debts and other liabilities,
contingent obligations and other commitments as they mature, (iii) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, (iv) such Person is not engaged in a business or a transaction, for
which such Person's Property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such Person is engaged, and (v) such Person is solvent under all applicable HMO
Regulations. In computing the amount of contingent liabilities at any time,
such liabilities shall be computed at the amount which, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SUBSIDIARY" shall mean, for any Person, any corporation, partnership
or other entity of which at least a majority of the securities or other
ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or
classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. "WHOLLY OWNED SUBSIDIARY" shall mean any such corporation,
partnership or other entity of which all of the equity securities or other
ownership interests (other than, in the case of a corporation, directors'
qualifying shares) are so owned or controlled.
"SUSPENSION NOTICE" shall have the meaning given such term in Section
5.04.
"TYPE" shall have the meaning assigned to such term in Section 1.03.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided in this Agreement,
all accounting terms used in this Agreement shall be
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interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Banks under this Agreement
shall be prepared, in accordance with generally accepted accounting principles
then in effect applied on a consistent basis. All accounting terms and all
determinations and calculations that pursuant to the terms of this Agreement
make express reference to GAAP shall be interpreted and made by application of
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the audited financial statements as at
September 30, 1994 referred to in Section 7.02 unless and until the Majority
Banks shall have determined that such terms, determinations and calculations
shall be interpreted and made on a basis consistent with the generally accepted
accounting principles used in the preparation of the latest financial statements
under Section 8.01.
(b) The Company shall deliver to the Banks at the same time as
the delivery of any annual or quarterly financial statement under Section 8.01:
(i) a description in reasonable detail of any material
variation between the application of accounting principles employed in the
preparation of such statement and the application of accounting principles
employed in the preparation of the next preceding annual or quarterly
financial statements so delivered;
(ii) reasonable estimates of the difference between such
statements arising as a consequence of any such difference; and
(iii) in the case of any material elective change in the
accounting principles used in such preparation made by the Company in
response to a change in generally accepted accounting principles, a
statement that the independent certified public accountants of the Company
concur in such change.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8, the Company will not
change the last day of its fiscal year from September 30 of each year, or the
last days of its fiscal quarters in each of its fiscal years from December 31 of
the preceding calendar year and March 31 and June 30 of the same calendar year,
respectively.
1.03 TYPES OF LOANS. Loans are distinguished by "Type" The "Type" of
a Loan refers to whether such Loan is a LIBOR Loan, a Base Rate Loan or an
Absolute Rate Bid Loan, each of which constitutes a Type.
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1.04 INTERPRETATION. In this Agreement, unless otherwise indicated,
the singular includes the plural and plural the singular; words importing any
gender include the other gender; references to statutes or regulations are to be
construed as including all statutory or regulatory provisions consolidating,
amending or replacing the statute or regulation referred to; references to
"writing" include printing, typing, lithography and other means of reproducing
words in a tangible visible form; the words "including," "includes" and
"include" shall be deemed to be followed by the words "without limitation;"
references to articles, sections (or subdivisions of sections), exhibits,
annexes or schedules are to this Agreement; references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments,
extensions and other modifications to such instruments (without, however,
limiting any prohibition on any such amendments, extensions and other
modifications by the terms of this Agreement); and references to Persons include
their respective permitted successors and assigns and, in the case of
Governmental Persons, Persons succeeding to their respective functions and
capacities.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS.
(a) Each Bank severally agrees, on the terms and conditions of
this Agreement, to make Committed Loans to the Company in Dollars during the
period from and including the Closing Date to but not including the Maturity
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Commitment of such Bank as in effect from time to
time, PROVIDED that in no event shall (a) the aggregate principal amount of all
Committed Loans plus the aggregate principal amount of all Bid Loans outstanding
exceed the aggregate amount of the Commitments as in effect from time to time
and (b) each Bank's Bid Loans reduce such Bank's obligation to lend its
Commitment Percentage of the remaining undrawn Commitments. Subject to the
terms and conditions of this Agreement, during such period the Company may
borrow, repay and reborrow the amount of the Commitments by means of LIBOR
Committed Loans or Base Rate Loans or may Convert Committed Loans of one Type
into Committed Loans of the other Type (as provided in Section 2.08) or to
Continue LIBOR Committed Loans (as provided in Section 2.08).
(b) LIMIT ON LIBOR LOANS. No more than five separate Interest
Periods in respect of LIBOR Committed Loans from each Bank may be outstanding at
any one time.
2.02 BORROWINGS OF COMMITTED LOANS.
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(a) The Company shall give the Agent (which shall promptly
notify the Banks) notice of each borrowing of Committed Loans as provided in
Section 4.05. Not later than 11:00 a.m. San Francisco time on the date specified
for each borrowing of Committed Loans, each Bank shall make available the amount
of the Committed Loan or Committed Loans to be made by it on such date to the
Agent, at Agent's Payment Office, in immediately available funds, for the
account of the Company. The amount so received by the Agent shall, subject to
the terms and conditions of this Agreement, be made available to the Company by
depositing the same, in immediately available funds, in an account of the
Company maintained with BofA or any other financial institution as specified by
the Company.
2.03 CHANGES OF COMMITMENTS.
(a) The Company shall have the right at any time or from time to
time (i) so long as no Loans are outstanding, to terminate the Commitments and
(ii) to reduce the aggregate unused amount of the Commitments; provided that (x)
the Company shall give notice of each such termination or reduction as provided
in Section 4.05 and (y) each partial reduction shall be in an aggregate amount
at least equal to $5,000,000 or in any larger multiple of $5,000,000. The
Commitments once terminated or reduced may not be reinstated.
(b) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Maturity Date.
2.04 FEES.
(a) FACILITY FEE. The Company shall pay to the Agent for the
account of each Bank a facility fee on the amount of such Bank's Commitment
(whether used or unused) for the period from and including the Closing Date to
but not including the earlier of the date such Commitment is terminated and the
Maturity Date at a rate per annum equal to the applicable amount set forth in
the definition of "Applicable Margin" for the facility fee. Accrued facility
fees shall be payable in arrears on each Quarterly Date and on the earlier of
the date the Commitments are terminated and the Maturity Date.
(b) ARRANGEMENT, AGENCY FEES. The Company shall pay an
arrangement fee to the Arranger for the Arranger's own account, and shall pay an
agency fee to the Agent for the Agent's own account, as required by the letter
agreement between the Company, the Arranger and the Agent dated September 28,
1994.
2.05 LENDING OFFICES. The Loans of each Type made by each Bank shall
be made and maintained at such Bank's Applicable Lending Office for Loans of
such Type.
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2.06 SEVERAL OBLIGATIONS. The failure of any Bank to make any Loan to
be made by it on the date specified for such Loan shall not relieve any other
Bank of its obligation to make its Loan on such date, but neither any Bank nor
the Agent shall be responsible for the failure of any other Bank to make a Loan
to be made by such other Bank, and no Bank shall have any obligation to the
Agent or any other Bank for the failure by such Bank to make any Loan required
to be made by such Bank.
2.07 EVIDENCES OF DEBT.
(a) The Committed Loans made by each Bank shall be evidenced by
one or more loan accounts or records maintained by such Bank in the ordinary
course of business. The loan accounts or records maintained by the Agent and
each Bank shall be conclusive of the amount of the Committed Loans made by the
Banks to the Company and the interest and payments thereon, absent gross
negligence or willful misconduct. Any failure so to record 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 Committed Loans.
(b) Upon the request of any Bank made through the Agent, the
Committed Loans made by such Bank may be evidenced by one or more notes
substantially in the form of EXHIBIT A-1 hereto (each, a "Committed Loan Note"),
instead of loan accounts. Each such Bank shall endorse on the schedules annexed
to its Committed Loan Note the date, amount and maturity of each Committed 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 Committed Loan Note and each Bank's record shall be conclusive
absent gross negligence or willful misconduct; PROVIDED, HOWEVER, that the
failure of a Bank to make, or an error in making, a notation thereon with
respect to any Committed Loan shall not limit or otherwise affect the
obligations of the Company hereunder or under any such Committed Loan Note to
such Bank.
(c) The Bid Loans made by such Bank shall be evidenced by one or
more notes substantially in the form of EXHIBIT A-2 hereto (each, a "Bid Loan
Note"). Each such Bank shall endorse on the schedules annexed to its Bid Loan
Note the date, amount and maturity of each Bid 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 Bid Loan Note and
each Bank's record shall be conclusive absent gross negligence or willful
misconduct; PROVIDED, HOWEVER, that the failure of a Bank to make, or an error
in making, a notation thereon with respect to any Bid Loan shall not limit or
otherwise affect the obligations of the Company hereunder or under any such Bid
Loan Note to such Bank.
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(d) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan made by each Bank to the Company,
and each payment made on account of the principal of each such Loan, shall be
recorded by such Bank on its books and, prior to any transfer of any Note
evidencing the Loans, held by it, endorsed by such Bank on the schedule attached
to such Note or any continuation of such Note; PROVIDED that the failure of such
Bank to make, or an error in making, any such recordation or endorsement shall
not affect the obligations of the Company to make a payment when due of any
amount owing under this Agreement or under such Note in respect of the Loans to
be evidenced by such Note.
(e) No Bank shall be entitled to have its Committed Note
subdivided, by exchange for promissory notes of lesser denominations or
otherwise, except in connection with a permitted assignment of all or any
portion of such Bank's relevant Commitment, Committed Loans and Committed Note
pursuant to Section 11.06(b).
2.08 OPTIONAL PREPAYMENTS AND CONTINUATIONS OF COMMITTED LOANS. (a)
Subject to Section 4.04, the Company shall have the right to prepay Committed
Loans, or (subject also to Section 5.04) to Convert Committed Loans of one Type
into Committed Loans of the other Type or to Continue LIBOR Committed Loans, at
any time or from time to time, PROVIDED that: (a) the Company shall give the
Agent notice of each such prepayment, Conversion or Continuation as provided in
Section 4.05 (and, upon the date specified in any such notice of prepayment, the
amount to be prepaid shall become due and payable under this Agreement); and (b)
LIBOR Committed Loans may be prepaid or Converted only on the last day of an
Interest Period for such Committed Loans.
(b) Bid Loans may not be voluntarily prepaid without the written
consent of the Bid Loan Bank making such Bid Loan.
(c) After giving effect to any Conversion or Continuation of
Committed Loans, there may not be more than eight different Interest Periods in
effect in respect of all Committed Loans and Bid Loans together then
outstanding.
2.09 BID BORROWINGS. In addition to borrowings of Committed Loans
pursuant to Section 2.02, each Bank severally agrees that the Company may, as
set forth in Section 2.10, from time to time request the Banks prior to the
Maturity Date to submit offers to make Bid Loans to the Company; PROVIDED,
HOWEVER, that the Banks may, but shall have no obligation to, submit such offers
and the Company may, but shall have no obligation to, accept any such offers;
and PROVIDED, FURTHER, that at no time shall (a) each Bank's Bid Loans reduce
such Bank's obligation to lend its Commitment Percentage of the remaining
undrawn Commitments; (b) the outstanding aggregate principal amount of all
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Bid Loans made by all Banks, plus the outstanding aggregate principal amount of
all Committed Loans made by all Banks exceed the combined Commitments; or (c)
the number of Interest Periods for Bid Loans then outstanding plus the number of
Interest Periods for Committed Loans then outstanding exceed eight. Each Bid
Loan shall ratably reduce the available Commitments by an amount equal to such
Bid Loan.
2.10 PROCEDURE FOR BID BORROWINGS.
(a) When the Company wishes to request the Banks to submit
offers to make Bid Loans hereunder, it shall transmit to the Agent by telephone
call followed promptly by facsimile transmission a notice in substantially the
form of EXHIBIT D (a "COMPETITIVE BID REQUEST") so as to be received no later
than 9:00 a.m. (San Francisco time) (x) four Business Days prior to the date of
a proposed Bid Borrowing in the case of a LIBOR Auction, or (y) one Business Day
prior to the date of a proposed Bid Borrowing in the case of an Absolute Rate
Auction, specifying:
(i) the date of such Bid Borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Bid Borrowing, which
shall be a minimum amount of $5,000,000 or in multiples of $1,000,000
in excess thereof;
(iii) whether the Competitive Bids requested are to be
for LIBOR Bid Loans or Absolute Rate Bid Loans or both; and
(iv) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of "Interest
Period" herein.
Subject to subsection 2.10(c), the Company may not request Competitive Bids for
more than three Interest Periods in a single Competitive Bid Request and may not
request Competitive Bids more than once in any period of five Business Days.
(b) Upon receipt of a Competitive Bid Request, the Agent will
promptly send to the Banks by facsimile transmission an Invitation for
Competitive Bids, which shall constitute an invitation by the Company to each
Bank to submit Competitive Bids offering to make the Bid Loans to which such
Competitive Bid Request relates in accordance with this Section 2.10.
(c) (i) Each Bank may at its discretion submit a
Competitive Bid containing an offer or offers to make Bid Loans in
response to any Invitation for Competitive Bids. Each Competitive Bid
must comply with the requirements of this subsection 2.10(c) and must
be
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submitted to the Agent by facsimile transmission at the Agent's office for
notices set forth on SCHEDULE 11.02 hereto not later than (1) 7:00 a.m.
(San Francisco time) three Business Days prior to the proposed date of the
Bid Borrowing, in the case of a LIBOR Auction or (2) 7:00 a.m. (San
Francisco time) on the proposed date of the Bid Borrowing, in the case of
an Absolute Rate Auction; PROVIDED that Competitive Bids submitted by BofA
(or any Affiliate of BofA) in the capacity of a Bank may be submitted, and
may only be submitted, if BofA or such Affiliate notifies the Agent of the
terms of the offer or offers contained therein not later than (A) 6:45 a.m.
(San Francisco time) three Business Days prior to the proposed date of the
Bid Borrowing, in the case of a LIBOR Auction or (B) 6:45 a.m. (San
Francisco time) on the proposed date of the Bid Borrowing, in the case of
an Absolute Rate Auction.
(ii) Each Competitive Bid shall be in substantially
the form of EXHIBIT F, specifying therein:
(A) the proposed date of the Bid Borrowing;
(B) the principal amount of each Bid Loan for
which such Competitive Bid is being made, which principal amount
(x) may be equal to, greater than or less than the Commitment of
the quoting Bank, (y) must be a minimum amount of $5,000,000 or
in multiples of $1,000,000 in excess thereof, and (z) may not
exceed the principal amount of Bid Loans for which Competitive
Bids were requested;
(C) in case the Company elects a LIBOR Auction,
the margin above or below the LIBOR Base Rate (the "LIBOR BID
MARGIN") offered for each such Bid Loan, expressed as a per-
centage (rounded to the nearest 1/16th of 1 percent) to be added
to or subtracted from the applicable LIBOR Base Rate and the
Interest Period applicable thereto;
(D) in case the Company elects an Absolute Rate
Auction, the rate of interest per annum (rounded upward to the
nearest 1/100th of 1 percent) (the "ABSOLUTE RATE") offered for
each such Bid Loan; and
(E) the identity of the quoting Bank.
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A Competitive Bid may contain up to three separate offers by the
quoting Bank with respect to each Interest Period specified in the
related Invitation for Competitive Bids.
(iii) Any Competitive Bid shall be disregarded if it:
(A) is not substantially in conformity with
EXHIBIT F or does not specify all of the information required by
subsection (c)(ii) of this Section;
(B) contains qualifying, conditional or similar
language;
(C) proposes terms other than or in addition to
those set forth in the applicable Invitation for Competitive
Bids; or
(D) arrives after the time set forth in
subsection 2.10(c)(i).
(d) Promptly on receipt and not later than 7:30 a.m. (San
Francisco time) three Business Days prior to the proposed date of the Bid
Borrowing in the case of a LIBOR Auction, or 7:30 a.m. (San Francisco time) on
the proposed date of the Bid Borrowing, in the case of an Absolute Rate Auction,
the Agent will notify the Company of the terms (i) of any Competitive Bid
submitted by a Bank that is in accordance with subsection 2.10(c), and (ii) of
any Competitive Bid that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid submitted by such Bank with respect to the same
Competitive Bid Request. Any such subsequent Competitive Bid shall be
disregarded by the Agent unless such subsequent Competitive Bid is submitted
solely to correct a manifest error in such former Competitive Bid and only if
received within the times set forth in subsection 2.10(c). The Agent's notice
to the Company shall specify (1) the aggregate principal amount of Bid Loans for
which offers have been received for each Interest Period specified in the
related Competitive Bid Request; and (2) the respective principal amounts and
LIBOR Bid Margins or Absolute Rates, as the case may be, so offered. Subject
only to the provisions of Sections 5.02, 5.03 and 6.02 and the provisions of
this subsection (d), any Competitive Bid shall be irrevocable except with the
written consent of the Agent given on the written instructions of the Company.
(e) Not later than 8:00 a.m. (San Francisco time) three Business
Days prior to the proposed date of the Bid Borrowing, in the case of a LIBOR
Auction, or 8:00 a.m. (San Francisco time) on the proposed date of the Bid
Borrowing, in the case of an Absolute Rate Auction, the Company shall notify the
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Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to subsection 2.10(d). The Company shall be under no obligation to
accept any offer and may choose to reject all offers. In the case of
acceptance, such notice shall specify the aggregate principal amount of offers
for each Interest Period that is accepted. The Company may accept any
Competitive Bid in whole or in part; PROVIDED that:
(i) the aggregate principal amount of each Bid
Borrowing may not exceed the applicable amount set forth in the
related Competitive Bid Request;
(ii) the principal amount of each Bid Borrowing must
be a minimum amount of $5,000,000 or in any multiple of $1,000,000 in
excess thereof;
(iii) acceptance of offers may only be made on the
basis of ascending LIBOR Bid Margins or Absolute Rates within each
Interest Period, as the case may be; and
(iv) the Company may not accept any offer that is
described in subsection 2.10(c)(iii) or that otherwise fails to comply
with the requirements of this Agreement.
(f) If offers are made by two or more Banks with the same LIBOR
Bid Margins or Absolute Rates, as the case may be, for a greater aggregate
principal amount than the amount in respect of which such offers are accepted
for the related Interest Period, the principal amount of Bid Loans in respect of
which such offers are accepted shall be allocated by the Agent among such Banks
as nearly as possible (in such multiples, not less than $1,000,000, as the Agent
may deem appropriate) in proportion to the aggregate principal amounts of such
offers. Determination by the Agent of the amounts of Bid Loans shall be
conclusive in the absence of manifest error.
(g) (i) The Agent will promptly notify each Bank having
submitted a Competitive Bid if its offer has been accepted and, if its
offer has been accepted, of the amount of the Bid Loan or Bid Loans to be
made by it on the date of the Bid Borrowing.
(ii) Each Bank, which has received notice pursuant to
subsection 2.10(g)(i) that its Competitive Bid has been accepted,
shall make the amounts of such Bid Loans available to the Agent for
the account of the Company at the Agent's Payment Office, by
11:00 a.m. (San Francisco time), on such date of Bid Borrowing, in
funds immediately available to the Agent
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for the account of the Company at the Agent's Payment Office.
(iii) Promptly following each Bid Borrowing, the Agent
shall notify each Bank of the ranges of bids submitted and the highest
and lowest Bids accepted for each Interest Period requested by the
Company and the aggregate amount borrowed pursuant to such Bid
Borrowing.
(iv) From time to time, the Company and the Banks
shall furnish such information to the Agent as the Agent may request
relating to the making of Bid Loans, including the amounts, interest
rates, dates of borrowings and maturities thereof, for purposes of the
allocation of amounts received from the Company for payment of all
amounts owing hereunder.
(h) If, on or prior to the proposed date of the Bid Borrowing,
the Commitments have not been terminated and if, on such proposed date of the
Bid Borrowing all applicable conditions to funding referenced in Sections 5.02,
5.03 and 6.02 hereof are satisfied, the Bank or Banks whose offers the Company
has accepted will fund each Bid Loan so accepted. Nothing in this Section 2.10
shall be construed as a right of first offer in favor of the Banks or to
otherwise limit the ability of the Company to request and accept credit
facilities from any Person (including any of the Banks), provided that no
Default or Event of Default would otherwise arise or exist as a result of the
Company executing, delivering or performing under such credit facilities.
2.11 EXTENSION OF MATURITY DATE. In the event that: (a) the Company
requests in writing no less than 45 days prior to any anniversary of the Closing
Date ("Anniversary Date") that the Maturity Date be extended for one year
(provided, that the Maturity Date shall not be extended beyond November 30,
2001); (b) each Bank shall have determined in its sole discretion to consent to
such extension; and (c) the Agent shall have delivered a written notice of such
determination to the Company no less than 15 days prior to such Anniversary
Date, then the Maturity Date shall be extended for an additional one-year
period. Any Bank that shall not have indicated its determination under this
Section 2.11 to the Agent on or prior to the 15th day prior to such Anniversary
Date shall be deemed not to have consented to such extension.
2.12 INCREASE IN COMMITMENTS. The Company may from time to time (but
not more than once in any twelve-month period) request an increase in the
aggregate amount of the Commitments upon giving written notice to the Agent.
Upon receipt of such notice, the Agent shall notify the Banks in writing
thereof, and each Bank shall have 30 days to respond, in its sole discretion,
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whether to agree to increase its Commitment by an amount equal to its Commitment
Percentage of such requested increase. Any Bank that shall not have indicated
its determination under this Section 2.12 to the Agent within the above time
period shall be deemed not to have consented to such increase. To the extent
that any Bank declines, or is deemed to have declined, to participate in any
such increase (a "Declining Bank"), the Company may, with the consent of the
Agent, (a) request one or more other Banks to, in their sole discretion, further
increase their Commitment(s) by the amount of the increase declined by the
Declining Bank(s) and/or (b) invite one or more lenders not a party to this
Agreement, but qualifying as an Eligible Assignee, to assume Commitment(s) equal
to the amount of the increase declined by the Declining Bank(s) (provided that
any new lender shall have a Commitment of not less than $10,000,000) by becoming
a party to this Agreement by signing a counterpart of this Agreement and such
other documentation as Agent may reasonably request to effectuate such
transaction. Any further increase in any Bank's Commitment in accordance with
the prior sentence or any new lender becoming a party hereto shall be completed
within 60 days after the date the Company delivered its original notice to the
Agent in accordance with the first sentence of this Section. If, after giving
effect to any increase in the Commitments as aforesaid, the respective
Commitment Percentages of the Banks are not the same as the respective
Commitment Percentages of the Banks immediately prior to such increase, the
Company shall prepay any outstanding Committed Loans, together with interest
thereon and any amounts due pursuant to Section 5.05, effective as of the date
of such increase, and may reborrow such Committed Loans from each Bank in
accordance with each Bank's revised Commitment Percentage after giving effect to
such increase.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF LOANS. The Company hereby promises to pay to the
Agent for the account of each Bank the entire outstanding principal amount of
such Bank's Loans. Each Committed Loan shall mature on the Maturity Date. In
addition, if at any time, the aggregate principal amount of the Committed Loans
and the Bid Loans shall exceed the Commitments, the Company shall prepay
Committed Loans in an aggregate amount equal to such excess. The Company shall
repay each Bid Loan on the last day of the relevant Interest Period.
3.02 INTEREST. The Company hereby promises to pay to the Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
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(a) during such periods as such Committed Loan is a Base Rate
Loan, the Base Rate (as in effect from time to time);
(b) during such periods as such Committed Loan is a LIBOR
Committed Loan, for each Interest Period, the LIBOR Rate for such Committed Loan
for such Interest Period PLUS the Applicable Margin; and
(c) each Bid Loan shall bear interest on the outstanding
principal amount thereof from the relevant borrowing date at a rate per annum
equal to the LIBOR Base Rate plus (or minus) the LIBOR Bid Margin, or at the
Absolute Rate, as the case may be.
Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for the account of each Bank interest from time to time on demand at the
applicable Post-Default Rate on any Obligation held by such Bank to or for the
account of such Bank, which shall not be paid in full when due (whether at
stated maturity, by acceleration, by mandatory prepayment or otherwise), for the
period from and including the due date of any such amount to but excluding the
date the same is paid in full.
Subject to the preceding sentence, accrued interest on each Loan shall be
payable:
(i) in the case of a Base Rate Loan, quarterly on the Quarterly
Dates;
(ii) in the case of a LIBOR Committed Loan, on the last day of
each Interest Period for such Loan and, if such Interest Period is longer than
three months, at three-month intervals following the first day of such Interest
Period, and upon the payment or prepayment of such Loan or the Conversion of
such Loan to a Loan of another Type;
(iii) in the case of a LIBOR Bid Loan, on the last day of each
Interest Period for such Loan and, if such Interest Period is longer than three
months, at three-month intervals following the first day of such Interest
Period, and upon the payment or prepayment of such LIBOR Bid Loan; and
(iv) in the case of an Absolute Rate Loan, on the last day of
each Interest Period for such Loan and, if such Interest Period is longer than
90 days, at 90-day intervals following the first day of such Interest Period and
upon the payment or prepayment of such Absolute Rate Bid Loan.
Promptly after the determination of any interest rate provided for in this
Agreement or any change in any such interest rate, the Agent shall give notice
of the same to the Banks to which such interest is payable and to the Company.
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Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided in this Agreement,
all payments of any Obligations shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to the Agent at
Agent's Payment Office, not later than 12:00 noon San Francisco time on the date
on which such payment shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next succeeding Business
Day).
(b) The Company shall, at the time of making each payment under
this Agreement of any Obligation for the account of any Bank, specify to the
Agent (which shall so notify each intended recipient) to which Obligation such
payment is to be applied (and in the event that the Company fails to so specify,
or if an Event of Default has occurred and is continuing, the Agent may
distribute such payment to the Banks for application in such manner as it or the
Majority Banks, subject to Section 4.02, may determine to be appropriate).
(c) Each payment received by the Agent under this Agreement of
any Obligation for the account of any Bank shall be paid by the Agent promptly
to such Bank, in immediately available funds, for the account of such Bank's
Applicable Lending Office for the Loan or other obligation in respect of which
such payment is made.
(d) Except to the extent otherwise provided, if the due date of
any payment of any Obligation would otherwise fall on a day that is not a
Business Day, such date shall be extended to the next succeeding Business Day,
and interest shall be payable for any principal so extended for the period of
such extension.
4.02 PRO RATA TREATMENT. Except to the extent otherwise provided in
this Agreement: (a) the making, Conversion and Continuation of Committed Loans
(other than Conversion provided for by Section 5.04) and partial reductions in
the Commitments shall be made pro rata among the relevant Banks according to the
amounts of their respective Commitments (in the case of making of Loans or
partial reductions of the Commitments) or their respective Committed Loans (in
the case of Conversions and Continuations of Loans) and the then current
Interest Period for each LIBOR Committed Loan shall be coterminous; and (b) each
payment on account of any obligations to or for the account of one or more of
the Banks in respect of any obligations due on a particular day (or, if such day
is not a Business Day, the next succeeding Business Day) shall be entitled to
priority over
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payments in respect of Obligations not then due and shall be allocated among the
Banks entitled to such payments PRO RATA in accordance with the respective
amounts due and payable to such Banks on such day (or Business Day) and shall be
distributed accordingly; provided that if immediately prior to giving effect to
any such payment in respect of any Committed Loan the outstanding principal
amount of the Committed Loans shall not be held by the Banks pro rata in
accordance with their respective Commitments of such Type in effect at the time
such Committed Loans were made (by reason of a failure of a Bank to make a Loan
under this Agreement in the circumstances described in the last paragraph of
Section 11.04), then such payment shall be applied to the Committed Loans in
such manner as shall result, as nearly as is practicable, in the outstanding
principal amount of the Committed Loans being held by the Banks pro rata in
accordance with their respective Commitments. Nothing in this Section 4.02
shall be deemed to prevent, except in the case of shortfall, the differential
indemnity and other amounts owing to or for the account of a particular Bank or
Banks pursuant to any provisions of any Basic Document which, by their terms,
require differential payments.
4.03 COMPUTATIONS. Interest on LIBOR Loans, Bid Loans and facility
fees shall be computed on the basis of a year of 360 days and the actual number
of days elapsed (including the first day but excluding the last day occurring in
the period for which payable) and interest payable at the Base Rate shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and the
actual number of days elapsed (including the first day but excluding the last
day) occurring in the period for which payable. Notwithstanding the foregoing,
for each day that the Base Rate is calculated by reference to the Federal Funds
Rate, interest payable at the Base Rate shall be computed on the basis of a year
of 360 days and the actual number of days elapsed.
4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant
to Section 3.01 and Conversions or prepayments made pursuant to Section 5.04,
each borrowing, Conversion and partial prepayment of principal of Committed
Loans shall be in an aggregate amount at least equal to $5,000,000 or any larger
whole multiple of $1,000,000 (borrowings or prepayments of, or Conversion into,
Committed Loans of different Types or having different Interest Periods at the
same time to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period).
Notwithstanding any other provision of this Agreement, the aggregate principal
amount of LIBOR Committed Loans having the same Interest Period shall be in an
amount at least equal to $5,000,000 or any larger whole multiple of $1,000,000
and, if any LIBOR Loans would otherwise be in a lesser principal amount for any
period, such Committed Loans shall be Base Rate Loans during such period.
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4.05 CERTAIN NOTICES. Notices by the Company to the Agent of
terminations or reductions of the Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Loans, and of the duration of Interest
Periods shall be irrevocable and shall be effective only if received by the
Agent not later than 10:00 a.m. San Francisco time on the number of Business
Days prior to the date of the relevant termination, reduction, borrowing,
Conversion, Continuation or prepayment or the first day of such Interest Period
specified below:
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction
of Commitments 3
Borrowing or prepayment of, or
Conversion into, Base Rate Loans Same Day
Borrowing or prepayment of, Conversion
into, Continuations as, or
duration of Interest Period
for, LIBOR Committed Loans 3
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Committed
Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to
Section 4.04) and Type of each Committed Loan to be borrowed, Converted,
Continued or prepaid and the date of borrowing, Conversion, Continuation or
optional prepayment (which shall be a Business Day). Each such notice of the
duration of an Interest Period shall specify the Committed Loans to which such
Interest Period is to relate. The Agent shall promptly notify the Banks of the
contents of each such notice. In the event that the Company fails to select the
Type of Committed Loan or the duration of any Interest Period for any LIBOR
Committed Loan, within the time period and otherwise as provided in this Section
4.05, such Committed Loan (if outstanding as a LIBOR Committed Loan) will be
automatically Converted into a Base Rate Loan on the last day of the then
current Interest Period for such Committed Loan or (if outstanding as a Base
Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base
Rate Loan.
4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have
been notified by a Bank or the Company (each, a "PAYOR") prior to the date on
which the Payor is to make payment to the Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank under this Agreement or (in the case
of the Company) a payment to the Agent for the account of one or more of
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the Banks (the "REQUIRED PAYMENT"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount of
such payment available to the intended recipient on such date.
(a) If the Required Payment shall represent a payment to be made
by the Company, and the Company has not in fact made the Required Payment to the
Agent under circumstances where the Agent has made the Required Payment
available to the Banks, the Banks shall, on demand, repay to the Agent the
amount so made available together with interest on such amount in respect of
each day during the period commencing on the date (the "ADVANCE DATE") such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day.
(b) If the Required Payment shall represent proceeds of a Loan
to be made by the Banks to the Company, and any Bank has not in fact made the
Required Payment to the Agent under circumstances where the Agent has made the
Required Payment available to the Company, such Bank shall, on demand, pay to
the Agent the amount so made available together with interest on such amount in
respect of each day during the period commencing on the Advance Date until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such day. If such amount is not made available to the Agent on
the next Business Day following such Advance Date, the Company shall on demand,
pay to the Agent such amount, together with interest on such amount in respect
of each day during the period commencing on the Advance Date until the date the
Agent recovers such amount at a rate per annum equal to the rate of interest
provided for such Required Payment pursuant to Section 3.02 (and, in case the
Company shall return the Required Payment to the Agent, without limiting any
claim the Company may have against the Payor in respect of the Required
Payment).
4.07 SHARING OF PAYMENTS, ETC.
(a) The Company agrees that, in addition to (and
without limitation of) any right of set-off, banker's lien or counterclaim a
Bank may otherwise have, each Bank shall be entitled, at its option but only
with the prior written consent of the Agent, to offset balances held by such
Bank or an affiliate of such Bank for the account of the Company at any office
of such Bank or affiliate (and each such affiliate is hereby authorized to
effect such offset), in Dollars or in any other currency, against any
Obligations of the Company to such Bank that are not paid when due (regardless
of whether such balances are then due to the Company). Any Bank so entitled
shall promptly notify the Company and the Agent of any offset effected by it,
PROVIDED that such
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Bank's failure to give such notice shall not affect the validity of such offset.
(b) If any Bank shall obtain from the Company payment of any
obligation through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise with respect to its Committed Loans
(other than from the Agent as provided in this Agreement), and, as a result of
such payment, such Bank shall have received a greater amount of the obligations
than the amount allocable to such Bank under Section 4.02, it shall promptly
purchase from such other Banks participation in (or, if and to the extent
specified by such Bank, direct interests in) such obligations owing to such
other Banks in such amounts, and make such other adjustments from time to time
as shall be equitable, to the end that all the Banks shall share the benefit of
such excess payment (net of any expenses that may be incurred by such Bank in
obtaining or preserving such excess payment) pro rata in accordance with the
unpaid Obligations owing to each of the Banks, PROVIDED that if at the time of
such payment the outstanding principal amount of the Committed Loans shall not
be held by the Banks pro rata in accordance with their respective Commitments in
effect at the time such Committed Loans were made (by reason of a failure of a
Bank to make a Loan under this Agreement in the circumstances described in the
last paragraph of Section 11.04), then such purchases of participation or direct
interests shall be made in such manner as will result, as nearly as is
practicable, in the outstanding principal amount of the Committed Loans being
held by the Banks pro rata according to the amounts of such Commitments. To
such end all the Banks shall make appropriate adjustments among themselves (by
the resale of participation sold or otherwise) if such payment is rescinded or
must otherwise be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation; PROVIDED that the
Company shall have been informed of such purchase.
(d) Nothing contained in this Section 4.07 shall require any
Bank to exercise any such right or shall affect the right of any Bank to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness or obligation of the Company. If, under any applicable
bankruptcy, insolvency or other similar law, any Bank receives a secured claim
in lieu of a set-off to which this Section 4.07 applies, such Bank shall, to the
extent practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Banks entitled under this Section 4.07
to share in the benefits of any recovery on such secured claim.
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Any Bank having outstanding both Committed Loans and Bid Loans at any time a
right of set-off is exercised by such Bank shall apply the proceeds of such set-
off first to such Bank's Committed Loans, until its Committed Loans are reduced
to zero, and thereafter to its Bid Loans.
Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Bank from time to
time on demand such amounts as may be necessary to compensate such Bank for any
costs that such Bank determines are attributable to its making or maintaining of
any LIBOR Loans or its obligation to make any LIBOR Loans, or any reduction in
any amount receivable by such Bank in respect of any of such Loans or such
obligation (collectively, "ADDITIONAL COSTS"), resulting from any Regulatory
Change that:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Notes in respect of any of such Loans
(other than changes in the rate of taxation imposed on or measured by the
overall net income of such Bank or of its Applicable Lending Office for any
of such Loans by the jurisdiction in which such Bank has its principal
office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in the
determination of the LIBOR Rate for such Loan) relating to any extensions
of credit or other assets of, or any deposits with or other liabilities of,
such Bank (including any of such Loans or any deposits referred to in the
definition of "LIBOR Base Rate" in Section 1.01), or any commitment of such
Bank (including the commitments of such Bank); or
(iii) imposes any other condition affecting this Agreement
or its Notes (or any of such extensions of credit or liabilities) or its
Commitments.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make, to Convert Base Rate Loans into or
to Continue LIBOR Loans until the Regulatory Change giving rise to such request
ceases to be in effect (in which case the provisions of Section 5.04 shall be
applicable), PROVIDED that such suspension shall not affect the right of such
Bank (or any affiliate of such Bank which is a bank) to receive the compensation
so requested.
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(b) Without limiting the effect of the foregoing provisions of
this Section 5.01, in the event that, by reason of any Regulatory Change, any
Bank (or any affiliate of such Bank which is a bank) either (i) incurs (or would
incur) Additional Costs as a result of its exceeding a specified level of a
category of deposits or other liabilities of such Bank (or any affiliate of such
Bank which is a bank) that includes deposits by reference to which the interest
rate on LIBOR Loans is determined as provided in this Agreement or of a category
of extensions of credit or other assets of such Bank (or any affiliate of such
Bank which is a bank) that includes LIBOR Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities or assets that it
may hold, then, if such Bank so elects by notice to the Company (with a copy to
the Agent), the obligation of such Bank to make, to Convert Base Rate Loans into
or to Continue LIBOR Loans shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 5.04 shall be
applicable).
(c) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Bank from time to time on demand such amounts as such Bank may determine to
be necessary to compensate such Bank (or, without duplication, any bank or bank
holding company controlling such Bank) for any costs that it determines are
attributable to the maintenance by such Bank (or any Applicable Lending Office
or such bank holding company), pursuant to any Governmental Rule following any
Regulatory Change, of capital in respect of its Commitments or Loans (such
compensation to include an amount equal to any reduction of the rate of return
on assets or equity of such Bank (or any Applicable Lending Office or such bank
holding company) to a level below that which such Bank (or any Applicable
Lending Office or such bank holding company) could have achieved but for such
Governmental Rule.
(d) Each Bank shall notify the Company of any event occurring
after the date of this Agreement entitling such Bank to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Bank obtains actual knowledge of such event;
PROVIDED that (i) if any Bank fails to give such notice within 45 days after it
obtains actual knowledge of such event, such Bank shall, with respect to
compensation payable pursuant to this Section 5.01 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.01
for costs incurred from and after the date 45 days prior to the date that such
Bank does give such notice and (ii) each Bank will designate a different
Applicable Lending Office for the Loans of such Bank affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation by an amount determined by such Bank to be material and will not,
in the sole
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opinion of such Bank, be disadvantageous to such Bank, except that such Bank
shall have no obligation to designate an Applicable Lending Office located in
the United States of America. Each Bank will furnish to the Company a
certificate setting forth the basis and amount of each request by such Bank for
compensation under paragraph (a) or (c) of this Section 5.01. Determinations and
allocations by any Bank for purposes of this Section 5.01 of the effect of any
Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of
the effect of capital maintained pursuant to paragraph (c) of this Section 5.01,
on its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the amounts
required to compensate such Bank under this Section 5.01, shall be conclusive,
PROVIDED that such determinations and allocations are made on a reasonable
basis.
5.02 LIMITATION ON TYPES OF LOANS. Notwithstanding any other
provision of this Agreement, if, on or prior to the determination of any LIBOR
Rate for any Interest Period:
(a) the Agent determines, which determination absent bad faith
shall be conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR Base Rate" in Section 1.01 are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining rates of interest for LIBOR Loans as provided in this Agreement; or
(b) if the Majority Banks determine, which determination absent
bad faith shall be conclusive, and notify the Agent that by reason of conditions
affecting the interbank market the relevant rates of interest referred to in the
definition of "LIBOR Base Rate" in Section 1.01 upon the basis of which the rate
of interest for LIBOR Loans for such Interest Period is to be determined are not
likely to cover adequately the cost to such Banks of funding or continuing to
fund such Type of Loans for such Interest Period;
then the Agent shall give the Company and each Bank prompt notice of such
determination and, so long as such condition remains in effect, the Banks shall
be under no obligation to make, to Convert Base Rate Loans into or to Continue
LIBOR Loans, and the Company shall, on the last day or days of the then current
Interest Period or Periods for the outstanding LIBOR Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with Section
2.08.
5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful or, by reason of a Regulatory
Change, impossible for any Bank or its Applicable Lending Office to honor its
obligation to make (including in respect of any LIBOR Bid Loan as to which the
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Company has accepted such Bank's Competitive Bid, but as to which the borrowing
date has not arrived) or maintain LIBOR Loans, then such Bank shall promptly
notify the Company of such event (with a copy to the Agent) and such Bank's
obligation to make, to Convert Base Rate Loans into or to Continue LIBOR Loans
shall be suspended until such time as such Bank may again make and maintain
LIBOR Loans (in which case the provisions of Section 5.04 shall be applicable).
5.04 TREATMENT OF AFFECTED LOANS. Upon the occurrence of an Event of
Default, the Agent may (and at the request of the Majority Banks shall) by
notice to the Company suspend the obligation of all Banks to make, to Convert
Base Rate Loans into or to Continue LIBOR Committed Loans (a "SUSPENSION
NOTICE"). If the obligation of any Bank to make, to Convert Base Rate Loans
into or to Continue LIBOR Committed Loans shall be suspended pursuant to Section
5.01 or 5.03 (an "AFFECTED BANK"), such Affected Bank's Committed LIBOR Loans
shall be, or if a Suspension Notice has been given, all Bank's LIBOR Committed
Loans shall be, automatically Converted into Base Rate Loans on the last day or
days of the then current Interest Period or Periods for LIBOR Committed Loans
(or, in the case of a Conversion required by Section 5.01(b) or 5.03, on such
earlier date as such Affected Bank may specify to the Company with a copy to the
Agent).
Unless and until a Suspension Notice is terminated or an Affected
Bank gives notice as provided below that the circumstances specified in Section
5.01 or 5.03 that gave rise to such Conversion no longer exist or the Agent
revokes the Suspension Notice (as the case may be):
(a) to the extent that LIBOR Committed Loans have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to LIBOR Committed Loans shall be applied instead to its Base Rate
Loans; and
(b) all Loans that would otherwise be made as LIBOR Committed
Loans shall be made as Base Rate Loans, and all Committed Loans that would
otherwise be Converted into, or Continued as, LIBOR Committed Loans shall
instead remain as or be Converted into Base Rate Loans.
If an Affected Bank gives notice to the Company with a copy to the Agent that
the circumstances specified in Section 5.01 or 5.03 that gave rise to the
Conversion of such Affected Bank's LIBOR Committed Loans pursuant to this
Section 5.04 no longer exist (which such Affected Bank agrees to do promptly
upon such circumstances ceasing to exist) at a time when LIBOR Committed Loans
made by other Banks are outstanding, such Affected Bank's Base Rate Loans shall
be automatically Converted, on the first day or days of the next succeeding
Interest Period or Periods for such outstanding LIBOR Committed Loans, to the
extent necessary so
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that, after giving effect to such Conversions, all Loans held by the Banks
holding LIBOR Committed Loans and by such Affected Bank are held pro rata (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
5.05 COMPENSATION. The Company shall pay to the Agent for the account
of each Bank, upon the request of such Bank through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense that such Bank determines is
attributable to:
(a) any payment, mandatory or optional prepayment or Conversion
of a LIBOR Loan or Absolute Rate Loan made by such Bank for any reason
(including the acceleration of the Loans pursuant to Section 9) on a date other
than the last day of the Interest Period for such Loan; or
(b) any failure by the Company for any reason (including the
failure of any of the conditions precedent specified in Section 6 to be
satisfied) to borrow a LIBOR Loan or an Absolute Rate Loan from such Bank on the
date for such borrowing specified in the relevant notice of borrowing given
pursuant to Sections 2.02 and 2.09, respectively.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for in this Agreement over (ii) the amount of interest that otherwise would have
accrued on such principal amount at a rate per annum equal to the interest
component of the amount such Bank would have bid in the London interbank market
(if such Loan is a LIBOR Loan) for Dollar deposits of leading banks in amounts
comparable to such principal amount and with maturities comparable to such
period (as reasonably determined by such Bank).
5.06 TAXES.
(a) The Company agrees to pay to each Bank such additional
amounts as are necessary in order that the net payment of any Obligation due to
such Bank after deduction for or withholding in respect of any Tax imposed with
respect to such payment (or for payment of such Tax by such Bank), will not be
less than the amount of the Obligation then due and payable,
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PROVIDED that the foregoing obligation to pay such additional amounts shall not
apply:
(i) to any payment to a Bank that is not a U.S. Person
unless such Bank is, on the Closing Date (or on the date it becomes a Bank
as provided in Section 11.06(b)) and on the date of any change in the
Applicable Lending Office of such Bank, either entitled to submit a Form
1001 (relating to such Bank and entitling it to a complete exemption from
withholding on all interest to be received by it under this Agreement and
the Notes in respect of the Loans) or Form 4224 (relating to all interest
to be received by such Bank under this Agreement in respect of the Loans)
(and in that regard each such non-U.S. Person shall on such date deliver to
the Agent and the Company duplicate such Forms 1001 or 4224, as
appropriate), or
(ii) to any Tax imposed solely by reason of the failure by
such non-U.S. Person to comply with applicable certification, information,
documentation or other reporting requirements concerning the nationality,
residence, identity or connections with the United States of America of
such non-U.S. Person if such compliance is required by statute or
regulation of the United States of America as a precondition to relief or
exemption from such Tax.
For the purposes of this Section 5.06(a), (w) "FORM 1001, shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (x) "FORM 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
of the kind to which such Form relates), (y) "U.S. PERSON" shall mean a citizen,
national or resident of the United States of America, a corporation, partnership
or other entity created or organized in or under any laws of the United States
of America, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income and (z) "TAXES" shall mean any present or
future tax, assessment or other charge or levy imposed by or on behalf of any
Governmental Person (other than taxes imposed on or measured by the overall net
income of any Bank or of its Applicable Lending Office by the jurisdiction in
which such Bank has its principal office or any Applicable Lending Office).
(b) within 30 days after paying any amount to the Agent or any
Bank from which it is required by law to make any deduction or withholding, and
within 30 days after it is required by law to remit such deduction or
withholding to any relevant
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taxing or other authority, the Company shall deliver to the Agent for delivery
to such non-U.S. Person evidence satisfactory to such Person of such deduction,
withholding or payment (as the case may be).
Section 6. CONDITIONS PRECEDENT.
6.01 CONDITIONS TO EFFECTIVENESS OF BANK OBLIGATIONS. The obligations
of the Banks under this Agreement are subject to the condition precedent that
the Agent has received the following documents, each of which shall be
satisfactory to the Agent (and to the extent specified below, to each Bank) in
form and substance, before the Closing Date:
(a) CORPORATE DOCUMENTS. The following documents, each
certified as indicated below:
(i) a copy of the certificate of incorporation, as amended,
and in effect, of the Company certified as of a recent date by the
Secretary of State of the State of Delaware, and evidence from Governmental
Persons as to the good standing of the Company;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date and certifying: (A) that
attached to such certificate is a true and complete copy of the bylaws of
the Company, as amended, and in effect at all times from the date on which
the resolutions referred to in clause (B) were adopted to and including the
date of such certificate; (B) that attached to such certificate is a true
and complete copy of resolutions duly adopted by the board of directors of
the Company authorizing the execution, delivery and performance of the
Basic Documents and the extensions of credit under this Agreement, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect; (C) that the certificate of incorporation of the
Company has not been amended since the date of the certification furnished
pursuant to clause (i) above; and (D) as to the incumbency and specimen
signature of each officer of the Company executing the Basic Documents and
each other document to be delivered by the Company from time to time in
connection with any Basic Document (and the Agent and each Bank may
conclusively rely on such certificate until the Agent receives notice in
writing from the Company); and
(iii) a certificate of another officer of the Company as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary, as the case may be, of the Company.
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(b) OFFICER'S CERTIFICATE. A certificate of a senior officer of
the Company, dated the Closing Date, to the effect set forth in Section 6.02(b).
(c) OPINION OF COUNSEL TO COMPANY. An opinion, dated the Closing
Date, of Konowiecki & Rank, counsel to the Company, in substantially the form
of EXHIBIT B and covering such other matters as the Agent or any Bank may
reasonably request (and the Company hereby instructs such Company to deliver
such opinion to the Banks and the Agent).
(d) INVESTMENT COMPANY OPINION. An opinion of Shereff,
Friedman, Hoffman & Goodman, counsel to the Company, to the effect that none of
the Company or any of its Subsidiaries is an "investment company" or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940 (and the Company hereby instructs such counsel to
deliver such opinion to the Banks and the Agent).
(e) NOTES. If any Bank is requesting a Note pursuant to Section
2.07(b), the Note, duly completed and executed, in favor of such Bank.
(f) REGULATORY COMPLIANCE. A certificate of a senior executive
officer of each HMO Subsidiary 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 applicable Governmental
Rules.
(g) RATINGS; LEVERAGE RATIO. A certificate of a senior officer
of the Company, dated the Closing Date, setting forth either (a) the Company's
unsecured long-term debt ratings by Standard and Poor's Rating Group and Moody's
Investors Service, Inc., respectively, or (b) the Leverage Ratio, calculated as
of September 30, 1994.
(h) TERMINATION OF EXISTING AGREEMENT. The Company shall have
terminated, or concurrently herewith is terminating, the Credit Agreement dated
as of January 14, 1994 among the Company, The Chase Manhattan Bank, N.A., as
agent, and the banks party thereto, and all amounts due and owing to the agent
and banks thereunder shall have, or are being, paid in full.
(i) OTHER DOCUMENTS. Such other documents as the Agent or any
Bank or counsel to the Banks (on behalf of the Agent or the Banks) may
reasonably request.
The obligations of the Banks under this Agreement are also subject to the
payment or delivery by the Company of such fees and other consideration as the
Company shall have agreed to pay or deliver
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to any Bank or an affiliate of such Bank or the Agent in connection with this
Agreement, including the reasonable fees and expenses of in-house counsel to
BofA, in connection with the negotiation, preparation, execution and delivery of
the Basic Documents (to the extent that statements for such fees and expenses
have been delivered to the Company).
6.02 INITIAL AND SUBSEQUENT LOANS. The obligation of any Bank to make
any Loan (including such Bank's initial Loan), and to receive through the Agent
any Competitive Bid Request, or otherwise extend any credit to the Company upon
the occasion of each borrowing or other extension of credit under this Agreement
prior to the Maturity Date is subject to the further conditions precedent that
both immediately prior to the making of such Loan or other extension of credit
and also after giving effect to, and to the intended use of, such Loan or other
extension:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Company
in Section 7 shall be true and complete on and as of the date of the making
of such Loan or other extension of credit with the same force and effect as
if made on and as of such date (or, if any such representation or warranty
is expressly stated to have been made as of a specific date, as of such
specific date).
Section 7. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Agent and the Banks that:
7.01 CORPORATE EXISTENCE. Each of the Company and its Material
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material Governmental Approvals necessary, to own its assets and to carry on its
business as now being or as proposed to be conducted; and (c) is qualified to do
business and is in good standing in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure so
to qualify could have a Material Adverse Effect.
7.02 FINANCIAL CONDITION. The Company has previously furnished to
each of the Banks consolidated balance sheets of the Company and its
Consolidated Subsidiaries as at September 30, 1994 and the related consolidated
statements of income, retained earnings and cash flow of the Company and its
Consolidated Subsidiaries for the fiscal year ended on that date, with the
opinion of Ernst & Young.
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All such financial statements are complete and correct and fairly present the
consolidated financial condition of the Company and its Consolidated
Subsidiaries as at that date and the results of their operations for the fiscal
year ended on that date, all in accordance with generally accepted accounting
principles applied on a consistent basis.
Neither the Company nor any of its Subsidiaries has on the Closing Date any
material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the most
recent balance sheet referred to above. Since September 30, 1994, there has
been no material adverse change in the consolidated financial condition,
operations, business or prospects taken as a whole of the Company and its
Consolidated Subsidiaries from that set forth in the financial statements as at
September 30, 1994 for the period ending on that date.
7.03 LITIGATION. Except as disclosed to the Banks in SCHEDULE 7.03,
there are no legal or arbitral proceedings, or any proceedings by or before any
Governmental Person now pending or (to the knowledge of the Company) threatened
against the Company or any of its Subsidiaries which, if adversely determined,
could have a Material Adverse Effect.
7.04 NO BREACH. None of the execution and delivery of the Basic
Documents, the consummation of the transactions contemplated in the Basic
Documents or compliance with the terms and provisions of the Basic Documents
will conflict with or result in a breach of, or require any consent under, the
charter or bylaws of the Company, or any applicable Governmental Rule or any
agreement or instrument to which the Company is a party or by which any of them
or any of their Property is bound or to which any of them is subject, or result
in the acceleration or mandatory prepayment of any indebtedness evidenced by or
termination of, any such agreement or instrument, or result in the creation or
imposition of any Lien upon any Property of the Company pursuant to the terms of
any such agreement or instrument.
7.05 CORPORATE ACTION. The Company has all necessary corporate power
and authority to execute, deliver and perform its obligations under each of the
Basic Documents; the execution, delivery and performance by the Company of each
such Basic Document have been duly authorized by all necessary corporate action
on its part (including any required shareholder approvals); and this Agreement
has been duly and validly executed and delivered by the Company and constitutes,
and each of the Notes when executed and delivered by the Company for value will
constitute, its legal, valid and binding obligation, enforceable against the
Company in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or
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similar laws of general applicability affecting the enforcement of creditors,
rights.
7.06 APPROVALS. No Governmental Approvals are necessary for the
execution, delivery or performance by the Company of the Basic Documents or for
the legality, validity or enforceability any Basic Document.
7.07 USE OF CREDIT. Neither the Company nor any of its subsidiaries
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock, and no part of the proceeds of any extension
of credit under this Agreement will be used to buy or carry any Margin Stock.
7.08 ERISA. Each Plan, and, to the knowledge of the Company, each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Governmental Rule, and no event or
condition has occurred and is continuing as to which the Company would be under
an obligation to furnish a report to the Banks under Section 8.01(f).
7.09 TAXES. (a) The Company and its Subsidiaries have filed all tax
returns required to be filed by them and have paid or made adequate provision
for the payment of all taxes due pursuant to such returns or pursuant to any
assessment received by the Company or any of its Subsidiaries (except such as
are being contested in good faith and by appropriate proceedings diligently
conducted), and no claims are being asserted or contested with respect to such
taxes that are required by generally accepted accounting principles to be
reflected in its financial statements referred to in Section 7.02 and are not so
reflected. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes and other governmental charges are
considered by the Company to be adequate.
(b) Except as set forth in SCHEDULE 7.09, there is no tax
sharing, tax allocation or similar agreement currently in effect providing for
the manner in which tax payments owing by the Company or any of its Subsidiaries
(whether in respect of Federal or state income or other taxes) are allocated
among such Persons. The Company has not given or been requested to give a
waiver of the statute of limitations relating to the payment of Federal or other
taxes.
7.10 CERTAIN REGULATIONS. Neither the Company nor any of its
Subsidiaries is subject to any Governmental Rule restricting its ability to
incur debt.
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7.11 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of SCHEDULE 7.11 is a complete and correct list, as
of the Closing Date of each credit agreement, loan agreement, indenture,
purchase agreement, guarantee, letter of credit or other arrangement providing
for or otherwise relating to any Indebtedness or any extension of credit (or
commitment for any extension of credit) to, or guarantee by, the Company or any
of its Subsidiaries the aggregate principal or face amount of which equals or
exceeds (or may equal or exceed) $3,000,000, and the aggregate principal or face
amount outstanding or that may become outstanding under each such arrangement is
correctly described in Part A of SCHEDULE 7.11.
(b) Part B of SCHEDULE 7.11 is a complete and correct list, as
of the Closing Date, of each Lien securing Indebtedness of any Person the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $1,000,000 and covering any Property of the Company or any of its
Subsidiaries, and the aggregate Indebtedness secured (or which may be secured)
by each such Lien and the Property covered by each such Lien is correctly
described in Part B of SCHEDULE 7.11.
7.12 ENVIRONMENTAL LAWS.
(a) To its knowledge, the Company and its Subsidiaries are in
compliance with all applicable federal, state and local laws and regulations to
air, water, soil and other environmental quality, except where the failure to so
comply would have a Material Adverse Effect, and the Company has not received
any written notification that it is not in such compliance;
(b) There has been no claim, complaint, notice, or request for
information received by the Company or any of its Subsidiaries with respect to
environmental matters, including but not limited to, any alleged violation of
any federal, state, or local statute, regulation, or ordinance relating to the
environment, and there has been no complaint, notice, or inquiry to the Company
or any of its Subsidiaries regarding potential liability under any Environmental
Law, which violation could reasonably be expected to result in a Material
Adverse Effect; and
(c) There has been no release of a Hazardous Material by the
Company or any of its Subsidiaries or, to the knowledge of the Company and its
Subsidiaries after due inquiry, by other Persons, at any facility or property
owned, leased, used, or operated by the Company or any of its Subsidiaries which
might result in liability being imposed upon the Company or any of its
Subsidiaries, which liability might result in a Material Adverse Effect. For
purposes of this clause (c), "release" shall have the meaning assigned to it
under the Comprehensive Environmental Response Compensation and Liability Act.
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7.13 SUBSIDIARIES, ETC.
(a) Set forth in Part A of SCHEDULE 7.13 is a
complete and correct list, as of the Closing Date, of all of the Subsidiaries of
the Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary and (iii) the nature of the ownership interests held by each
such Person and the percentage of ownership of such Subsidiary represented by
such ownership interests. Except as disclosed in Part A of SCHEDULE 7.13, (x)
each of the Company and its Subsidiaries owns, free and clear of Liens, and has
the unencumbered right to vote, all outstanding ownership interests in each
Person shown to be held by it in Part A of SCHEDULE 7.13, (y) all of the issued
and outstanding capital stock of each such Person organized as a corporation is
validly issued, fully paid and nonassessable and (z) there are no outstanding
Equity Rights with respect to such Person.
(b) Set forth in Part B of SCHEDULE 7.13 is a complete and
correct list, as of the Closing Date, of all Investments (other than Permitted
Market Investments and Investments disclosed in Part A of SCHEDULE 7.13) held by
the Company or any of its Subsidiaries in any Person and, for each such
Investment, (x) the identity of the Person or Persons holding such Investment
and (y) the nature of such Investment. Except as disclosed in Part A or Part B
of SCHEDULE 7.13 each of the Company and its Subsidiaries owns, free and clear
of all Liens, all of its Investments.
(c) None of the Subsidiaries of the Company is, on the Closing
Date, subject to any indenture, agreement, instrument or other arrangement of
the type described in Section 8.17(b).
7.14 TITLE TO ASSETS. The Company and its Subsidiaries own and have
on the Closing Date, good and marketable title (subject only to Liens permitted
by Section 8.06) to the Properties shown to be owned in the most recent
financial statements referred to in Section 7.02 (other than Properties disposed
of in the ordinary course of business or otherwise permitted to be disposed of
pursuant to Section 8.05). The Company and its Subsidiaries own and have on the
Closing Date, good and marketable title to, and enjoys on the Closing Date,
peaceful and undisturbed possession of, all Properties (subject only to Liens
permitted by Section 8.06) that are necessary for the operation and conduct of
their businesses.
7.15 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Agent or any Bank in connection with the
negotiation, preparation or delivery of the Basic Documents or included in or
delivered pursuant to any Basic
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Document, when taken as a whole do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements in any
Basic Document, in light of the circumstances under which they were made, not
misleading. All written information furnished after the Closing Date by the
Company and its Subsidiaries to the Agent and the Banks in connection with the
Basic Documents and the transactions contemplated by the Basic Documents will be
true, complete and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to the Company that
could have a Material Adverse Effect that has not been disclosed in the Basic
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to the Banks for use in connection with the
transactions contemplated by the Basic Documents.
7.16 NO DEFAULT. No Default has occurred and is continuing. Except
as would not have a Material Adverse Effect, the Company is not in default under
any order, award or decree of any Governmental Person binding upon or affecting
it or by which any of its assets is bound or affected. The Company is not
subject to any order, award, decree, agreement or other instrument which would
have a Material Adverse Effect.
7.17 BUSINESS ACTIVITY. Neither the Company nor any of its
Subsidiaries is engaged in any line or lines of business activity other than the
Healthcare Business.
7.18 ACCREDITATION, 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 reimbursements available under the HMO
Regulations to the extent applicable to HMOs of their type, (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.
Section 8. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Banks and the Agent that, so long as any Commitment or Loan is
outstanding and until payment in full of all obligations:
8.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver to the
Agent and each of the Banks:
(a) as soon as available and in any event within 50 days after
the end of each quarterly fiscal period of each fiscal year of the Company, (i)
consolidated statements of income
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and retained earnings of the Company and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal year to
the end of such period, (ii) consolidated cash flow statement from the beginning
of the respective fiscal year to the end of such period and (iii) the related
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such period, setting forth in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year, accompanied
by a certificate of the president or chief executive officer, an executive vice
president, or the chief financial officer, treasurer, or controller of the
Company, which certificate shall state that those financial statements fairly
present the consolidated financial condition and results of operations of the
Company and its Consolidated Subsidiaries in accordance with generally accepted
accounting principles then in effect, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 95 days after
the end of each fiscal year of the Company consolidated statements of income,
retained earnings and cash flow of the Company and its Consolidated Subsidiaries
for such fiscal year and the related consolidated balance sheet of the Company
and its Consolidated Subsidiaries as at the end of such fiscal year, setting
forth in comparative form the corresponding figures for the preceding fiscal
year, and accompanied by an opinion of independent certified public accountants
of recognized national standing, which opinion shall state that those financial
statements fairly present the consolidated financial condition and results of
operations of the Company and its Consolidated Subsidiaries as at the end of,
and for, such fiscal year in accordance with generally accepted accounting
principles then in effect, consistently applied, and a certificate of such
accountants stating that, in making the examination necessary for their opinion,
they obtained no knowledge, except as specifically stated, of any Default;
(c) as soon as received, and in any event within 30 days of
receipt of the same by the Company or any of its Subsidiaries, a copy of the
annual management letter and any other final comment letter submitted by such
accountants to the management of the Company or any Subsidiary in connection
with such audit;
(d) promptly upon their becoming available, but in no case more
than five Business days after their filing, copies of all registration
statements, regular periodic reports, and any other material filing (other than
preliminary materials filed on a confidential basis) if any, which the Company
shall have filed with the SEC or any national securities exchange;
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(e) promptly upon (but in no case more than five Business days
after) their being mailed or provided to the shareholders of the Company, copies
of all financial statements, reports, notices and proxy statements so mailed or
provided;
(f) as soon as possible, and in any event within ten days after
the Company knows or has reason to know of the same, a certificate signed by an
executive officer of the Company setting forth details respecting any of the
following:
(i) the occurrence or expected occurrence of any reportable
event, as defined in section 4043(b) of ERISA and the regulations issued
under that Section, with respect to any Plan (PROVIDED that a failure to
meet the minimum funding standard of Section 412 of the Code or Section 302
of ERISA, including the failure to make on or before its due date a
required installment under Section 412(m) of the Code or Section 302(e) of
ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code); and any request for
a waiver under Section 412(d) of the Code for any Plan;
(ii) the institution of proceedings or the taking or
expected taking of other action by the PBGC or the Company or an ERISA
Affiliate to terminate, withdraw or partially withdraw from any Plan or
Multi-Employer Plan and with respect to a Multi-Employer Plan, the
reorganization or insolvency of the Plan and in addition to such notice,
deliver to the Agent: (A) a certificate of an executive officer setting
forth details as to such Reportable Event of the action that the Company or
ERISA Affiliate proposes to take with respect thereto, together, with a
copy of any notice of such Reportable Event that may be required to be
filed with the PBGC, and (B) any notice delivered by the PBGC evidencing
its intent to institute such proceedings or any notice filed with or given
to the PBGC that such Plan is to be terminated, as the case may be;
(iii) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days; and
(iv) the adoption of an amendment to any Plan that, pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in
the loss of tax-exempt status of the trust of which such Plan is a part if
the Company or an ERISA Affiliate fails to timely provide security to the
Plan in accordance with the provisions of those Sections;
(g) promptly (but in no case more than five Business Days)
following the receipt of the same, a copy of each
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notice relating to the loss or threatened loss by the Company or any HMO
Subsidiary of any operating permit, license or certification by any HMO
Regulator;
(h) promptly (but in no case more than five Business Days)
following the receipt of the same, all correspondence received by the Company or
any Subsidiary 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;
(i) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default describing the same in
reasonable detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Company, as the case may be, has
taken or proposes to take with respect to such Default;
(j) promptly (but in no case more than five Business Days) after
the Company receives unsecured long-term debt ratings by Standard and Poor's
Rating Group and Moody's Investors Service, Inc., a notice of such ratings, and
thereafter, promptly (but in no case more than five Business Days) after any
change in such ratings, a notice of such change; and
(k) from time to time upon receipt of a 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 other
information regarding the financial condition, operations, business or prospects
of the Company or any of its Subsidiaries (including with respect to any Plan or
Multiemployer Plan and any reports or other information required to be filed
under ERISA).
The Company will furnish to the Agent and each Bank, at the time it furnishes
each set of financial statements pursuant to paragraph (a) or (b) above, a
certificate of a senior financial officer of the Company (i) to the effect that
no Default has occurred and is continuing (or, if any Default has occurred and
is continuing, describing the same in reasonable detail and describing the
action that the Company has taken or proposes to take with respect to such
Default), (ii) setting forth in reasonable detail the computations necessary to
determine whether the Company is in compliance with Sections 8.09 and 8.10 as of
the end of the respective quarterly fiscal period or fiscal year, and (iii)
setting forth a description of any Acquisitions or mergers involving the Company
or any of its Subsidiaries with respect to which the Company has not delivered
the information set forth in Section 8.05(a) or (b), respectively.
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8.02 LITIGATION. The Company will promptly give to each Bank notice
of all legal, arbitral or investigatory proceedings, and of all proceedings by
or before any Governmental Person, and any material development in respect of
any such proceedings, affecting the Company or any of its Subsidiaries, except
proceedings which, if adversely determined, would not have a Material Adverse
Effect.
8.03 EXISTENCE, ETC. The Company will, and will cause each of its
Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises, including all licenses and
certifications required pursuant to any HMO Regulation, all certification and
authorization necessary to ensure that each of the Subsidiaries is eligible for
all reimbursements available under the HMO Regulations to the extent applicable
to HMOs of their type (except where the failure to maintain the same would not
have a Material Adverse Effect), and all licenses, permits, authorization and
qualifications required under the HMO Regulations in connection with the
ownership or operation of HMOs (PROVIDED that nothing in this Section 8.03 shall
prohibit any transaction expressly permitted under Section 8.05);
(b) comply with the requirements of all applicable Governmental
Rules, including all HMO Regulations, if failure to comply with such
requirements could have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
Properties prior to the date on which penalties attach except for any such tax,
assessment, charge or levy the payment of which is being contested in good faith
and by proper proceedings and against which adequate reserves are being
maintained;
(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles then in effect, consistently applied;
(f) upon reasonable notice permit representatives of any Bank or
the Agent, and their accountants, during normal business hours, to examine, copy
and make extracts from its books and records, to inspect any of its Properties,
and to discuss its business and affairs with its officers, all to the extent
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reasonably requested by such Bank or the Agent (as the case may be); and
(g) complete, and provide within 30 days after the end of each
fiscal year of the Company to representatives of the Agent and each Bank the
opportunity to discuss, a projected annual budget prepared by the Company and
adopted by its Board of Directors for the current fiscal year.
8.04 INSURANCE. The Company will, and will cause each of its
Subsidiaries to, keep insured by financially sound and reputable insurers all
Property of a character usually insured by corporations engaged in the same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations, including general
liability and malpractice insurance and reinsurance for medical claims.
8.05 CONSOLIDATION, MERGER OR SALE. The Company will not, nor will it
permit any of its Subsidiaries to, consolidate with, or merge into, any other
corporation or sell all or any substantial part of its assets or permit any
other corporation to merge into the Company or any of its Subsidiaries or make
any Acquisition; except:
(a) the Company or any of its Subsidiaries may make an Approved
Acquisition; PROVIDED that in the case of an Approved Acquisition wherein the
aggregate cash expenditures of the Company and any of its Subsidiaries made in
connection therewith exceeds or is expected to exceed $20,000,000 (i) the
Company shall deliver to the Agent, in form and substance satisfactory to the
Majority Banks: (A) a written description of such Acquisition; and (B) if
requested by the Agent, copies of all agreements and Governmental Approvals
relating to such Acquisition and evidence, that such Acquisition is an Approved
Acquisition; and (ii) the Company shall calculate and deliver to the Agent prior
to the consummation of such Acquisition, the covenants set forth in Sections
8.09 and 8.10 showing compliance therewith on a pro forma basis as though such
Acquisition had been consummated on the first day of the fourth fiscal quarter
immediately prior to the date of determination;
(b) the Company or any Subsidiary of the Company may merge or
consolidate with or into another Person in an Approved Merger; PROVIDED, that in
the case of a merger or consolidation wherein the value of the cash, stock or
other consideration (including Indebtedness assumed by the Company or its
Subsidiaries in connection therewith) exchanged exceeds or is expected to exceed
$20,000,000, (i) the Company shall deliver to the Agent, in form and substance
satisfactory to the Majority Banks: (A) a written description of such merger or
consolidation;
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and (B) if requested by the Agent, copies of all agreements and Governmental
Approvals relating to such merger or consolidation and evidence that such merger
or consolidation is an Approved Merger; and (ii) the Company shall calculate and
deliver to the Agent prior to the consummation of such merger or consolidation,
the covenants set forth in Sections 8.09 and 8.10 showing compliance therewith
on a pro forma basis as though such merger or consolidation had been consummated
on the first day of the fourth fiscal quarter immediately prior to the date of
determination;
(c) any Subsidiary of the Company may be merged or consolidated
with or into: (i) the Company if the Company shall be the continuing or
surviving corporation or (ii) any Material Subsidiary of the Company; PROVIDED
that (x) if any such transaction shall be between a Subsidiary and a Wholly
Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or
surviving corporation;
(d) the Company may discontinue any operation which it believes
to be no longer in the best interest of the Company and its Subsidiaries taken
as a whole, provided that the Company shall not discontinue a Material
Subsidiary; and
(e) the Company or any of its Subsidiaries may sell upon usual
financial terms the assets of, the capital stock of, or an interest in any
present or future Subsidiary so long as the amount sold in any one or series of
transactions in any two year period does not exceed five percent of the
consolidated total assets of the Company;
PROVIDED, HOWEVER, in actions consummated pursuant to clauses (c), (d), or (e),
(A) the representations and warranties made by the Company in Section 7 shall be
true and complete on and as of the date of such action after giving effect
thereto with the same force and effect as if made on and as of such date (or, if
any such representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date) and (B) no Default or Event of
Default shall then be continuing or, after giving effect to such action, would
result from such action; PROVIDED, FURTHER, that this Agreement shall not be
deemed to restrict the Company, in attempting to make an Approved Acquisition or
engage in an Approved Merger, from making one or more offers for a target person
and/or engaging in negotiations with a target person prior to the acceptance of
the final terms of such Approved Acquisition or Approved Merger by the board of
directors of such target Person.
8.06 LIMITATION ON LIENS. The Company will not, nor will it permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon any of its Property, whether now owned or hereafter acquired, except:
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(a) Liens in existence on the Closing Date and listed in Part B
of SCHEDULE 7.11;
(b) Liens imposed by any Governmental Person for taxes,
assessments or charges not yet due or which are being contested in good faith
and by appropriate proceedings if, unless the amount of such Lien is not
material with respect to it or its financial condition, adequate reserves with
respect to such Lien are maintained on the books of the Company or the affected
Subsidiaries, as the case may be, in accordance with GAAP;
(c) carriers', mechanics', warehousemen's, artisans', service,
suppliers', depositaries', or other like Liens arising in the ordinary course of
business: (i) which are not overdue for a period of more than 45 days and which
are not in danger of imminent foreclosure, or (ii) which are being contested in
good faith and by appropriate proceedings and Liens securing judgments but only
to the extent, for an amount and for a period not resulting in an Event of
Default under Section 9(h);
(d) pledges or deposits in respect of workers' compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of Property or minor imperfections in title which, in the aggregate, are not
material in amount, and which do not in any case materially detract from the
value of the Property subject to such Lien or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(g) Liens on Property of any corporation, partnership or other
entity which becomes a Subsidiary of the Company after the Closing Date,
provided that such Liens are in existence at the time such entity becomes a
Subsidiary of the Company and were not created in anticipation of such event;
(h) Liens (i) upon real or tangible personal Property acquired
after the Closing Date (by purchase, construction or otherwise) by the Company
or any of its Subsidiaries, each of which Liens existed on such Property before
the time of its acquisition and was not created in anticipation of such event
and (ii) upon real Property acquired after the Closing
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Date (by purchase, construction or otherwise) by the Company or any of its
Subsidiaries, each of which Liens was created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including the cost of construction) of such Property; PROVIDED in each case
that no such Lien shall extend to or cover any Property of the Company or such
Subsidiary other than the Property so acquired and improvements on such
Property; and PROVIDED, FURTHER in each case, that the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 80 percent, of the
fair market value (as determined in good faith by a senior financial officer of
the Company) of such Property at the time it was acquired (by purchase,
construction or otherwise);
(i) Capital Lease Obligations permitted under Section 8.07(d);
and
(j) any extension, renewal or replacement of the foregoing,
PROVIDED, however, that the Liens permitted under this clause (j) shall not be
spread to cover any additional Indebtedness or Property (other than a
substitution of like Property).
8.07 INDEBTEDNESS. The Company will not, nor will it permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness
except:
(a) Indebtedness to the Banks under the Basic Documents;
(b) Indebtedness outstanding on the Closing Date and listed in
Part A of SCHEDULE 7.11;
(c) Subject to Section 8.08(d), Indebtedness of Subsidiaries of
the Company to the Company or to other Subsidiaries of the Company; and
(d) Additional Indebtedness of the Company and its Subsidiaries
up to but not exceeding in the aggregate an amount equal to 6 percent of the
total assets of the Company and its Subsidiaries determined on a consolidated
basis in accordance with GAAP and with not more than $25,000,000 being
attributable to Indebtedness of the Company's Subsidiaries to Persons other than
the Company or any other Subsidiary of the Company.
8.08 INVESTMENTS. The Company will not, nor will it permit any of its
Subsidiaries to, make or permit to remain outstanding any Investments except:
(a) Investments outstanding on the Closing Date and identified
in SCHEDULE 7.13 Part B;
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(b) operating deposit accounts with banks;
(c) Permitted Market Investments; PROVIDED, HOWEVER, that the
percentage amount of the aggregate fair market value of Permitted Market
Investments comprised of, as at any date, equity securities (and securities
convertible into equity securities) shall not exceed 15 percent of the aggregate
fair market value of all Permitted Market Investments held as of such date;
(d) (i) Investments by the Company and its Subsidiaries in
capital stock of Subsidiaries of the Company to the extent outstanding on the
date of the financial statements of the Company and its Consolidated
Subsidiaries referred to in Section 7.02 or acquired in an Approved Acquisition
and (ii) Investments by the Company and its Subsidiaries in Subsidiaries of the
Company so long as the aggregate amount so invested or advanced under this
clause (ii), net of repayments, dividends and distributions to the Company,
shall not exceed $20,000,000 for any cumulative period of 18 months after
January 1, 1995;
(e) Interest Rate Protection Agreements so long as the aggregate
notional amount under all Interest Rate Protection Agreements does not exceed
$250,000,000; and
(f) additional Investments up to but not exceeding $10,000,000
in the aggregate.
8.09 LEVERAGE RATIO. The Company will not permit the Leverage Ratio
to exceed (a) 0.40 to 1.00 at any time from the Closing Date through and
including September 30, 1996 and (b) 0.35 to 1.00 at any time thereafter.
8.10 FIXED CHARGES RATIO. The Company will not permit the Fixed
Charges Ratio to be less 3.00 to 1.00 at any time.
8.11 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 Wholly Owned Subsidiary of the Company that is an HMO
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 all funds legally available 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 8.11 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.
8.12 LIMITATION ON PAYMENT RESTRICTIONS AFFECTING Subsidiaries.
Except as set forth in this Agreement, the Company
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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) make Dividend Payments 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
applicable law.
8.13 PREPAYMENTS OF INDEBTEDNESS. Neither the Company nor any of its
Subsidiaries shall purchase, redeem, retire or otherwise acquire for value, or
set apart any money for a sinking, defeasance or other analogous fund for, the
purchase, redemption, retirement or other acquisition of, or make any voluntary
payment or prepayment of the principal of or interest on, or any other amount
owing in respect of, any Indebtedness or exercise any option to redeem any
Redeemable Preferred other than Indebtedness existing under this Agreement,
except for (i) regularly scheduled payments of principal and interest in respect
of such Indebtedness required pursuant to the instruments evidencing such
Indebtedness and (ii) prepayment of the 8.80% senior notes of the Company held
by the Massachusetts Mutual Life Insurance Company (as in effect on the Closing
Date).
8.14 LINES OF BUSINESS. Neither the Company nor any of its
Subsidiaries shall engage in any line or lines of business activity other than
the Healthcare Business.
8.15 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by
this Agreement, the Company will not nor will it permit any of its Subsidiaries
to enter into any material transaction with any Affiliate on any terms more
favorable to such Affiliate than those that would be obtained in an arm's length
transaction, PROVIDED that the Company may make cash payments to UniHealth
America for management or administrative fees in amounts not exceeding
$2,500,000 in any one fiscal year.
8.16 USE OF PROCEEDS. (a) The Company will use the proceeds of the
Loans solely to finance the operations of the Company and to make Approved
Acquisitions or Approved Mergers (in each case in compliance with all applicable
Governmental Rules); PROVIDED that neither the Agent nor any Bank shall have any
responsibility as to the use of any of such proceeds.
(b) The Company shall not, directly or indirectly, use any
portion of the Loan proceeds (i) knowingly to purchase Ineligible Securities
from the Arranger during any period in which
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the Arranger 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 Arranger, or (iii) to make payments of
principal or interest on Ineligible Securities underwritten or privately placed
by the Arranger and issued by or for the benefit of the Company or any Affiliate
of the Company. The Arranger is a registered broker-dealer 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.
8.17 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES.
(a) Except as otherwise provided in this Agreement, the Company will, and will
cause each of its Subsidiaries to, take such action from time to time as shall
be necessary to ensure that the Company or one of its Material Subsidiaries at
all times owns free and clear of any lien, charge, or encumbrance at least the
same percentage of the issued and outstanding shares of each class of stock of,
and enjoys the same degree of voting control over, each of its Material
Subsidiaries as it owned or enjoyed on the Closing Date or as was acquired in
any Acquisition or merger. Without limiting the generality of the foregoing,
none of the Company nor any of its Material Subsidiaries shall sell, transfer or
otherwise dispose of any shares of stock in any Material Subsidiary owned by
them, nor permit any Material Subsidiary to issue any shares of stock of any
class whatsoever to any Person (other than to the Company or another Material
Subsidiary); PROVIDED, HOWEVER, the Company or any of its Subsidiaries may sell
upon usual financial terms the assets of, the capital stock of, or an interest
in any present or future Subsidiary so long as the amount sold in any one or
series of transactions in any two year period does not exceed five percent of
the consolidated total assets of the Company.
(b) The Company will not, nor permit any of its any of its
Subsidiaries to, enter into, after the Closing Date, any indenture, agreement,
instrument or other arrangement (other than pursuant to any Basic Document)
that, directly or indirectly, prohibits or restrains, or has the effect of
prohibiting or restraining, or imposes materially adverse conditions upon, the
incurrence or payment of Indebtedness, the granting of Liens, the declaration or
payment of dividends, the making of loans, advances or Investments or the sale,
assignment, transfer or other disposition of Property.
Section 9. EVENTS OF DEFAULT. If one or more of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) The Company shall: (i) default in the payment of any
principal of any Loan or any interest on any Bid Loan when
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due (whether at stated maturity or at mandatory or optional prepayment); or (ii)
default in the payment of any interest on any Loan or of any other obligation
when due and such default shall have continued unremedied for three or more
days; or
(b) The Company or any of its Material Subsidiaries (the Company
and such Material Subsidiaries shall collectively be referred to as, the
"RELEVANT PARTIES") shall default in the payment when due of any principal of or
interest on any of its other Indebtedness aggregating $10,000,000 or more, or in
the payment when due of any amount under any Interest Rate Protection Agreement
having a credit exposure of $10,000,000 or more; or any event specified in any
note, agreement, indenture or other document evidencing or relating to any such
Indebtedness or any event specified in any Interest Rate Protection Agreement
shall occur if the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, such Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity or to have the interest rate on such Indebtedness reset to a level so
that securities evidencing such Indebtedness trade at a level specified in
relation to its par value or, in the case of an Interest Rate Protection
Agreement, to permit the payments owing under such Interest Rate Protection
Agreement to be liquidated; or
(c) Any representation, warranty or certification made or deemed
made in this Agreement by the Company, or any certificate furnished to any Bank
or the Agent pursuant to the provisions of this Agreement, shall prove to have
been false or misleading as of the time made or furnished or deemed made or
furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Section 8.01(i), 8.05, 8.09, 8.10, 8.11 or 8.13; the
Company shall default in the performance of its obligations under Section 8.06,
8.07, 8.08 or 8.15 and such default shall continue unremedied for a period of 10
days; or the Company shall default in the performance of any of its other
obligations in this Agreement and such default shall continue unremedied for a
period of 30 days after notice of such default to the Company by the Agent or
any Bank (through the Agent); or
(e) Any Relevant Party shall admit in writing its inability to,
or be generally unable to, pay its debts as such debts become due; or
(f) Any Relevant Party shall (i) apply for or consent to the
appointment of, or the taking of possession by, a
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receiver, custodian, trustee, examiner or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for the benefit
of its creditors, (iii) commence a voluntary case under the Bankruptcy Code,
(iv) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the affected Relevant Party, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a receiver, custodian, trustee, examiner, liquidator or the
like of such Relevant Party or of all or any substantial part of its Property,
or (iii) similar relief in respect of such Relevant Party under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more days; or
an order for relief against any Relevant Party shall be entered in an
involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate (exclusive of judgment amounts fully
covered by insurance where the insurer has admitted liability in respect of such
judgment) or in excess of $10,000,000 in the aggregate (regardless of insurance
coverage) shall be rendered by one or more Governmental Persons having
jurisdiction against any Relevant Party and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution of the
relevant judgment shall not be procured, within 30 days from the date of entry
of such judgment and such Relevant Party shall not, within that 30-day period,
or such longer period during which execution of the same shall have been stayed,
appeal from and cause the execution of such judgment to be stayed during such
appeal; or
(i) An event or condition specified in Section 8.01(f) shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Company or any ERISA Affiliate shall incur or shall be reasonably likely to
incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
the foregoing) which would constitute a Material Adverse Effect; or
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(j) Any event occurs which has a Material Adverse Effect; or
(k) Any entity other than UniHealth America shall hold or
acquire, directly or indirectly, the power to vote more than 20 percent of the
outstanding shares of any class of voting stock of the Company or to appoint a
majority of the Company's Board of Directors; or
(l) The Company or any of its Subsidiaries shall lose, or shall
fail to renew promptly upon the expiration, any permit or license, the loss of
which could have a Material Adverse Effect; or
(m) An HMO Event shall have occurred and remain unremedied for
the lesser of 90 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) A Prospective Premium Default shall have occurred.
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9 with respect to the Company, (A) the Agent
shall, at the request of, or may, with the consent of the Majority Banks, by
notice to the Company, terminate the Commitments and they shall thereupon
terminate, and (B) declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other Obligations (including any amounts
payable under Section 5.05) to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company; and (2) in the case of the occurrence of an Event of
Default referred to in clause (f) or (g) of this Section 9 with respect to the
Company, the Commitments shall automatically be terminated and the principal
amount then outstanding of, and the accrued interest on, the Loans and all other
obligations (including any amounts payable under Section 5.05 or 5.06) shall
automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company.
Section 10. THE AGENT.
10.01 APPOINTMENT AND AUTHORIZATION. 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 any Note
and to exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any Note, together with such powers
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as are reasonably incidental thereto. Notwithstanding any provision to the
contrary contained elsewhere in this Agreement or in any Note, 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 Note or
otherwise exist against the Agent.
10.02 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any 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 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 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 Note, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any Note, or for any failure of the Company or any other party to any Basic
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 Note, 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 Note unless it shall first receive such advice or
concurrence of the Majority Banks as it deems appropriate and, if it so
requests,
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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
Note 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 6.01, 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, 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 Section 9; 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
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documentste at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and any Note,
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.
10.07 INDEMNIFICATION. 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 liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including
attorneys' fees and expenses, including the allocated cost of Agent's in-house
counsel) of any kind or nature whatsoever which may at any time (including at
any time following repayment of the Loans 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 or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any 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 bankruptcy or
insolvency proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Agent-Related Person is a party thereto (all the foregoing, collectively, the
"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 all fees and disbursements of any law firm or other external counsel,
the allocated cost of internal legal services and all disbursements of internal
counsel incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any Note, 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
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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 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, and the terms "Bank" and "Banks" include BofA in
its individual capacity.
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 which successor agent shall be
approved by the Company. 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 Agent, the provisions of
this Section 10 and Section 11.03 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.
10.10 CO-AGENTS. None of the Banks identified on the facing page of this
Agreement as a "co-agent" shall have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to all
Banks as such. Without limiting the foregoing, none of the Banks so identified
as a "co-agent" shall have or be deemed to have any fiduciary
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relationship with any Bank. Each Bank acknowledges that it has not relied, and
will not rely, on any of the Banks so identified in deciding to enter into this
Agreement or in taking or not taking action hereunder.
Section 11. MISCELLANEOUS.
11.01 WAIVER. No failure on the part of the Agent or any Bank to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, remedy, power or privilege under this Agreement or any Note shall
operate as a waiver of such right, remedy, power or privilege, nor shall any
single or partial exercise of any right, power or privilege under this Agreement
or any Note preclude any other or further exercise of any such right, remedy,
power or privilege or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges provided in this
Agreement and the Notes are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.02 NOTICES. All notices, requests and other communications
provided for in this Agreement and under the Notes (including any modifications
of, or waivers or consents under, this Agreement) shall be given or made in
writing, delivered to the intended recipient at the "Address for Notices"
specified below its name on SCHEDULE 11.02 hereto or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party. Except as otherwise provided in any Basic Document, all such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as set forth above.
11.03 EXPENSES, ETC. (a) The Company agrees to pay or reimburse the
Agent and the Arranger for all reasonable out-of-pocket costs and expenses
(including reasonable fees (including reasonable allocated fees of in-house
counsel and disbursements of counsel)), incurred by the Agent and the Arranger
in connection with (i) the negotiation, preparation, execution and delivery of
the Basic Documents and the extension of credit under this Agreement and (ii)
any modification, supplement or waiver of any of the terms of any Basic
Document.
(b) The Company agrees to pay or reimburse each of the Banks, the
Agent and the Arranger for: (a) all reasonable costs and expenses of the Banks,
the Agent and the Arranger (including reasonable fees (including reasonable
allocated fees of in-house counsel and disbursements of counsel)) incurred in
connection with (i) any Default and any enforcement or collection proceedings
(including any bankruptcy, reorganization, workout or other similar proceeding)
resulting from such Default or in connection with the negotiation of any
restructuring or "work-out" (whether
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or not consummated) of the obligations of the Company under the Basic Documents
and (ii) the enforcement of this Section 11.03; and (b) all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of any Basic Document or any other
document referred to in any Basic Document.
(c) The Company hereby agrees (i) to indemnify the Agent, the
Arranger and each Bank and their respective affiliates, directors, officers,
employees, attorneys and agents from, and hold each of them harmless against,
any and all losses, liabilities, damages or expenses incurred by any of them in
connection with or by reason of any actual or threatened investigation,
litigation or other proceedings relating to the extensions of credit under, and
the transactions contemplated by, the Basic Documents or any actual or proposed
use by the Company or any of its Subsidiaries of the proceeds of any such
extensions of credit, including the reasonable fees (including reasonable
allocated fees of in-house counsel) and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceedings (but
excluding any such losses, liabilities, damages or expenses incurred by reason
of the gross negligence or willful misconduct of the Person to be indemnified)
and (ii) not to assert any claim against the Agent, any Bank or any of their
respective affiliates, directors, officers, employees, attorneys and agents, on
any theory of liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to any of the transactions
contemplated in any Basic Document. It shall not be a condition to any such
indemnification that the Agent or any Bank be a party to any such investigation,
litigation or other proceeding.
11.04 AMENDMENTS, ETC. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by the Company, the Agent and the Majority
Banks, or by the Company and the Agent acting with the consent of the Majority
Banks, and any provision of this Agreement may be waived by the Majority Banks
or by the Agent acting with the consent of the Majority Banks; PROVIDED that:
(a) no modification, supplement or waiver shall, unless by an instrument signed
by all of the Banks or by the Agent acting with the consent of all of the Banks:
(i) increase (except as provided in Section 2.12), or extend the term of any of
the Commitments (except as provided in Section 2.11), or extend the time or
waive any requirement for the reduction or termination of any of the
Commitments, (ii) extend the date fixed for the payment of any obligation under
this Agreement or the Notes, (iii) reduce the amount of any such payment of
principal, (iv) reduce the rate at which interest or any fee is payable under
this Agreement or alter the basis for calculating any other obligation, (v)
alter the rights or obligations of the Company to prepay Loans, (vi) alter the
terms of this Section 11.04, (vii)
- 69 -
<PAGE>
modify the definition of the term "Majority Banks" or modify in any other manner
the number or percentage of the Banks required to make any determinations or to
waive any rights under, or to modify any provision of, this Agreement, or (viii)
waive any of the conditions precedent set forth in Section 6; and (b) any change
that affects the rights or duties of the Agent hereunder or any modification or
supplement of Section 10 shall require the consent of the Agent. Any
modification, supplement or waiver shall be for such period and subject to such
conditions as shall be specified in the instrument effecting the same and shall
be binding upon the Agent, the Banks and the Company, and any such waiver shall
be effective only in the specific instance and for the purpose for which given.
Notwithstanding anything in this Agreement to the contrary, if, at a
time when the conditions precedent set forth in Section 6 to any Loan are, in
the opinion of the Majority Banks, satisfied, any Bank shall fail to fulfill its
obligations to make such Loan, then, for so long as such failure shall continue,
such Bank shall (unless the Majority Banks, determined as if such Bank were not
a "Bank" under the Basic Documents, shall otherwise consent in writing) be
deemed for all purposes relating to amendments, modifications, waivers or
consents under any of the Basic Documents (including under this Section 11.04)
to have no Loans or Commitments, shall not be treated as a "Bank" under the
Basic Documents when performing the computation of Majority Banks, and shall
have no rights under the preceding paragraph of this Section 11.04; provided
that any action taken by the other Banks with respect to the matters referred to
in clause (a) of the preceding paragraph shall not be effective as against such
Bank.
11.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of its parties and their respective successors and
permitted assigns.
11.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Company may not assign any of its rights or obligations
under this Agreement or under the Notes without the prior consent of all of the
Banks and the Agent.
(b) Each Bank may assign all or any part of its Loans, its Notes
and its Commitments (but only with the consent of, in the case of an outstanding
Commitment, the Agent and the Company, which consent of the Agent and the
Company shall not be unreasonably withheld or delayed), together with, in any
such case, its related rights, remedies, powers and privileges under the Basic
Documents to one or more Eligible Assignees; PROVIDED that (i) no such consent
by the Company or the Agent shall be required in the case of any assignment to
another Bank; (ii) any such partial assignment shall be in an amount at least
equal to $10,000,000; and (iii) each such assignment by a Bank of its
- 70 -
<PAGE>
Loans, Note or Commitment shall be made in such manner so that the same portion
of its Loans, Note and Commitment is assigned to the respective assignee. Upon
execution and delivery by the assignee to the Company and the Agent of an
instrument in writing pursuant to which such assignee agrees to become a "Bank"
under this Agreement (if not already a Bank) having the Commitment or
Commitments and Loans specified in such instrument, and upon the consent of the
Company and the Agent, to the extent required above, the assignee shall have, to
the extent of such assignment (unless otherwise provided in such assignment with
the consent of the Company and the Agent), the obligations, rights and benefits
of a Bank under the Basic Documents holding the Commitment or Commitments and
Loans assigned to it (in addition to the Commitment or Commitments and Loans, if
any, theretofore held by such assignee) and the assigning Bank shall, to the
extent of such assignment, be released from the Commitment or Commitments so
assigned. Upon each such assignment the assigning Bank shall pay the Agent an
assignment fee of $2,500.
(c) A Bank may sell or agree to sell to one or more other
Persons a participation in all or any part of its Loans, its Notes, its
Commitments and its related rights, remedies, powers and privileges under the
Basic Documents, in which event each purchaser of a participation (a
"PARTICIPANT") shall be entitled to the rights and benefits of the provisions of
Section 8.01(k) with respect to such participation as if (and the Company shall
be directly obligated to such Participant under such provisions as if) such
Participant were a "Bank" for purposes of Section 8.01(k), but shall not have
any other rights, remedies, powers or privileges under any Basic Document (the
Participant's rights against such Bank in respect of such participation to be
those set forth in the agreements executed by such Bank in favor of the
Participant). All amounts payable by the Company to any Bank under Section 5 in
respect of such Bank's Loans, Notes and Commitments shall be determined as if
such Bank had not sold or agreed to sell any participations in such Loans, Notes
and Commitments, and as if such Bank were funding each of such Loans, Note and
Commitments in the same way that it is funding the portion of such Loans, Note
and Commitments in which no participations have been sold. In no event shall a
Bank that sells a participation agree with the Participant to take or to refrain
from taking any action under any Basic Document except that such Bank may agree
with the Participant that it will not, without the consent of the Participant,
agree to (i) increase or to extend the term, or to extend the time or to waive
any requirement for the reduction or termination, of such Bank's related
Commitment, (ii) extend the date fixed for the payment of principal of or
interest on the related Loan or Loans or any portion of any fee under this
Agreement payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest or any fee under
this Agreement in which such Bank has sold an interest is payable
- 71 -
<PAGE>
to the Participant, to a level below the rate at which the Participant is
entitled to receive such interest or fee under its agreements with such Bank,
(v) alter the rights or obligations of the Company to prepay the related Loans
or (vi) consent to any modification, supplement or waiver of any Basic Document
to the extent that the same, under Section 11.04, requires the consent of each
Bank.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 11.06, any Bank may assign any of
its Bid Loans and may assign and pledge all or any portion of its Loans and its
Notes to any Federal Reserve Bank as collateral security pursuant to Regulation
A and any Operating Circular issued by such Federal Reserve Bank, and any Bank
may assign all or any part of its Loans and its Notes to any affiliate of such
Bank for the purpose of such a pledge and assignment by such affiliate. No such
assignment shall release the assigning Bank from its obligations under the Basic
Documents.
(e) A Bank may furnish, with the consent of the Company, which
consent shall not be unreasonably withheld or delayed, any information
concerning the Company or any of its respective Subsidiaries in the possession
of such Bank from time to time to assignees and participants (including
prospective assignees and participants), subject, however, to the prior
obligation of each such entity to execute and deliver to such Bank and the
Company a Confidentiality Agreement substantially in the form of EXHIBIT C.
(f) Notwithstanding anything in this Section 11.06 to the
contrary, no Bank may assign or participate any interest in any obligation or
Commitment (or any related rights, remedies, powers or privileges) to the
Company or any of its Affiliates or Subsidiaries without the prior written
consent of each Bank.
11.07 SURVIVAL. The obligations of the Company under Sections 5.01,
5.05, 5.06 and 11.03 and the obligations of the Banks under Section 10.05 shall
survive the repayment of the Obligations and the termination of the Commitments.
In addition, each representation and warranty made, or deemed to be made by a
notice of any extension of credit, in or pursuant to any Basic Document shall
survive the making or deemed making of such representation and warranty, and no
Bank shall be deemed to have waived, by reason of making any extension of
credit, any Default which may arise by reason of such representation or warranty
proving to have been false or misleading, notwithstanding that such Bank or the
Agent may have had notice or knowledge or reason to believe that such
representation or warranty was false or misleading at the time such extension of
credit was made.
- 72 -
<PAGE>
11.08 AGREEMENTS SUPERSEDED. This Agreement supersedes all prior
agreements and understandings, written or oral, among the parties with respect
to the subject matter of this Agreement.
11.09 SEVERABILITY. Any provision of this Agreement or the Notes that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or the Notes, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
11.10 CAPTIONS. The table of contents and captions and section
headings appearing in this Agreement are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties to this Agreement may execute this Agreement
by signing any such counterpart.
11.12 TREATMENT OF CERTAIN INFORMATION. The Company acknowledges that
from time to time financial advisory, investment banking and other services may
be offered or provided to the Company or one or more of its Subsidiaries (in
connection with this Agreement or otherwise) by any Bank or by one or more
subsidiaries or affiliates of such Bank and the Company hereby authorizes each
Bank to share any information delivered to such Bank by the Company and its
Subsidiaries and Affiliates pursuant to this Agreement, or in connection with
the decision of such Bank to enter into this Agreement, with any such Subsidiary
or affiliate, with the consent of the Company, which consent shall not be
unreasonably withheld, so long as such subsidiary or affiliate first executes
and delivers to the respective Bank and to the Company a Confidentiality
Agreement substantially in the form of EXHIBIT C.
11.13 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT AND
THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF CALIFORNIA. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF
CALIFORNIA AND OF ANY CALIFORNIA STATE COURT SITTING IN LOS ANGELES, CALIFORNIA
FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
- 73 -
<PAGE>
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
11.14 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
- 74 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
PACIFICARE HEALTH SYSTEMS, INC.
By: /s/ Coy F. Baugh
---------------------------
Name: COY F. BAUGH
-------------------------
Title: VICE PRESIDENT/TREASURER
------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By: /s/ David Terrance
----------------------------
Vice President
BANKS
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By: /s/ Wyatt Ritchie
----------------------------
Vice President
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Dawn Lee Lum
----------------------------
Title: Vice President
-------------------------
CITICORP USA, INC.
By: /s/ Barbara A. Cohen
----------------------------
Title: Vice President
-------------------------
- 75 -
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By: /s/ Teruhisa Yamaguchi
----------------------------
Title: Senior Vice President and
Joint General Manager
-------------------------
FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/ David A. Horn
----------------------------
Title: Vice President
--------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Jay G. Sepanski
----------------------------
Title: Corporate Banking Officer
-------------------------
MELLON BANK, N.A.
By: /s/ Richard A. Lopatt
----------------------------
Title: Vice President
-------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ Brad DeSpain
----------------------------
Title: Vice President
-------------------------
THE SANWA BANK, LIMITED,
LOS ANGELES AGENCY
By: /s/ Dan J. Wilson
----------------------------
Title: Vice President
-------------------------
- 76 -
<PAGE>
SCHEDULE 11.02
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
COMPANY
PACIFICARE HEALTH SYSTEMS, INC.
5995 Plaza Drive
Cypress, California 90630
Attention: Coy Baugh
Vice President-Treasurer
Telephone: (714) 220-3780
Facsimile: (714) 229-2748
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Bank of America National Trust
and Savings Association
Agency Management Services A#5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: David Terrance
Vice President
Telephone: (415) 622-7011
Facsimile: (415) 622-4894
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
DOMESTIC AND OFFSHORE LENDING OFFICE:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Notices (other than Borrowing notices and Notices of
Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Attention: Wyatt Ritchie
Vice President
Telephone: (213) 228-9734
Facsimile: (213) 228-2756
- 1 -
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
The Chase Manhattan Bank, N.A.
One Chase Plaza, 5th Floor
New York, New York 10081
Attention: Peter Dilullo
Telephone: (212) 552-5995
Facsimile: (212) 552-7075
CITICORP USA, INC.
DOMESTIC AND OFFSHORE LENDING OFFICE
AND ADDRESS FOR NOTICES:
Citicorp USA, Inc.
2001 Ross Avenue
1400 Trammel Crow Center
Dallas, Texas 75201
Attention: Carol Comeaux
Vice President
Telephone: (214) 953-3772
Facsimile: (214) 953-3888
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
The Dai-Ichi Kangyo Bank, Ltd.
Los Angeles Agency
555 West Fifth Street, Fifth Floor
Los Angeles, California 90013
Attention: James J. Karnowski
Vice President
Telephone: (213) 243-4761
Facsimile: (213) 2624-5258
FIRST INTERSTATE BANK OF CALIFORNIA
First Interstate Bank of California
U.S. Banking Divisions
707 Wilshire Blvd.
Mail Sort W16-13
Los Angeles, California 90017
Attention: William J. Baird
Vice President
Telephone: (213) 614-5540
Facsimile: (213) 614-2569
- 2 -
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
The First National Bank of Chicago
Public Banking Department
Mail Suite 0091, 8th Floor
1 First National Plaza
Chicago, Illinois 60670-0091
Attention: Jay G. Sepanski
Corporate Banking Officer
Telephone: (312) 732-6726
Facsimile: (312) 732-2016
MELLON BANK, N.A.
Mellon Bank, N.A.
300 South Grand Avenue, Suite 3800
Los Angeles, California 90071
Attention: Richard A. Lopatt
Vice President
Telephone: (213) 680-7379
Facsimile: (213) 626-3745
NATIONSBANK OF TEXAS, N.A.
NationsBank of Texas, N.A.
444 South Flower Street, Suite 1500
Los Angeles, California 90017
Attention: Brad DeSpain
Vice President
Telephone: (213) 236-4912
Facsimile: (213) 624-5815
SANWA BANK CALIFORNIA
Sanwa Bank California
4400 MacArthur Blvd., Suite 200
Newport Beach, California 92660
Attention: Dan J. Wilson
Vice President
Telephone: (714) 476-7782
Facsimile: (714) 476-7789
- 3-
<PAGE>
SCHEDULE 7.03
LITIGATION
None
- 1 -
<PAGE>
SCHEDULE 7.09
TAX SHARING ARRANGEMENTS
PHS Tax Settlement Policies
- 1 -
<PAGE>
SCHEDULE 7.11
MATERIAL AGREEMENTS AND LIENS
Part A - MATERIAL AGREEMENTS
Note Purchase Agreement, dated as of November 1, 1991, between PacifiCare Heath
Systems, Inc. and Massachusetts Mutual Life Insurance Company for $15,000,000 of
8.80% Senior Notes Due November 1, 1997, as amended December 9, 1991, December
21, 1993 and November 14, 1994.
Part B - LIENS
PAYEE/DESCRIPTION BALANCE at 11-30-93
COMDISCO #CE-7 Upgrade $ 988,834
COMDISCO #CE-9 1,186,909
COMDISCO #CE-10 955,823
COMDISCO #CE-11 1,061,059
COMDISCO #CE-12 757,512
COMDISCO #CE-13 926,502
COMDISCO #CE-20 1,078,109
El Camino Resources 1,373,235
- 1 -
<PAGE>
SCHEDULE 7.13
<TABLE>
<CAPTION>
Part A - SUBSIDIARIES Schedule 7.13
State of Domicile/ % Owned
Type of % Owned Other By Other
PHS Subsidiaries Organization By PHS Owners Owners
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PacifiCare of California ("PCC") California corporation 100% None N/A
PacifiCare of Oregon, Inc. Oregon corporation 100% None N/A
PacifiCare of Oklahoma, Inc.("PCOK") Oklahoma corporation 100% None N/A
PacifiCare of Texas, Inc. ("PCTX") Texas corporation 100% None N/A
PacifiCare of Florida, Inc. ("PCFL") Florida corporation 100% None N/A
Pacific Review Services, Inc. California corporation 100% None N/A
Preferred Health Resources, Inc ("PHRI") Washington corporation 100% None N/A
PacifiCare of Washington, Inc. Washington corporation None PHRI 100%
PacifiCare Benefit Administrators, Inc. Washington corporation None PHRI 100%
PacifiCare Administrative Services, Inc. California corporation None PCC 100%
PacifiCare Life and Health Insurance Company Indiana corporation 100% None N/A
Oregon Health Management Company California corporation 100% None N/A
PacifiCare Life Insurance Company Arizona corporation 100% None N/A
PacifiCare Behavioral Health, Inc. ("PBHI") Delaware corporation 100% None N/A
LifeLink, Inc. Delaware corporation None PBHI 100%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
State of Domicile/ % Owned
Type of % Owned Other By Other
PHS Subsidiaries Organization By PHS Owners Owners
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MediCor, Inc. Texas corporation 72% Dr. G. Rapier 28%
Covantage, Inc. Delaware corporation 100% None N/A
PacifiCare Pharmacy Centers, Inc. California corporation 100% None N/A
PacifiClinic, P.C. Oregon professional 49.9% Dr. B. McMullen 33%
corporation Dr. J. Chitty 17.1%
PacifiCare Ventures, Inc. ("PVI") California corporation N/A PCC 100%
Woodbridge Management Company California corporation N/A PVI 100%
COMPREMIER, Inc. California corporation 100% NONE N/A
CRM Insurance Services, Inc. California corporation 100% NONE N/A
Secure Horizons USA, Inc. California corporation 100% NONE N/A
PacifiCare Wellness Company California corporation 100% None N/A
Advanced Delivery Systems Management Company California corporation 100% None N/A
Health Managers of Texas, Inc. Texas corporation N/A PCTX 100%
PC-CWD Vista Associates California general partnership N/A PVI 75%
CWD Vista 25%
Associates
PacifiCare Military Health Systems, Inc. Delaware corporation 100% None N/A
California Dental Health Plan, Inc. California corporation 100% None N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Page 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
State of Domicile/ % Owned
Type of % Owned Other By Other
PHS Subsidiaries Organization By PHS Owners Owners
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dental Plan Administrators, Inc. California corporation 100% None N/A
Health Managers of Texas, Inc. Texas corporation None PCTX 100%
Pasteur Delivery Systems, Inc ("PDS") Florida corporation None PCFL 100%
Interstate Medical Equipment, Inc. Florida corporation None PCFL 100%
PacifiCare Administrative Services of Florida, Inc. Florida corporation None PCFL 100%
Pasteur Systems, Inc. Florida corporation None PDS 100%
Clinica Pasteur Inc. Florida corporation None PDS 100%
West Dade Professional Services, Inc. Florida corporation None PDS 100%
Clinica Pasteur Laguna & Sweetwater, Inc. Florida corporation None PDS 100%
Barbis Advertising, Inc. Florida corporation None PDS 100%
Health in Dade, Inc. Florida corporation None PDS 100%
Pasteur Pharmacy, Inc. Florida corporation None PDS 100%
Health in Miami, Inc. Florida corporation None PDS 100%
Optica Pasteur, Inc. Florida corporation None PDS 100%
Ismael Hernandez, M.D. & Associates, P.A. Florida professional None PDS 100%
corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Page 3
</TABLE>
<PAGE>
Part B - INVESTMENTS
None (all investments are Permitted Market Investments or listed on Part A)
- 2 -
<PAGE>
EXHIBIT A-1
[Form of Committed Loan Note]
COMMITTED LOAN NOTE
$ November 30, 1994
-------------------
Los Angeles, California
FOR VALUE RECEIVED, PACIFICARE HEALTH SYSTEMS, INC., a Delaware corporation
(the "COMPANY"), hereby promises to pay to the order of ________________________
(the "BANK"), for the account of its respective Applicable Lending Offices
provided for by the Credit Agreement referred to below, at the Agent's Payment
Office the principal sum of [__________________] Dollars (or such lesser amount
as shall equal the aggregate unpaid principal amount of the Committed Loans made
by the Bank to the Company under the Credit Agreement), in lawful money of the
United States of America and in immediately available funds, on the dates and in
the principal amounts provided in the Credit Agreement, and to pay interest on
the unpaid principal amount of each such Committed Loan, at such office, in like
money and funds, for the period commencing on the date of such Committed Loan
until such Committed Loan shall be paid in full, at the rates per annum and on
the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest Period (if
applicable) of each Committed Loan made by the Bank to the Company, and each
payment made on account of the principal of such Loan, shall be recorded by the
Bank on its books and, prior to any transfer of this Committed Loan Note,
endorsed by the Bank on the schedule attached to this Committed Loan Note or any
continuation of such schedule, PROVIDED that the failure of the Bank to make any
such recordation or endorsement absent gross negligence or willful misconduct
shall not affect the obligations of the Company to make a payment when due of
any amount owing under the Credit Agreement or under this Committed Loan Note in
respect of the Committed Loans made by the Bank.
This Committed Loan Note is one of the Committed Loan Notes referred to in
the Credit Agreement dated as of November 30, 1994 (as modified and supplemented
and in effect from time to time, the "CREDIT AGREEMENT") among the Company, the
banks (including this Bank), Bank of America National Trust and Savings
Association, as Agent, and The Chase Manhattan Bank, N.A., Citicorp USA, Inc.
and NationsBank of Texas, N.A. as Co-Agents, and evidences Committed Loans made
by the Bank under the Credit Agreement. Capitalized terms used but not defined
in this Committed Loan Note have the respective meanings assigned to them in the
Credit Agreement.
A-1 - 1
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of this
Committed Loan Note upon the occurrence of certain events and for prepayments of
Loans upon the terms and conditions specified in the Credit Agreement.
Except as permitted by Section 11.06(b) of the Credit Agreement, this
Committed Loan Note may not be assigned by the Bank to any other Person.
THIS COMMITTED LOAN NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF CALIFORNIA.
PACIFICARE HEALTH SYSTEMS, INC.
By:
-------------------------
Title:
----------------------
A-1 - 2
<PAGE>
SCHEDULE OF COMMITTED LOANS
This Committed Loan Note evidences Committed Loans made, Continued or
Converted under the Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
Amount
Date Prin- Paid,
Made, cipal Duration Prepaid, Unpaid
Continued Amount Type of Continued Prin-
or of of Interest Interest or cipal Notation
CONVERTED Loan Loan Rate Period Converted Amount Made by
- --------- ------ ---- -------- -------- --------- ------ --------
A-1 - 3
<PAGE>
EXHIBIT A-2
[Form of Bid Loan Note]
BID LOAN NOTE
$ November 30, 1994
------------------- Los Angeles, California
FOR VALUE RECEIVED, PACIFICARE HEALTH SYSTEMS, INC., a Delaware
corporation (the "COMPANY"), hereby promises to pay to the order of ____________
________________ (the "BANK"), for the account of its respective Applicable
Lending Offices provided for by the Credit Agreement referred to below, at
Agent's Payment Office the principal sum of [____________________] Dollars (or
such lesser amount as shall equal the aggregate unpaid principal amount of the
Bid Loans made by the Bank to the Company under the Credit Agreement), in lawful
money of the United States of America and in immediately available funds, on the
dates and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Bid Loan, at such office,
in like money and funds, for the period commencing on the date of such Bid Loan
until such Bid Loan shall be paid in full, at the rates per annum and on the
dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each Bid Loan made by the Bank to the Company, and each
payment made on account of the principal of such Loan, shall be recorded by the
Bank on its books and, prior to any transfer of this Bid Loan Note, endorsed by
the Bank on the schedule attached to this Bid Loan Note or any continuation of
such schedule, PROVIDED that the failure of the Bank to make any such
recordation or endorsement absent gross negligence or willful misconduct shall
not affect the obligations of the Company to make a payment when due of any
amount owing under the Credit Agreement or under this Bid Loan Note in respect
of the Bid Loans made by the Bank.
This Bid Loan Note is one of the Bid Loan Notes referred to in the
Credit Agreement dated as of November 30, 1994 (as modified and supplemented and
in effect from time to time, the "CREDIT AGREEMENT") among the Company, the
banks (including this Bank), Bank of America National Trust and Savings
Association, as Agent, and The Chase Manhattan Bank, N.A., Citicorp USA, Inc.
and NationsBank of Texas, N.A. as Co-Agents, and evidences Bid Loans made by the
Bank under the Credit Agreement. Capitalized terms used but not defined in this
Bid Loan Note have the respective meanings assigned to them in the Credit
Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Bid Loan Note upon the occurrence of certain events and for prepayments of
Bid Loans upon the terms and conditions specified in the Credit Agreement.
A-2 - 1
<PAGE>
Except as permitted by Section 11.06(b) of the Credit Agreement, this
Bid Loan Note may not be assigned by the Bank to any other Person.
THIS BID LOAN NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED WITHIN THE STATE OF CALIFORNIA.
PACIFICARE HEALTH SYSTEMS, INC.
By:
-------------------------
Title:
----------------------
A-2 - 2
<PAGE>
SCHEDULE OF BID LOANS
This Bid Loan Note evidences Bid Loans made on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods of the durations set forth below, subject to the payments and
prepayments of principal set forth below:
Prin-
cipal Duration Unpaid
Amount Type of Amount Prin-
Date of of Interest Interest Paid or cipal Notation
Made Loan Loan Rate Period Prepaid Amount Made by
---- ------ ---- -------- -------- ------- ------ -------
A-2 - 3
<PAGE>
EXHIBIT B
[Form of opinion of Counsel to the Company]
[DATE]
To the Banks party to the Credit Agreement referred to below and Bank of America
National Trust and Savings Association, as the Agent
Ladies and Gentlemen:
We have acted as counsel to PacifiCare Health Systems, Inc. (the
"COMPANY") in connection with the financing transactions contemplated by the
Credit Agreement dated as of November 30, 1994 (the "CREDIT AGREEMENT") between
the Company, the banks identified in the Credit Agreement (the "BANKS") and Bank
of America National Trust and Savings Association, in its capacity as the Agent.
All capitalized terms defined in the Credit Agreement are used with the same
meanings, unless otherwise defined, in this opinion letter.
In rendering the opinions expressed below, we have examined (a) the
Credit Agreement and the Notes (collectively, the "LOAN DOCUMENTS") and (b) such
corporate records of the Company and such other documents as we have deemed
necessary as a basis for the opinions expressed below. In our examination, we
have assumed the genuineness of all signatures, the authenticity of documents
submitted to us as originals and the conformity with authentic original
documents of all documents submitted to us as copies. When relevant facts were
not independently established, we have relied upon statements of governmental
officials and upon representations made in or pursuant to the Loan Documents and
certificates of appropriate representatives of the Company.
In rendering the opinions expressed below, we have assumed (except, to
the extent set forth below, as to the Company) that all of the documents
referred to in this opinion have been duly authorized by, have been or (in the
case of the Notes) will be duly executed and delivered by, and constitute legal,
valid, binding and enforceable obligations of all parties to such documents,
that all signatories to such documents have been duly authorized and that all
such parties are duly organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and perform such documents.
We have further assumed that each Bank is a bank incorporated or
B - 1
<PAGE>
organized under, or a foreign bank licensed to conduct a banking business
through an agency or branch located in the United States of America pursuant to,
the laws of the United States of America or any state of the United States of
America or is a subsidiary of a bank holding company, within the meaning of
Section 1 of Article XV of the California Constitution and Sections 1716 and
3707 of the California Financial Code.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, is in
good standing in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties makes such qualification or registration
necessary and has the corporate power to execute and deliver, and to borrow and
perform its obligations under, the Loan Documents.
(ii) The execution, delivery and performance by the Company of
the Loan Documents, and the borrowing by the Company under the Loan Documents,
have been duly authorized by all necessary corporate action on the part of the
Company.
(iii) The Credit Agreement has been duly executed and delivered
by the Company.
(iv) The Credit Agreement constitutes, and the Notes when duly
executed and delivered for value will constitute, the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
respective terms, in each case except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and except as the enforceability of
such Loan Documents is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law),
including, without limitation (i) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (ii) concepts
of materiality, reasonableness, good faith and fair dealing.
(v) No authorization, consent or other approval of, or
registration, declaration or other filing with, any governmental authority of
the United States of America or any state is required on the part of the Company
for the execution and delivery by it of, for borrowing by the Company under, or
for the performance by it of its agreements under the Loan Documents.
B - 2
<PAGE>
(vi) The execution and delivery by the Company of, the borrowing
by the Company under, and the performance by the Company of its obligations
under, the Loan Documents do not and will not (a) violate any law, rule or
regulation of the United States of America or the State of California, (b)
violate any provision of the Certificate of Incorporation or bylaws of the
Company or (c) result in a breach of, constitute a default under, require
consent under, result in or require the creation of any Lien on any Property of
the Company or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement, instrument or order
(including any arbitral award) to which the Company or any of its assets is
subject of which we have knowledge and which, in the case of the matters
referred to in clauses (a) and (c) would reasonably be expected to have
consequences that would materially and adversely affect the performance or the
transactions contemplated by the Loan Documents or the financial condition,
assets, properties or operations of the Company and its Subsidiaries taken as a
whole.
(vii) To our knowledge, there are no pending or threatened
actions, suits, proceedings or investigations against the Company in any court
or by or before any arbitrator or governmental authority that would reasonably
be expected to have consequences that materially and adversely affect the
performance of the transactions contemplated by the Loan Documents or the
financial condition, assets, properties, or operations of the Company or its
Subsidiaries taken as a whole.
As used in this opinion letter, the phrase "to our knowledge" is
intended to indicate that, during the course of our representation of the
Company, no information that would give us knowledge of the inaccuracy of the
statements made has come to the attention of those attorneys in this firm who
have rendered legal services on behalf of the Company and that we have reviewed
and that we have obtained, discussed with appropriate representatives of the
Company the contents of and relied, as stated above, upon certificates of
appropriate representatives of the Company as to the matters covered by such
certificates. However, except to the extent otherwise set forth above, we have
not undertaken any independent inquiry to determine the accuracy of any such
statement; no reference as to our knowledge of any matters bearing on the
accuracy of any such statement should be drawn from the fact of our
representation of the Company.
In rendering our opinion stated in paragraph (i) as to the good
standing of the Company, we are solely relying upon the accuracy and
completeness of certain certificates of the Secretary of State or other
applicable governmental authorities relating to the Company's (a) good standing
as a corporation under the laws of Delaware and (b) good standing in each
jurisdiction in which the conduct of its business or the
B - 3
<PAGE>
ownership or leasing of its properties makes such qualification or registration
necessary.
The foregoing opinions are also subject to the following comments and
qualifications:
(a) The enforceability of Section 11.03 of the Credit Agreement may
be limited by laws rendering unenforceable the release of a party from, or the
indemnification of a party against, liability for its own wrongful or negligent
acts under certain circumstances.
(b) The enforceability of certain provisions of the Loan Documents
may be limited under certain circumstances to the extent that such provisions
impose compensation for funding losses or late payment charges or an increase in
interest rates upon delinquency in payment or the occurrence of a default.
(c) The enforceability of provisions in the Loan Documents to the
effect that terms may not be waived or modified except in writing may be limited
under certain circumstances.
(d) We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than California) that limits
the interest, fees or other charges it may impose, (ii) Section 4.07(c) of the
Credit Agreement, (iii) the second sentence of Section 11.13 of the Credit
Agreement, insofar as such sentence relates to the subject matter jurisdiction
of the United States District Court for the Central District of California to
adjudicate any controversy related to the Loan Documents and (iv) the waiver of
inconvenient forum and consent to personal jurisdiction and venue set forth in
Section 11.13 of the Credit Agreement, with respect to proceedings in the United
States District Court for the Central District of California.
(e) We express no opinion as to any federal or
state securities laws.
(f) California law may limit the amount of attorneys, fees that can
be recovered under certain circumstances and provides that, where a contract
permits one party to the contract to recover attorneys' fees, the prevailing
party in any action to enforce any provision of the contract shall be entitled
to recover its reasonable attorneys, fees.
(g) Provisions of the Loan Documents may be unenforceable under
certain circumstances where they provide (specifically or in effect) that rights
or remedies are not exclusive, that every right or remedy is cumulative and may
be exercised in addition to or with any other right or remedy, that election of
a particular remedy or remedies does not preclude
B - 4
<PAGE>
recourse to one or more other remedies, that any right or remedy may be
exercised without notice, or that failure to exercise or delay in exercising
rights or remedies will not operate as a waiver of any such right or remedy.
(h) Except as expressly covered in our opinions, we are not
expressing any opinion as to the effect or compliance with any state or federal
laws or regulations applicable to the transactions contemplated by the Loan
Documents because of the nature of the businesses of the parties thereto other
than the Company.
We are authorized to practice only in the State of California and the
opinions contained in this letter are limited to the laws of the State of
California, the General Corporation Law of the States of Delaware and the
federal laws of the United States and we do not express any opinion as to the
laws of any other jurisdiction.
This opinion letter is provided to you by us as counsel to the Company
pursuant to Section 6.01(c) of the Credit Agreement and may not be relied upon
by any other person or for any purpose other than in connection with the
transactions contemplated by the Loan Documents without our prior written
consent in each instance.
Very truly yours,
B - 5
<PAGE>
EXHIBIT C
CONFIDENTIALITY AGREEMENT
PACIFICARE HEALTH SYSTEMS, INC.
______________________________________________ ("Bank") agrees with
PacifiCare Health Systems, Inc. (the "Company") that all data, reports,
interpretations, forecasts, agreements, notes, analyses, compilations, studies
and records and all other information concerning the Company or any of its
affiliates and subsidiaries, whether or not prepared by the Company or any of
its Representatives (herein collectively the "Evaluation Material") furnished to
Bank in connection with the proposed $250,000,000 Revolving Credit Facility to
the Company (the "Facility") will be treated in accordance with this Agreement
and Bank will take or refrain from taking certain actions herein set forth.
Directors, officers, employees, agents, advisors (including attorneys and
financial advisors) are collectively referred to herein as the
"Representatives." The term "Evaluation Material" does not include information
which Bank can demonstrate: (i) is already in its possession, provided that
such information is not known by Bank to be subject to any other confidentiality
agreement with, or other obligation of secrecy to the Company; (ii) was or
becomes generally available to the public other than as a result of a disclosure
by Bank or its Representatives in violation of this letter; (iii) was or becomes
available to Bank on a non-confidential basis from a source other than the
Company or one of the Company's Representatives, provided that such source is
not known by Bank, to be bound by a confidentiality agreement with, or other
obligations of secrecy to, the Company or otherwise prohibited from transmitting
such information to Bank or its Representatives by a contractual, legal or
fiduciary obligation; or (iv) any analysis or other document prepared by Bank or
its Representatives from, or which contains any of, the information described in
clauses (i), (ii), or (iii).
Bank hereby agrees that the Evaluation Material: (i) will be used solely
for the purpose of evaluating the proposed Facility; (ii) that such information
will be kept confidential by Bank and its Representative; (iii) that Bank will
not divulge any such Evaluation Material to any other party, except as provided
below; and (iv) that Bank shall return the Evaluation Material together with any
copies thereof to Bank of America upon request thereof.
It is understood that we are authorized to disclose the Evaluation Material
or portions thereof: (i) at the request of a bank regulatory agency or in
connection with an examination of
C - 1
<PAGE>
our bank by bank examiners; (ii) pursuant to subpoena or other court process;
(iii) at the express direction of any authorized government agency; (iv) to our
independent attorneys or auditors; (v) otherwise as required by law; or (vi) to
any assignee or participant (or any prospective assignee or participant) so long
as such entity first executes and delivers to the Company a confidentiality
agreement substantially in this form. In any such event, we will furnish a copy
of this letter to anyone to whom we are required to make such disclosure and in
any of the circumstances mentioned in (ii), (iii) and (v) we will, unless
specifically prohibited by applicable governmental rule, advise the Company of
the existence, terms and circumstances surrounding such a request so that the
Company may seek a protective order or other appropriate relief or remedy and/or
waive compliance with the terms of this agreement. In the event that such
protective order or other remedy is not obtained, or the Company waives
compliance with the provisions hereof, Bank agrees to furnish only that portion
of the Evaluation Material which you are advised by counsel is legally required
and to use your best efforts to ensure that confidential treatment will be
accorded such Evaluation Material.
It is understood and agreed that money damages would not be a sufficient
remedy for any breach or threatened breach of this letter by Bank and that the
Company shall be entitled to specific performance or other equitable relief as a
remedy for any such breach or threatened breach. Such remedy shall not be
deemed to be the exclusive remedy by Bank's breach or threatened breach of this
agreement but shall be in addition to all other remedies available at law or
equity to the Company. Bank agrees that the provisions of this letter shall be
deemed to apply, with equal force and effect, to any of Bank's Representatives,
affiliates or associates and that Bank shall be responsible for any breach of
the provisions of this letter by any of its directors, officers, employees,
affiliates or associates.
Although the Company has endeavored to include in the Evaluation Material
information known to it which it believes to be relevant for the purpose of
Bank's investigation, Bank understands that neither the Company nor any of the
Company's Representatives have made or make any representation or warranty,
express or implied, as to the accuracy or completeness of the Evaluation
Material. Bank agrees that, except as provided in a definitive agreement
relating to the Facility, neither the Company nor the Company's Representatives
shall have any liability to Bank or any of its Representatives resulting from
the use of the Evaluation Material.
C - 2
<PAGE>
This agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California without regard to principles of
conflict or choice of laws.
Confirmed and Agreed to:
[Financial Institution]
By:
------------------------
------------------------
[typed name]
Title:
---------------------
Date:
----------------------
C - 3
<PAGE>
EXHIBIT D
FORM OF COMPETITIVE BID REQUEST
, 199
--------------------- --
Bank of America National Trust
and Savings Association,
as Agent
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Agency Management Services #5596
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of November 30,
1994 (as extended, renewed, amended or restated from time to time, the "CREDIT
AGREEMENT") among PacifiCare Health Systems, Inc., certain Banks which are
signatories thereto, Bank of America National Trust and Savings Association, as
Agent, and The Chase Manhattan Bank, N.A., Citicorp USA, Inc. and NationsBank of
Texas, N.A. as Co-Agents. Unless otherwise defined herein, capitalized terms
used herein have the respective meanings assigned to them in the Credit
Agreement.
The Company hereby requests an auction for Bid Loans. In connection
therewith, this is a Competitive Bid Request for Bid Loans pursuant to Section
2.10(a) of the Credit Agreement as follows:
(i) The borrowing date (which shall be a Business Day) of the
proposed Bid Borrowing is , 199 .
-------------- --
(ii) The aggregate amount of the proposed Bid Borrowing is
$ .
------------------
(iii) The proposed Bid Borrowing to be made pursuant to Section 2.10
shall be comprised of [LIBOR] [Absolute Rate] Bid Loans.
(iv) The Interest Period[s] for the Bid Loans comprised in the Bid
Borrowing shall be ,
----------------
, and .
--------------- ---------------- ----------------
PACIFICARE HEALTH SYSTEMS, INC.,
a Delaware corporation
By:
-------------------------------
Name:
Title:
D - 1
<PAGE>
EXHIBIT E
FORM OF INVITATION FOR COMPETITIVE BIDS
VIA FACSIMILE
To the Banks Listed on Schedule A hereto:
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of November 30,
1994 (as extended, renewed, amended or restated from time to time, the "CREDIT
AGREEMENT") among PacifiCare Health Systems, Inc., certain Banks which are
signatories thereto, Bank of America National Trust and Savings Association, as
Agent, and The Chase Manhattan Bank, N.A., Citicorp USA, Inc. and NationsBank of
Texas, N.A. as Co-Agents. Unless otherwise defined herein, capitalized terms
used herein have the respective meanings assigned to them in the Credit
Agreement.
Pursuant to Section 2.10(b) of the Credit Agreement, you are hereby invited
to submit offers to make Bid Loans to the Company based on the following
specifications:
1. Borrowing date: , ;
------------- ---
2. Aggregate amount requested by the Company $ ;
-----------
3. [LIBOR Bid Loan] [Absolute Rate Bid Loan]; and
4. Interest Period[s]: , ,
------------- -----------
, and .
-------------- -------------
All Competitive Bids must be substantially in the form of Exhibit F to the
Credit Agreement and must be received by the Agent no later than 7:00 A.M. (San
Francisco time) on , 199_.
------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
the Agent
By:
------------------------------
Vice President
E - 1
<PAGE>
SCHEDULE A
TO
INVITATION FOR COMPETITIVE BIDS
[List Banks]
E - 2
<PAGE>
EXHIBIT F
FORM OF COMPETITIVE BID
, 199
---------------- --
Bank of America National Trust
and Savings Association,
as Agent
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Agency Management Services #5596
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of November 30,
1994 (as extended, renewed, amended or restated from time to time, the "CREDIT
AGREEMENT") among PacifiCare Health Systems, Inc., certain Banks which are
signatories thereto, Bank of America National Trust and Savings Association, as
Agent, and The Chase Manhattan Bank, N.A., Citicorp USA, Inc. and NationsBank of
Texas, N.A. as Co-Agents. Unless otherwise defined herein, capitalized terms
used herein have the respective meanings assigned to them in the Credit
Agreement.
In response to the Competitive Bid Request of the Company dated
______________ , _____ and in accordance with Section 2.10(c) of the Credit
Agreement, the undersigned Bank offers to make Bid Loan[s] thereunder in the
following principal amount[s] at the following interest rates for the following
Interest Period[s]:
Date of Borrowing: , 199
------------------ --
Aggregate Maximum Bid Amount: $
-------------
I. Interest Period _______________________
I. A. Principal Amount: ___________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
B. Principal Amount: ____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
F - 1
<PAGE>
C. Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
II. A. Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
C. Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
III. A. Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
B. Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
C. Principal Amount: _____________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
IV. A. Principal Amount: ______________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____%]
B. Principal Amount: ______________
Interest:
[Absolute Rate: _____ %] or
[LIBOR Bid Margin: +/- _____%]
F - 2
<PAGE>
C. Principal Amount: ______________
Interest:
[Absolute Rate: _____%] or
[LIBOR Bid Margin: +/- _____ %]
[NAME OF BANK]
By:
------------------------
Title:
---------------------
F - 3
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into as of the 1st day of December, 1994, by and between PACIFICARE
HEALTH SYSTEMS, INC., a Delaware corporation (the "Company"), with its principal
place of business located at 5995 Plaza Drive, Cypress, California 90630 and
Alan R. Hoops ("Executive"), residing at 1 Celestial, Irvine, California 92715.
RECITALS
WHEREAS, the Company desires to employ Executive in the capacity of
President and Chief Executive Officer.
WHEREAS, the Company and Executive are entering into this Agreement to
establish the terms and conditions of the desired employment relationship.
NOW, THEREFORE, in consideration of the following covenants, conditions and
promises contained herein, and other good and valuable consideration, the
Company and Executive hereby agree as follows:
1. EMPLOYMENT
1.1 EXECUTIVE'S GENERAL DUTIES. The Company hereby employs Executive and
Executive hereby agrees to serve the Company in the capacity of President and
Chief Executive Officer of the Company having such usual and customary duties
and authority as an officer of similar capacity in a corporation of comparable
size, holdings, and business as that of the Company.
Executive shall do and perform all services, acts, or things necessary or
advisable to manage and conduct the business of the Company and shall preside
over such other areas of corporate activity as specified from time to time by
the Board of Directors of the Company. During the term of this Agreement,
Executive shall perform such additional or different duties, and accept the
election or appointment to such other offices or positions, as are mutually
agreed upon by Executive and the Company.
1.2 DEVOTION OF EXECUTIVE. During the term of this Agreement, Executive
shall devote his entire productive time, ability, and attention to the business
of the Company. Executive shall use his best efforts, skills, and abilities to
promote the general welfare and interests of the Company and to preserve,
maintain, and foster the Company's business and business relationships with all
persons and entities associated therewith, including, without limitation,
employer groups, medical service
1
<PAGE>
providers, shareholders, affiliates, officers, employees, and banks and other
financial institutions. The Company shall give Executive a reasonable
opportunity to perform his duties and shall neither expect Executive to devote
more time, nor assign more duties or functions to Executive, than are customary
and reasonable for an executive in Executive's position.
2. TERM AND TERMINATION
2.1 TERM. The term of Executive's employment under this Agreement has
commenced on July 18, 1977, and shall continue unless terminated as provided
Section 2.2.
2.2 TERMINATION. This Agreement shall be terminated upon the occurrence
of any one of the following events:
a. The death of the Executive.
b. Executive becomes incapacitated or disabled, which incapacity or
disability prevents Executive from fully performing his duties to the
Company for a period in excess of 90 days and, after such 90-day period,
the Company and a physician, duly licensed and qualified in the specialty
of Executive's incapacity, decide in their reasonable judgments, that such
incapacity will be permanent or of such continued duration as to prevent
Executive from resuming the rendition of services to the Company for at
least an additional six-month period. For purposes of this Agreement,
Executive shall be deemed permanently disabled, and this Agreement
terminated upon the date Executive receives written notice from the Company
that such determination has been made.
c. Executive habitually neglects his duties to the Company or
engages in gross misconduct during the term of this Agreement. For the
purposes of this Agreement, "gross misconduct" shall mean Executive's
conviction of any criminal offense, misappropriation of funds, securities
fraud, insider trading, unauthorized possession of corporate property or
the sale, distribution, possession or use of a controlled substance
(whether or not such felony or criminal offense is committed in connection
with Executive's duties hereunder or in the course of his employment with
the Company). In such event, Executive's termination shall be effective
immediately upon receipt of written notice from the Company.
d. Either party hereto may terminate this Agreement, with or without
cause, upon 30 days prior written notice to the other party. Executive's
termination shall be effective 90 days after receipt of such notice.
2.3 EFFECT OF TERMINATION. No termination of this Agreement shall affect
or impair any rights or obligations of the parties
2
<PAGE>
respecting certain compensation accruing prior thereto or continuing thereafter
in accordance with the terms set forth in Section 3.2 and Section 4.
3. COMPENSATION
3.1 COMPENSATION DURING THE TERM OF THIS AGREEMENT
a. As long as Executive satisfactorily performs all of his
obligations hereunder, the Company shall pay Executive an annual base
salary, as determined by the compensation committee of the board of
directors, payable in equal installments on the Company's regular payroll
dates, which as of the date hereof is $575,000. On an annual basis, the
Company's compensation committee shall review Executive's salary, but shall
be under no obligation to increase Executive's salary.
Executive authorizes the Company to take such deductions and
withholdings from his salary as are required by law, directed by Executive,
or as reasonably directed by the Company for its employees, which
deductions shall include, without limitation, withholding for federal and
state income taxes and social security.
b. Executive shall be entitled to fully participate in all of the
employee benefit plans and programs available to other high-level
executives of the Company, including, without limitation, health, dental,
and life insurance benefits for Executive and Executive's dependents,
pension and profit sharing programs, and vacation and sick leave benefits.
However, the terms of this Agreement shall not restrict the Company's right
to change, amend, modify, or terminate any existing benefit plan or
program, or to change any insurance company or modify any insurance policy
adopted incident to such existing benefit plan and program.
c. The Company shall provide Executive with a $700 per month
automobile allowance. The Company shall furnish Executive's automobile
with a cellular car telephone. Executive shall provide and maintain
automobile insurance for Executive's car including collision, comprehensive
liability, personal and property damage, and uninsured and underinsured
motorist coverage in amounts customarily obtained to cover such
contingencies in California. Executive shall provide proof of such
coverage to the Company upon the Company's request.
d. The Company shall pay for or reimburse Executive for all other
reasonable travel, entertainment, and other business expenses incurred or
paid for by Executive in connection with the performance of his services
under this Agreement. The
3
<PAGE>
Company shall not be obligated to make any such reimbursement unless
Executive presents corresponding expense statements or vouchers and such
other supporting information as the Company may from time to time
reasonably request. The Company reserves the right to place subsequent
limitations or restrictions on business expenses to be incurred or
reimbursed.
e. Executive shall be entitled to participate fully in the Company's
Long-Term Performance Incentive Plan, as amended (the "LTPIP"), as from
time to time may be amended, modified or replaced, in accordance with the
terms and conditions set forth herein and therein.
f. Executive shall be entitled to participate fully in the Company's
Annual Incentive Plan, as amended (the "AIP"), as may be amended, modified,
or replaced, in accordance with the terms and conditions set forth herein
and therein.
g. Executive shall be entitled to participate in the Amended and
Restated 1989 Stock Option Plan for Officers and Key Employees of
PacifiCare Health Systems, Inc., as amended (the "1989 Stock Option Plan"),
as such plan from time to time may be amended, modified or replaced, in
accordance with the terms and conditions set forth herein and therein.
h. During the term of this Agreement, the Company shall insure
Executive under its general liability insurance for all conduct committed
in good faith while acting in the capacity as President and Chief Executive
Officer of the Company or in any other capacity to which Executive may be
appointed or elected.
i. In the event Executive is involuntarily terminated, without
cause, except in the case of death or incapacity or disability, the Company
shall provide outplacement services to Executive to assist Executive in
securing a position comparable to the one from which he was terminated.
The Company shall be obligated to provide those outplacement services as
customarily provided by companies of similar size and holdings as those of
the Company to executives with comparable responsibility and longevity as
Executive and for reasonable cost as approved by the Company. The
Company's provision of such outplacement services shall not limit,
restrict, or reduce, in any manner, any and all other compensation to which
Executive is entitled hereunder.
j. As part of the compensation for services rendered under this
Agreement, Executive shall be entitled to participate in the PacifiCare
Health Systems, Inc. Savings and Profit-Sharing Plan, and the trust
agreement implemented pursuant thereto, adopted as of June 1, 1985, as from
time to
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time may be amended modified, or replaced, in accordance with the terms and
conditions set forth therein.
k. Executive shall be entitled to the benefits provided under the
Company's Statutory Restoration Plan, as such plan from time to time may be
amended, modified or replaced, in accordance with the terms set forth
herein and therein. A copy of a summary of the current plan is attached
hereto as Exhibit E and incorporated herein by this reference.
3.2 COMPENSATION FOLLOWING TERMINATION
a. In the event that this Agreement is terminated by reason of
Executive's death, Executive's estate or legal representative shall be
entitled to receive the following:
1. Payment of benefits under the life insurance policy
purchased by the Company on Executive's behalf, if any;
2. Payments of benefits under the LTPIP and the AIP set forth
in Sections 3.1(e) and 3.1(f), respectively, which will be deemed to
have accrued as of the date of Executive's death; and
3. Executive's legal representative shall be permitted to
exercise any vested and unexercised options under the 1989 Stock
Option Plan set forth in Section 3.1(g) and shall be permitted to
exercise any other vested and unexercised options granted under any
other stock option plans of the Company ("Prior Stock Option Plans")
in accordance with their terms for a period of one year following
Executive's death. The 1989 Stock Option Plan and the Prior Stock
Option Plans shall together be referred to herein as the "Stock Option
Plans."
b. In the event that Executive is terminated because of an
incapacity or disability, the Company shall provide Executive with the
following:
1. Payment of benefits under the disability insurance policy
maintained by the Company on Executive's behalf, if any;
2. Payment of benefits under the LTPIP and the AIP set forth in
Sections 3.1(e) and 3.1(f), respectively, which will be deemed to have
accrued as of the effective date of such termination;
3. The right to exercise any vested and unexercised options
under the Stock Option Plans in accordance with the terms stated
therein; and
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4. Payment of the automobile allowance as provided under
Section 3.1(c) for a period of 36 months following the effective date
of such termination.
c. In the event this Agreement is terminated because of Executive's
habitual neglect or gross misconduct pursuant to Section 2.2(c) or because
of Executive's voluntary termination, the Company shall be relieved from
any and all further or future obligations to compensate Executive;
provided, however, that Executive shall be able to exercise any vested and
unexercised awards under the Stock Option Plans in accordance with the
terms set forth therein.
d. In the event that the Company terminates Executive, for any
reason other than Executive's incapacity or disability or misconduct as
described in Sections 2.2(b) and 2.2(c), respectively, Executive shall be
entitled to the following severance compensation:
1. Executive's then current annual salary under Section 3.1(a)
for a period of 36 months following the effective date of such
termination;
2. Payment of benefits under the LTPIP and the AIP set forth in
Sections 3.1(e) and 3.1.(f), respectively, which will be deemed to
have accrued as of the effective date of such termination;
3. The right to exercise any vested and unexercised options
under the Stock Option Plans in accordance with their terms within one
year of the effective date of such termination;
4. Notwithstanding the foregoing, in the event Executive
engages in employment with a competitor of the Company during the
36 month benefit period, the severance compensation available to
Executive under this Section 3.2(d) shall be reduced by the amount of
any and all gross earnings Executive earns while engaged in employment
with any such competitor or competitors. For the purposes of this
Section 3.2(d)(5), a "competitor of the Company" shall include,
without limitation, an health maintenance organization, competitive
medical plan, or preferred provider organization, or health or life
insurance company which owns a managed care plan or program.
Executive agrees to provide immediate notice to Company upon receipt
of any gross earnings received by Executive from a competitor of the
Company;
5. Payment of the automobile allowance as provided in Section
3.1(c) for a period of 36 months following the effective date of such
termination; and
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6. The Company shall provide to Executive the outplacement
services described in Section 3.1(i).
e. Notwithstanding anything which may be expressed in, or inferred
from the provisions expressed in, or inferred from the provisions of this
Section 3.2 or Section 4.1, this Agreement should not be construed to
limit, restrict, or deny Executive any benefits to which he otherwise may
be entitled to under the LTPIP, the AIP, the Stock Option Plans, the
Company's pension plan or otherwise which arise from circumstances not
addressed in this Agreement.
4. TERMINATION AS A RESULT OF A CHANGE OF CONTROL OR FOR GOOD CAUSE
4.1 EXECUTIVE'S RIGHTS. In the event that, during the term of this
Agreement, the Company undergoes a "change of ownership or control," as that
term is defined in Section 4.3, Executive shall be entitled to the following
compensation if within 24 months after the consummation of such change Executive
is involuntarily terminated, except as provided in Section 4.2, or Executive
voluntarily terminates his employment for "good cause" as defined in Section
4.4:
a. Executive's then current annual salary under Section 3.1(a) for a
period of 36 months following the effective date of such termination;
b. Payment of health insurance premiums under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, for Executive and
Executive's dependents for a period of 18 months following the effective
date of such termination;
c. Annual payment of benefits under the LTPIP set forth in Section
3.1(e) for each performance period of the LTPIP for a period of 36 months
following the effective date of such termination;
d. Annual payment of benefits under the AIP set forth in Section
3.1(f), for a period of 36 months following the effective date of such
termination;
e. The right to exercise any and all granted and unexercised stock
options, under the Stock Option Plans in accordance with their terms
(whether or not such options are actually vested), as if all such
unexercised stock options are fully vested within one year of the effective
date of such termination;
f. Payment of the automobile allowance as provided under Section
3.1(c) for a period of 36 months following the effective date of such
termination; and
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g. The Company shall provide to Executive the outplacement services
described in Section 3.1(i).
4.2 LIMITATION OF BENEFITS. In the event that Executive is terminated
within 12 months after a change of ownership or control of the Company, and such
termination results from either Executive's incapacity or disability or habitual
neglect or gross misconduct, then, notwithstanding anything in this Section 4 to
the contrary, Executive shall receive only that compensation, if any, to which
he is entitled to under Sections 3.2(b) and 3.2(c), respectively.
In no event shall the aggregate amount of all compensation which Executive
may receive pursuant to the provisions of this Section 4, including without
limitation, any salary, bonuses, stock options, employee benefits and all other
cash and in-kind compensation exceed an amount (the "Maximum Compensation
Amount") which would give rise to an "excess parachute payment" as determined by
Section 280G of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder. In the event that this Section 4 would
entitle Executive to sums in excess of the Maximum Compensation Amount, the
Company shall use its sound discretion, in good faith, to furnish Executive with
a post-termination compensation package which is substantially equal to the
Maximum Compensation Amount.
4.3 CHANGE OF CONTROL. As used in this Section 4, the term "change of
ownership or control" means and refers to:
a. any merger, consolidation, or sale of the Company such that any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) acquires beneficial ownership, within the meaning of Rule 13d-3 of
the Exchange Act, of 20 percent or more of the voting common stock of the
Company and the ownership interest of the voting common stock owned by
UniHealth America is less than or equal to the ownership interest of the
voting common stock of such individual, entity or group;
b. any transaction in which the Company sells substantially all of
its material assets;
c. a dissolution or liquidation of the Company; or
d. the Company becomes a non-publicly held company.
4.4 GOOD CAUSE. As used in this Section 4, "good cause" for Executive to
terminate his employment shall be deemed to exist if Executive voluntarily
terminates his employment for any of the following reasons:
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a. Without Executive's express prior written consent, Executive:
(i) is assigned duties materially inconsistent with Executive's
position, duties, responsibilities, or status with the Company which
substantially varies from that which existed immediately prior to such
change of ownership or control;
(ii) experiences a change in his reporting level, titles, or
business location (to a point more than 50 miles outside of Orange
County, California) which substantially varies from that which existed
immediately prior to the change of ownership or control; or
(iii) with respect to any position held immediately prior to the
change of ownership or control, is removed or fails to obtain
reelection, which removal or failure to reelect is not directly
related to Executive's incapacity or disability, habitual neglect,
gross misconduct or death;
b. Without Executive's express prior written consent, Executive's
salary is reduced below that which existed immediately prior to the change
of ownership or control and such change is not otherwise applied to others
in the Company with at least Executive's position or title;
c. Without Executive's express prior written consent, any employee
benefit, business expense reimbursement or allotment, incentive bonus
program, or any other manner or form of compensation available to Executive
immediately prior to the change of ownership or control is reduced or
eliminated and such change is not otherwise applied to others in the
Company with at least Executive's position or title;
d. The Company fails to obtain from any successor, before the
succession takes place, a written commitment obligating the successor, to
perform this Agreement in accordance with all of its terms and conditions;
or
e. The Company or any successor thereto, purports to terminate
Executive without first giving Executive prior written notice thereof, in
accordance with the provisions of Section 2.2(d), that specifies: (i) the
exact provision of Section 2.2 relied upon; and (ii) the facts and
circumstances, in reasonable detail, serving as the basis for Executive's
termination.
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5. NOTICES
All notices or other communications required or permitted to be made
hereunder shall be given in writing and sent by either personal delivery,
overnight delivery, or United States registered or certified mail, return
receipt requested, all of which shall be properly addressed with postal or
delivery charges prepaid, to the parties at their respective addresses set forth
below, or to such other addresses as either party may designate to the other in
accordance with this Section 5:
If to the Company: PacifiCare Health Systems, Inc.
5995 Plaza Drive
Cypress, California 90630
Attn: President and
Chief Executive Officer
If to Executive: Alan R. Hoops
1 Celestial
Irvine, California 92715
All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed given on the
next business day. All other notices sent via United States mail shall be
deemed given no later than two business days after mailing.
6. GENERAL PROVISIONS
6.1 ASSIGNABILITY. This Agreement shall inure to the benefit of, and
shall be binding upon the heirs, executors, administrators, successors, and
legal representatives of Executive and shall inure to the benefit of, and be
binding upon the Company and its successors and assigns. Executive shall not
assign, delegate, subdelegate, transfer, pledge, encumber, hypothecate, or
otherwise dispose of this Agreement, or any rights, obligations, or duties
hereunder, and any such attempted delegation or disposition shall be null and
void and without any force or effect; provided however, that nothing contained
herein shall prevent Executive from designating beneficiaries for insurance,
death, or retirement benefits.
6.2 ENTIRE AGREEMENT. This Agreement is a fully integrated document and
contains any and all promises, covenants, and agreements between the parties
hereto with respect to Executive's employment. This Agreement supersedes any
and all other, prior or contemporaneous, discussions, negotiations,
representations, warranties, covenants, conditions, and agreements, whether
written or oral, between the parties hereto. Except as expressed herein, the
parties have not exchanged any other representations, warranties, inducements,
promises, or agreements respecting Executive's employment with the Company.
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6.3 SEVERABILITY. In the event any one or more of the provisions of this
Agreement shall be rendered by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, in any respect, such invalidity, illegality, or
unenforceability shall not affect or impair the remainder of this Agreement
which shall remain in full force and effect and enforced accordingly.
6.4 AMENDMENT. This Agreement shall not be changed, amended, or modified,
nor shall any performance or condition hereunder be waived, in whole or in part,
except by written instrument signed by the party against whom enforcement or
waiver is sought. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other or
subsequent breach of the same or any other term or condition of this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by, enforced under,
and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
The Company: PACIFICARE HEALTH SYSTEMS, INC.,
a Delaware corporation
/s/ Terry Hartshorn
--------------------------------
By: Terry Hartshorn
Title: Chairman of the Board
/s/ Alan R. Hoops
Executive: --------------------------------
Alan R. Hoops
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EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into as of the 12th day of December, 1994, by and between PACIFICARE HEALTH
SYSTEMS, INC., a Delaware corporation (the "Company"), with its principal place
of business located at 5995 Plaza Drive, Cypress, California 90630 and JEFFREY
FOLICK, an individual ("Executive"), residing at 13601 Belle Rive, Santa Ana,
California 92705.
RECITALS
WHEREAS, the Company desires to employ Executive in the capacity of
Executive Vice President and Chief Operating Officer; and
WHEREAS, the Company and Executive are entering into this Agreement to
establish the terms and conditions of Executive's employment with the Company as
the Company's Executive Vice President and Chief Operating Officer.
NOW, THEREFORE, in consideration of the following covenants, conditions,
and promises contained herein, and other good and valuable consideration, the
Company and Executive hereby agree as follows:
1. EMPLOYMENT
1.1 EXECUTIVE'S GENERAL DUTIES. The Company hereby employs Executive and
Executive hereby agrees to serve the Company in the capacity of Executive Vice
President and Chief Operating Officer of the Company having such usual and
customary duties and authority as an officer of similar capacity in a
corporation of comparable size, holdings, and businesses as that of the Company.
Executive shall do and perform all services, acts, or things necessary or
advisable to manage and conduct the business of the Company and shall preside
over such other areas of corporate activity as specified from time to time by
the Board of Directors of the Company. During the term of this Agreement,
Executive shall perform such additional or different duties, and accept the
election or appointment to such other offices or positions, as are mutually
agreed upon by Executive and the Company.
1.2 DEVOTION OF EXECUTIVE. During the term of this Agreement, Executive
shall devote his entire productive time, ability, and attention to the business
of the Company. Executive shall use his best efforts, skills, and abilities to
promote the general welfare and interests of the Company and to preserve,
maintain, and foster the Company's business and business
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relationships with all persons and entities associated therewith, including,
without limitation, employer groups, medical service providers, shareholders,
affiliates, officers, employees, and banks and other financial institutions.
The Company shall give Executive a reasonable opportunity to perform his duties
and shall neither expect Executive to devote more time, nor assign more duties
or functions to Executive, than are customary and reasonable for an executive in
Executive's position.
2. TERM AND TERMINATION
2.1 TERM. Provided that Executive has certified, and the Company has
reasonably determined, that Executive has no conflicting employment or other
obligations which would prevent Executive from entering into this employment
agreement with the Company, the term of this Agreement shall commence on
December 12, 1994 (the "Commencement Date") and shall continue thereafter unless
terminated as provided in Section 2.2.
2.2 TERMINATION. This Agreement shall be terminated upon the occurrence
of any one of the following events:
a. The death of the Executive.
b. Executive becomes incapacitated or disabled, which incapacity or
disability prevents Executive from fully performing his duties to the
Company for a period in excess of 90 days and, after such 90-day period,
the Company and a physician, duly licensed and qualified in the specialty
of Executive's incapacity, decide in their reasonable judgments, that such
incapacity will be permanent or of such continued duration as to prevent
Executive from resuming the rendition of services to the Company for at
least an additional six-month period. For purposes of this Agreement,
Executive shall be deemed permanently disabled, and this Agreement
terminated upon the date Executive receives written notice from the Company
that such determination has been made.
c. Executive habitually neglects his duties to the Company or
engages in gross misconduct during the term of this Agreement. For the
purposes of this Agreement, "gross misconduct" shall mean Executive's
conviction of any criminal offense, misappropriation of funds, securities
fraud, insider trading, unauthorized possession of corporate property or
the sale, distribution, possession or use of a controlled substance
(whether or not such felony or criminal offense is committed in connection
with Executive's duties hereunder or in the course of his employment with
the Company). In such event, Executive's termination shall be effective
immediately upon receipt of written notice from the Company.
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d. Either party hereto may terminate this Agreement, with or without
cause, upon 30 days prior written notice to the other party. In such
event, Executive's termination shall be effective 90 days after the notice
of termination has been received.
2.3 EFFECT OF TERMINATION. No termination of this Agreement shall affect
or impair any rights or obligations of the parties respecting certain
compensation accruing prior thereto or continuing thereafter in accordance with
the terms set forth in Section 3.2 and Section 4.
3. COMPENSATION
3.1 COMPENSATION DURING THE TERM OF THIS AGREEMENT.
a. On and as of January 3, 1995 (the "Grant Date"), the Company
shall grant to Executive options to purchase 90,000 Class B Common Shares
(the "Additional Options"). On the first anniversary of the Grant Date,
twenty percent (20%) of the Additional Options shall have become fully
vested and an additional twenty percent (20%) of the Additional Options
shall become fully vested on each succeeding anniversary of the Grant Date
until the sixth anniversary of the Grant Date when all Additional Options
shall have fully vested. Once vested, all Additional Options shall be
exercisable in accordance with the terms of a stock option agreement
entered into by Executive pursuant to the 1989 Stock Option Plan (defined
in paragraph j below) and the Additional Options, in all other respects,
shall be subject to such stock option agreement and the 1989 Stock Option
Plan.
b. As long as Executive satisfactorily performs all of his
obligations hereunder, the Company shall pay Executive an annual base
salary, as determined by the compensation committee of the Board of
Directors, payable in equal installments on the Company's regular payroll
dates (the "Base Salary"). Executive's initial Base Salary shall be
$360,000.00 which Executive shall begin to earn and accrue on January 3,
1995. On an annual basis, the Company's compensation committee shall
review Executive's Base Salary, but shall be under no obligation to
increase the Base Salary.
Executive authorizes the Company to take such deductions and
withholdings from his Base Salary as are required by law, directed by
Executive, or as reasonably directed by the Company for its employees,
which deductions shall include, without limitation, withholding for federal
and state income taxes and social security.
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c. Executive shall continue to be entitled to fully participate in
all of the employee benefit plans and programs available to other high-
level executives of the Company, including, without limitation, health,
dental, and life insurance benefits for Executive and Executive's
dependents, pension and profit sharing programs, and vacation and sick
leave benefits. As of the Commencement Date, Executive shall be fully
reinstated into all such employee benefit plans and programs as if
Executive had never left the employ of PacifiCare of California (the
Company's wholly-owned subsidiary) and Executive shall not lose or forfeit
any cash or noncash benefits or seniority accrued or earned by Executive
under any of the Company's employee benefit plans or programs prior to his
having left PacifiCare of California's employ. However, the terms of this
Agreement shall not restrict the Company's right to change, amend, modify,
or terminate any existing benefit plan or program, or to change any
insurance company or modify any insurance policy adopted incident to such
existing benefit plan and program.
d. As part of the compensation for services rendered under this
Agreement, Executive shall continue to be entitled to participate in the
PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan, and the
trust agreement implemented pursuant thereto, adopted as of June 1, 1985
(the "401(k) Plan"), as from time to time may be amended, modified, or
replaced in accordance with the terms and conditions set forth therein. As
of the Commencement Date, Executive shall be fully reinstated into the
401(k) Plan as if Executive had never left the employ of PacifiCare of
California and Executive shall not lose or forfeit any cash or noncash
benefits or seniority accrued or earned by Executive under the 401(k) Plan
prior to his having left PacifiCare of California's employ.
e. Beginning with the month of January, 1995, the Company shall
provide Executive with a $600.00 per month automobile allowance. The
Company shall furnish Executive's automobile with a cellular car telephone.
Executive shall provide and maintain automobile insurance for Executive's
car including collision, comprehensive liability, personal, and property
damage, and uninsured and underinsured motorist coverage in amounts
customarily obtained to cover such contingencies in California. Executive
shall provide proof of such coverage to the Company upon the Company's
request.
f. Beginning with the month of January, 1995, the Company shall pay
for or reimburse Executive for reasonable expenses that Executive incurs in
obtaining and maintaining a golf club membership in connection with the
development of existing or new business.
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g. Beginning with the month of January, 1995, the Company shall pay
for or reimburse Executive for all other reasonable travel, entertainment,
and other business expenses incurred or paid for by Executive in connection
with the performance of his services under this Agreement. The Company
shall not be obligated to make any such reimbursement unless Executive
presents corresponding expense statements or vouchers and such other
supporting information as the Company may from time to time reasonably
request. The Company reserves the right to place subsequent limitations or
restrictions on business expenses to be incurred or reimbursed.
h. Executive shall continue to be entitled to participate fully in
the Company's Long-Term Performance Incentive Plan, as amended (the
"LTPIP"), as from time to time may be amended, modified, or replaced in
accordance with the terms and conditions set forth herein and therein. As
of the Commencement Date, Executive shall be fully reinstated into the
LTPIP as if Executive had never left the employ of PacifiCare of California
and Executive shall not lose or forfeit any bonus earned or accrued by
Executive under the LTPIP prior to his having left the employ of PacifiCare
of California. During the term of this Agreement, Executive shall be
entitled under the LTPIP to a target bonus award of forty percent (40%) of
Executive's Base Salary applicable at the end of the calendar year
preceding the payment of the award and to a maximum bonus award of eighty
percent (80%) of Executive's Base Salary applicable at the end of the
calendar year preceding the payment of the award.
i. Executive shall continue to be entitled to participate fully in
the Company's Annual Incentive Plan, as amended (the "AIP"), as may be
amended, modified, or replaced in accordance with the terms and conditions
set forth herein and therein. As of the Commencement Date, Executive shall
be fully reinstated into the AIP as if Executive had never left the employ
of PacifiCare of California and Executive shall be entitled to receive all
of the bonus earned or accrued by Executive under the AIP for fiscal year
1994. During the term of this Agreement, Executive shall be entitled under
the AIP to a target bonus award of forty-five percent (45%) of Executive's
Base Salary applicable at the end of the applicable fiscal year and to a
maximum bonus award of ninety percent (90%) of Executive's Base Salary
applicable at the end of the applicable fiscal year.
j. As of the Commencement Date, Executive shall continue to be
entitled to participate fully in the Amended and Restated 1989 Stock Option
Plan for Officers and Key Employees of PacifiCare Health Systems, Inc., as
amended
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(the "1989 Stock Option Plan"), as such plan from time to time may be
amended, modified, or replaced in accordance with the terms and conditions
set forth herein and therein. All options heretofore granted to Executive
under the 1989 Stock Option Plan shall continue and shall vest and be
exercisable in accordance with the terms of the 1989 Stock Option Plan and
any stock option agreement entered into by Executive in connection
therewith. A list of all such stock options (vested and unvested) which
have been granted to Executive is attached hereto as Exhibit A and is
incorporated in full herein by this reference.
k. The Company shall use its best efforts to promote Executive's
election to the Company's Board of Directors.
l. During the term of this Agreement, the Company shall insure
Executive under its general liability insurance for all conduct committed
in good faith while acting in the capacity as Executive Vice President and
Chief Operating Officer of the Company or in any other capacity to which
Executive may be appointed or elected.
m. The Company shall procure and pay for a term insurance policy
covering the life of Executive in the amount of $2 million. The insurance
coverage shall not begin prior to January 3, 1995.
n. In the event Executive is involuntarily terminated, without
cause, except in the case of death or incapacity or disability, the Company
shall provide outplacement services to Executive to assist Executive in
securing a position with comparable responsibility as the position from
which Executive was terminated. The Company shall be obligated to provide
those outplacement services as customarily provided by companies of similar
size and holdings as those of the Company to executives with comparable
responsibility and longevity as Executive. The Company's provision of such
outplacement services shall not limit, restrict, or reduce, in any manner,
any and all other compensation to which Executive is entitled hereunder.
o. Executive shall be entitled to the benefits provided under the
Company's Statutory Restoration Plan, as such plan from time to time may be
amended, modified, or replaced in accordance with the terms set forth
herein and therein. As of the Commencement Date, Executive shall be fully
reinstated into the Statutory Restoration Plan as if Executive had never
left the employ of PacifiCare of California and Executive shall not lose or
forfeit any benefits earned or accrued under the Statutory Restoration Plan
prior to his having left the employ of PacifiCare of California.
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3.2 COMPENSATION FOLLOWING TERMINATION
a. In the event that this Agreement is terminated by reason of
Executive's death, Executive's estate or legal representative shall be
entitled to receive the following:
1. Payment of benefits under the life insurance policy
purchased by the Company on Executive's behalf, if any;
2. Payments of benefits under the LTPIP and the AIP set forth
in Sections 3.1(h) and 3.1(i), respectively, which will be deemed to
have accrued as of the date of Executive's death; and
3. Executive's legal representative shall be permitted to
exercise any vested and unexercised Additional Options and other
options granted under the 1989 Stock Option Plan and shall be
permitted to exercise any other vested and unexercised options granted
under any other stock option plans of the Company ("Prior Stock Option
Plans") in accordance with their terms for a period of one year
following Executive's death. The 1989 Stock Option Plan and the Prior
Stock Option Plans shall together be referred to herein as the "Stock
Option Plans."
b. In the event that Executive is terminated because of an
incapacity or disability, the Company shall provide Executive with the
following:
1. Payment of benefits under the disability insurance policy
maintained by the Company on Executive's behalf, if any;
2. Payment of benefits under the LTPIP and the AIP set forth in
Sections 3.1(h) and 3.1(i), respectively, which will be deemed to have
accrued as of the effective date of such termination;
3. The right to exercise any vested and unexercised Additional
Options and other options granted under the Stock Option Plans in
accordance with the terms stated therein; and
4. Payment of the automobile allowance as provided under
Section 3.1(e) for a period of 24 months following the effective date
of such termination.
c. In the event this Agreement is terminated because of Executive's
habitual neglect or gross misconduct pursuant to Section 2.2(c) or because
of Executive's voluntary termination, the Company shall be relieved from
any and all
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further or future obligations to compensate Executive; provided, however,
that Executive shall be able to exercise any vested and unexercised
Additional Options or other awards under the Stock Option Plans in
accordance with the terms set forth therein.
d. In the event that the Company terminates Executive, for any
reason other than Executive's incapacity or disability or misconduct as
described in Sections 2.2(b) and 2.2(c), respectively, Executive shall be
entitled to the following severance compensation:
1. Executive's then current Base Salary for a period of 24
months following the effective date of such termination;
2. Payment of benefits under the LTPIP and the AIP set forth in
Sections 3.1(h) and 3.1.(i), respectively, which will be deemed to
have accrued as of the effective date of such termination;
3. The right to exercise any vested and unexercised Additional
Options or other options granted under the Stock Option Plans in
accordance with their terms within one year of the effective date of
such termination;
4. Notwithstanding the foregoing, in the event Executive
engages in employment with a competitor of the Company during the 24
month benefit period, the severance compensation available to
Executive under this Section 3.2(d) shall be reduced by the amount of
any and all gross earnings Executive earns while engaged in employment
with any such competitor or competitors, which gross earnings
Executive shall promptly disclose to the Company. For the purposes of
this Section 3.2(d)(4), a "competitor of the Company" shall include,
without limitation, a health maintenance organization, competitive
medical plan, or preferred provider organization, or health or life
insurance company which owns a managed care plan or program;
5. Payment of the automobile allowance as provided in Section
3.1(e) for a period of 24 months following the effective date of such
termination; and
6. The Company shall provide to Executive the outplacement
services described in Section 3.1(m).
e. Notwithstanding anything which may be expressed in, or inferred
from the provisions expressed in, or inferred from the provisions of this
Section 3.2 or Section 4.1, this Agreement should not be construed to
limit,
- 8 -
<PAGE>
restrict, or deny Executive any benefits to which he otherwise may be
entitled to under the LTPIP, the AIP, the Stock Option Plans, the Company's
pension plan or otherwise which arise from circumstances not addressed in
this Agreement.
4. TERMINATION AS A RESULT OF A CHANGE OF CONTROL OR FOR GOOD CAUSE
4.1 EXECUTIVE'S RIGHTS. In the event that, during the term of this
Agreement, the Company undergoes a "change of ownership or control," as that
term is defined in Section 4.3, Executive shall be entitled to the following
compensation if within 24 months after the consummation of such change Executive
is involuntarily terminated, except as provided in Section 4.2, or Executive
voluntarily terminates his employment for "good cause" as defined in Section
4.4:
a. Executive's then current Base Salary for a period of 24 months
following the effective date of such termination;
b. Payment of health insurance premiums under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, for Executive and
Executive's dependents for a period of 18 months following the effective
date of such termination;
c. Annual payment of benefits under the LTPIP set forth in Section
3.1(h) for each performance period of the LTPIP for a period of 24 months
following the effective date of such termination;
d. Annual payment of benefits under the AIP set forth in Section
3.1(i), for a period of 24 months following the effective date of such
termination;
e. The right to exercise any and all granted and unexercised
Additional Options and other stock options granted under the Stock Option
Plans in accordance with their terms (whether or not such options are
actually vested), as if all such unexercised stock options are fully vested
within one year of the effective date of such termination;
f. Payment of the automobile allowance as provided under Section
3.1(e) for a period of 24 months following the effective date of such
termination; and
g. The Company shall provide to Executive the outplacement services
described in Section 3.1(m).
- 9 -
<PAGE>
4.2 LIMITATION OF BENEFITS. In the event that Executive is terminated
within 12 months after a change of ownership or control of the Company, and such
termination results from either Executive's incapacity or disability or habitual
neglect or gross misconduct, then, notwithstanding anything in this Section 4 to
the contrary, Executive shall receive only that compensation, if any, to which
he is entitled to under Sections 3.2(b) and 3.2(c), respectively.
In no event shall the aggregate amount of all compensation which Executive
may receive pursuant to the provisions of this Section 4, including, without
limitation, any salary, bonuses, stock options, employee benefits, and all other
cash and in-kind compensation exceed an amount (the "Maximum Compensation
Amount") which would give rise to an "excess parachute payment" as determined by
Section 280G of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder. In the event that this Section 4 would
entitle Executive to sums in excess of the Maximum Compensation Amount, the
Company shall use its sound discretion, in good faith, to furnish Executive with
a post-termination compensation package which is substantially equal to the
Maximum Compensation Amount.
4.3 CHANGE OF CONTROL. As used in this Section 4, the term "change of
ownership or control" means and refers to:
a. any merger, consolidation, or sale of the Company such that any
individual, entity, or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) acquires beneficial ownership, within the meaning of Rule 13d-3 of
the Exchange Act, of twenty percent (20%) or more of the voting common
stock of the Company and the ownership interest of the voting common stock
owned by UniHealth America is less than or equal to the ownership interest
of the voting common stock of such individual, entity, or group;
b. any transaction in which the Company sells substantially all of
its material assets;
c. a dissolution or liquidation of the Company; or
d. the Company becomes a non-publicly held company.
4.4 GOOD CAUSE. As used in this Section 4, "good cause" for Executive to
terminate his employment shall be deemed to exist if Executive voluntarily
terminates his employment for any of the following reasons:
a. Without Executive's express prior written consent, Executive:
(i) is assigned duties materially inconsistent with Executive's position,
duties, responsibilities, or
- 10 -
<PAGE>
status with the Company which substantially varies from that which existed
immediately prior to such change of ownership or control; (ii) experiences
a change in his reporting level, titles, or business location (to a point
more than 50 miles outside of Orange County, California) which
substantially varies from that which existed immediately prior to the
change of ownership or control; or (iii) with respect to any position held
immediately prior to the change of ownership or control, is removed or
fails to obtain reelection, which removal or failure to reelect is not
directly related to Executive's incapacity or disability, habitual neglect,
gross misconduct, or death;
b. Without Executive's express prior written consent, Executive's
salary is reduced below that which existed immediately prior to the change
of ownership or control and such change is not otherwise applied to others
in the Company with at least Executive's position or title;
c. Without Executive's express prior written consent, any employee
benefit, business expense reimbursement or allotment, incentive bonus
program, or any other manner or form of compensation available to Executive
immediately prior to the change of ownership or control is reduced or
eliminated and such change is not otherwise applied to others in the
Company with at least Executive's position or title;
d. The Company fails to obtain from any successor, before the
succession takes place, a written commitment obligating the successor, to
perform this Agreement in accordance with all of its terms and conditions;
or
e. The Company or any successor thereto, purports to terminate
Executive without first giving Executive prior written notice thereof, in
accordance with the provisions of Section 2.2(d), that specifies: (i) the
exact provision of Section 2.2 relied upon; and (ii) the facts and
circumstances, in reasonable detail, serving as the basis for Executive's
termination.
5. NOTICES
All notices or other communications required or permitted to be made
hereunder shall be given in writing and sent by personal delivery, overnight
delivery, or United States registered or certified mail, return receipt
requested, all of which shall be properly addressed with postal or delivery
charges prepaid, to the parties at their respective addresses set forth below,
or to such other addresses as either party may designate to the other in
accordance with this Section 5:
- 11 -
<PAGE>
If to the Company: PacifiCare Health Systems, Inc.
5995 Plaza Drive
Cypress, California 90630
Attn: President and
Chief Executive Officer
If to Executive: Jeffrey Folick
13601 Belle Rive
Santa Ana, California 92705
All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed given on the
next business day. All other notices sent via United States mail shall be
deemed given no later than two business days after mailing.
6. GENERAL PROVISIONS
6.1 ASSIGNABILITY. This Agreement shall inure to the benefit of, and
shall be binding upon the heirs, executors, administrators, successors, and
legal representatives of Executive and shall inure to the benefit of, and be
binding upon the Company and its successors and assigns. Executive shall not
assign, delegate, subdelegate, transfer, pledge, encumber, hypothecate, or
otherwise dispose of this Agreement, or any rights, obligations, or duties
hereunder, and any such attempted delegation or disposition shall be null and
void and without any force or effect; provided however, that nothing contained
herein shall prevent Executive from designating beneficiaries for insurance,
death, or retirement benefits.
6.2 ENTIRE AGREEMENT. This Agreement is a fully integrated document and
contains any and all promises, covenants, and agreements between the parties
hereto with respect to Executive's employment. This Agreement supersedes any
and all other, prior or contemporaneous, discussions, negotiations,
representations, warranties, covenants, conditions, and agreements, whether
written or oral, between the parties hereto. Except as expressed herein, the
parties have not exchanged any other representations, warranties, inducements,
promises, or agreements respecting Executive's employment with the Company.
6.3 SEVERABILITY. In the event any one or more of the provisions of this
Agreement shall be rendered by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, in any respect, such invalidity, illegality, or
unenforceability shall not affect or impair the remainder of this Agreement
which shall remain in full force and effect and enforced accordingly.
6.4 AMENDMENT. This Agreement shall not be changed, amended, or modified,
nor shall any performance or condition hereunder be waived, in whole or in part,
except by written instrument signed by the party against whom enforcement or
waiver
- 12 -
<PAGE>
is sought. The waiver of any breach of any term or condition of this Agreement
shall not be deemed to constitute the waiver of any other or subsequent breach
of the same or any other term or condition of this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by, enforced under,
and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
The Company: PACIFICARE HEALTH SYSTEMS, INC.,
a Delaware corporation
By: /s/ Alan R. Hoops
--------------------------------
Alan R. Hoops
Title: President and
Chief Executive Officer
Executive: /s/ Jeffrey Folick
-----------------------------------
Jeffrey Folick
- 13 -
<PAGE>
Exhibit 11A
PacifiCare Health Systems, Inc.
Computation of Net Income per Share of Common Stock -
Primary
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
December 31,
---------------------------
1994 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares outstanding at the beginning of the period 27,528 27,256
Weighted average number of shares issued during
the period in connection with a public offering,
compensation awarded in stock and exercise of stock
options 20 19
Shares repurchased (weighted) - (28)
Dilutive shares contingently issuable, net of
shares assumed to have been purchased (at the average
market price) for treasury with assumed proceeds from:
Exercise of stock options 682 566
Registered equity purchase contracts 1 -
- --------------------------------------------------------------------------------
Total shares - primary 28,231 27,813
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income before cumulative effect of a change
in accounting principle $ 20,057 $ 14,739
Cumulative effect on prior years of a change
in accounting principle - 5,658
- --------------------------------------------------------------------------------
Net income $ 20,057 $ 20,397
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Primary earnings per share:
Earnings before cumulative effect of a
change in accounting principle $ 0.71 $ 0.53
Cumulative effect on prior years of a
change in accounting principle - 0.20
- --------------------------------------------------------------------------------
Earnings per share - primary $ 0.71 $ 0.73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Exhibit 11B
PacifiCare Health Systems, Inc.
Computation of Net Income per Share of Common Stock -
Fully Diluted
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------
1994 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares outstanding at the beginning of the period 27,528 27,256
Weighted average number of shares issued during
the period in connection with a public offering,
compensation awarded in stock and exercise of
stock options 20 19
Shares repurchased (weighted) - (28)
Dilutive shares contingently issuable, net of
shares assumed to have been purchased (at the higher
of average or ending market price) for treasury with
assumed proceeds from:
Exercise of stock options 682 572
Registered equity purchase contracts 1 -
- --------------------------------------------------------------------------------
Total shares - fully diluted 28,231 27,819
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income before cumulative effect of a change in
accounting principle $20,057 $14,739
Cumulative effect on prior years of a change in
accounting principle - 5,658
- --------------------------------------------------------------------------------
Net income $20,057 $20,397
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fully diluted earnings per share:
Earnings before cumulative effect of a change in
accounting principle $0.71 $0.53
Cumulative effect on prior years of a change in
accounting principle - 0.20
- --------------------------------------------------------------------------------
Earnings per share - fully diluted $0.71 $0.73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 218,590
<SECURITIES> 532,735
<RECEIVABLES> 73,883
<ALLOWANCES> 163
<INVENTORY> 0
<CURRENT-ASSETS> 864,441
<PP&E> 155,743
<DEPRECIATION> 57,346
<TOTAL-ASSETS> 1,158,551
<CURRENT-LIABILITIES> 630,876
<BONDS> 97,590
<COMMON> 276
0
0
<OTHER-SE> 429,396
<TOTAL-LIABILITY-AND-EQUITY> 1,158,551
<SALES> 0
<TOTAL-REVENUES> 821,614
<CGS> 0
<TOTAL-COSTS> 676,299
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 1,684
<INCOME-PRETAX> 34,083
<INCOME-TAX> 14,026
<INCOME-CONTINUING> 20,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,057
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
