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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER: 0-19786
PHYCOR, INC.
(Exact Name of Registrant as Specified in Its Charter)
TENNESSEE 62-1344801
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30 BURTON HILLS BLVD., SUITE 400
NASHVILLE, TENNESSEE 37215
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (615) 665-9066
Securities Registered pursuant to Section 12(b) of the Act:
NONE NONE
(Title of Each Class) (Name of Each Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
---------------------------------------------------------------------------
(Title of Class)
4.5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock (based upon
the closing sales price of these shares as reported on the Nasdaq Stock Market's
National Market on March 26, 1998) of the registrant held by non-affiliates on
March 26, 1998, was approximately $1.686 billion.
As of March 26, 1998, 64,354,339 shares of the registrant's Common
Stock were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into
which the document is incorporated:
<TABLE>
<S> <C>
Portions of the Registrant's 1997 Annual Report to
Shareholders....................................................Part II
Portions of the Registrant's Definitive Proxy
Statement Relating to the Annual Meeting of
Shareholders to be held on May 21, 1998........................Part III
</TABLE>
FORWARD-LOOKING STATEMENTS
This report and other information that is provided by PhyCor, Inc.
("PhyCor" or the "Company") contain forward-looking statements including those
regarding the acquisition of additional clinics, the development of additional
IPAs, the adequacy of PhyCor's capital resources and other statements regarding
trends relating to various revenue and expense items. Many factors, including
PhyCor's ability to consolidate clinics and operate them profitably,
competition, regulatory developments and changes, the profitability of capitated
fee arrangements and other methods of payment for medical services, the fact
that the physician groups with which PhyCor affiliates are exposed to the risk
of professional liability claims, its dependence on the revenue generated by its
affiliated clinics and other uncertainties, could cause actual results to differ
materially from those projected in such forward-looking statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors."
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
PhyCor is a physician practice management company ("PPM") that
acquires and operates multi-specialty medical clinics and develops and manages
independent practice associations ("IPAs"). PhyCor's objective is to organize
physicians into professionally managed networks that assist physicians in
assuming increased responsibility for delivering cost-effective medical care,
while attaining quality clinical outcomes and patient satisfaction. As of
December 31, 1997, the Company operated 55 clinics with 3,863 physicians in 28
states. The Company also manages IPAs, which are networks of independent
physicians, that, as of December 31, 1997, included over 19,000 physicians in 28
markets. As of December 31, 1997, the Company's affiliated physicians provided
capitated medical services to approximately 1,132,000 members, including
approximately 174,000 Medicare members.
The Company's strategy is to position its affiliated multi-specialty
medical clinics and IPAs to be the physician component of organized health care
systems. PhyCor targets
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for acquisition primary care-oriented multi-specialty medical clinics with
significant market shares and established reputations for providing quality
medical care. The Company is also assisting independent physicians in particular
markets in developing new physician groups that enter into long-term agreements
with the Company. The Company focuses its IPA development and management efforts
in markets that have characteristics indicating opportunities for rapid
enrollment growth and attractive capitation rates. The Company generates
increased demand for the services and capabilities of its affiliated physician
organizations and achieves growth through the addition of physicians, the
expansion of managed care relationships and the addition and expansion of
ancillary services.
PhyCor believes that primary care-oriented multi-specialty physician
organizations are a critical element of organized health care systems, because
physician decisions determine the cost and quality of care. PhyCor believes that
physician-driven organizations, including multi-specialty medical clinics, IPAs
and the combination of such organizations, present more attractive alternatives
for physician consolidation than hospital or insurer/health maintenance
organization ("HMO")-controlled organizations. The combination of PhyCor's
multi-specialty medical clinic, IPA management capabilities and new
group-formation efforts enables the Company to offer physician practice
management services to substantially all types of physician organizations.
PhyCor implements a number of programs and services at each clinic in
order to promote growth and efficiency, including strategic planning and
budgeting, which focus on cost containment and expense reduction. PhyCor
negotiates managed care contracts, enters into national purchasing agreements,
conducts productivity and procedure coding and charge capturing studies and
assists the clinics in physician recruitment efforts. The Company maintains
information processing systems for each of its clinics, which have expanded the
Company's accounting, billing, receivables management, scheduling and reporting
systems capabilities. The Company has also implemented a quality improvement
initiative designed to enhance the quality of patient service delivery systems
at each affiliated clinic through the maintenance and measurement of performance
standards and collection and review of patient evaluations.
MULTI-SPECIALTY MEDICAL CLINICS
A multi-specialty medical clinic provides a wide range of primary and
specialty physician care and ancillary services through an organized physician
group practice representing various medical specialties. Multi-specialty medical
clinics historically have been locally owned organizations managed by practicing
physicians.
PhyCor targets for acquisition primary care-oriented multi-specialty
clinics typically comprised of between 25 and 200 physicians that have
significant market shares and established reputations for providing quality
medical care. Most of the clinics with which PhyCor seeks to affiliate are the
largest multi-specialty clinics in their local markets. See "Clinic Operations"
below.
The Company generates increased demand for the services and
capabilities of its affiliated physician organizations and achieves growth
through the addition of physicians, the expansion of managed care relationships
and the addition and expansion of ancillary
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services. During 1997, the Company assisted its affiliated clinics in
recruiting approximately 400 new physicians. The Company also merged the
practices of 103 additional physicians into its existing clinics. The Company is
also assisting formerly unaffiliated physicians in particular markets to develop
new physician groups which enter into long-term service agreements with the
Company. In addition, the Company is developing physician networks around its
physician groups to enhance managed care contracting and to provide the
physician component of organized health care systems. Physicians in affiliated
physician groups may participate in IPAs developed and managed by North American
Medical Management, Inc. ("North American"), an entity acquired by the Company
in 1995, or PhyCor Management Corporation ("PMC"), an entity in which PhyCor
purchased a minority interest in 1995 and completed the acquisition of such
interests on March 31, 1998. See "Physician Networks." PhyCor is also
positioning the clinics for participation in organized health care systems by
establishing strategic alliances with HMOs, insurers, hospitals and other health
care providers and by enhancing medical management systems.
Clinic Operations
Upon the acquisition by PhyCor of a clinic's operating assets, the
affiliated physician group simultaneously enters into a long-term service
agreement with the Company. The Company, under the terms of the service
agreement, provides the physician group with the equipment and facilities used
in its medical practice, manages clinic operations, employs most of the clinic's
non-physician personnel, other than certain diagnostic technicians, and receives
a service fee.
During 1997, the Company acquired the assets of 11 multi-specialty
clinics located in California, Florida, Hawaii, Indiana, Maryland, Tennessee,
Virginia and Washington. The Company's California, Hawaii, Maryland and
Washington affiliated clinics are the Company's first clinics in those states.
The Company also entered into an interim management services agreement with
Lakeview Medical Center, Inc. in Suffolk, Virginia in December 1997 and entered
into a long-term service agreement with the 31-physician multi-specialty clinic
effective January 1, 1998. The Company has also reached an agreement in
principle to acquire certain assets of a 70-physician multi-specialty group. The
Company expects to complete the acquisition on or about April 1, 1998. The
Company is pursuing other possible clinic acquisitions in both existing and new
markets. There can be no assurance that additional clinic acquisitions will be
successfully completed.
In the third quarter of 1997, PhyCor announced that it had signed a
letter of intent with New York and Presbyterian Hospitals Care Network, Inc. to
create and operate a regional managed care contracting network, which will
include hospitals and IPAs in New York City, northern New Jersey and southern
Connecticut.
In addition, on December 19, 1997, the Company executed a definitive
Agreement and Plan of Merger with Atlanta-based First Physician Care, Inc.
("FPC"), a physician management company which currently manages three
multi-specialty physician groups pursuant to long-term service agreements, one
multi-specialty group pursuant to an interim service agreement and directly
delivers medical services through three wholly-owned subsidiaries and owns a 395
physician IPA in New York. FPC is currently affiliated with approximately 200
physicians in the states of Florida, Georgia, Missouri, New York and Texas. On
December 22, 1997, the Company executed an Agreement and Plan of Merger with
Seattle-based CareWise, Inc. ("CareWise"), a demand management
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services company which provides consumer decision support services to patients
to better enable patients to control their medical care. The Company anticipates
that both the FPC and CareWise transactions will be consummated during the
second quarter of 1998. There can be no assurance that any of the foregoing
transactions will be successfully completed.
In January 1998, the Company announced its plans to restructure five of
its multi-specialty clinic operations with approximately 300 physicians and
provide for the divestiture of two additional clinics with approximately 70
physicians. In connection with these plans, the Company recorded a pre-tax
charge for asset revaluation of approximately $83 million in the fourth quarter
of 1997 and will incur approximately $22 million in the first quarter of 1998 in
pre-tax restructuring charges relating to anticipated costs which are to provide
for consolidating facilities and clinic operations and reduced overhead costs.
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As of December 31, 1997, the Company operated the following medical
clinics in conjunction with the affiliated physician groups described below:
<TABLE>
<CAPTION>
Percentage
of Primary Number of PhyCor
Year Number of Care Medical Operations Service
Clinic Location Founded Physicians Physicians Specialties Commenced Sites
- ------ -------- ------- ---------- ---------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Green Clinic................. Ruston, LA 1948 34 44% 16 Oct. 1988 3
Doctors' Clinic.............. Vero Beach, FL 1969 39 46 19 Jan. 1989 3
Nalle Clinic................. Charlotte, NC 1921 127 56 23 Feb. 1990 10
Greeley Medical Clinic....... Greeley, CO 1933 42 55 16 Oct. 1990 6
Pueblo Physicians............ Pueblo, CO 1970 42 57 13 Sept. 1991 6
First Coast Medical Group.... Jacksonville, FL 1921 107 71 19 Nov. 1991 54
Sadler Clinic................ Conroe, TX 1955 44 52 16 Jan. 1992 4
Diagnostic Clinic............ San Antonio, TX 1972 48 56 17 Jan. 1992 4
Virginia Physicians.......... Richmond, VA 1923 109 73 17 Feb. 1992 15
Valley Diagnostic Medical
and Surgical Clinic....... Harlingen, TX 1954 22 41 11 Aug. 1992 1
Laconia Clinic............... Laconia, NH 1938 24 54 13 Sept. 1992 4
Olean Medical Group.......... Olean, NY 1937 36 50 15 Nov. 1992 2
Holston Medical Group........ Kingsport, TN 1975 53 76 12 Jan. 1993 13
The Medical & Surgical
Clinic of Irving.......... Irving, TX 1961 34 71 11 Mar. 1993 6
Simon-Williamson Clinic...... Birmingham, AL 1935 54 63 16 July 1993 12
Medical Arts Center.......... Dixon, IL 1986 31 55 16 Oct. 1993 7
Medical Arts Clinic.......... Corsicana, TX 1952 45 47 18 Jan. 1994 5
Lexington Clinic............. Lexington, KY 1920 168 46 25 Feb. 1994 22
Southern Plains Medical
Center.................... Chickasha, OK 1946 32 53 15 Aug. 1994 3
Holt-Krock Clinic............ Fort Smith, AR 1921 149 43 24 Sept. 1994 21
Burns Clinic Medical Center.. Petoskey, MI 1931 125 47 26 Oct. 1994 11
Boulder Medical Center....... Boulder, CO 1949 49 41 22 Oct. 1994 4
Tidewater Physicians Multi-
Specialty Group........... Newport News, VA 1993 68 84 11 Jan. 1995 30
Northeast Arkansas Clinic.... Jonesboro, AR 1977 73 62 13 Mar. 1995 18
PAPP Clinic.................. Newnan, GA 1939 45 56 13 May 1995 6
Ogden Clinic................. Ogden, UT 1968 38 47 17 June 1995 5
Arnett Clinic................ Lafayette, IN 1922 123 39 24 Aug. 1995 15
Casa Blanca Clinic........... Mesa, AZ 1969 88 64 20 Sept. 1995 7
South Texas Medical Clinics.. Wharton, TX 1985 66 59 19 Nov. 1995 11
South Bend Clinic............ South Bend, IN 1916 62 60 20 Nov. 1995(1) 7
Guthrie Clinic............... Sayre, PA 1910 232 42 29 Nov. 1995(2) 31
Arizona Physicians Center.... Phoenix, AZ 1987 35 77 10 Jan. 1996 2
Clinics of North Texas....... Wichita Falls, TX 1995 79 51 21 Mar. 1996 6
Carolina Primary Care........ Columbia, SC 1995 55 98 5 May 1996 17
Harbin Clinic................ Rome, GA 1948 81 30 17 May 1996 9
Focus Health Services........ Denver, CO 1989 46 87 7 July 1996 16
Clark-Holder Clinic.......... LaGrange, GA 1936 43 35 18 July 1996 7
Medical Arts Clinic.......... Minot, ND 1958 49 57 18 Aug. 1996 2
Wilmington Health Associates. Wilmington, NC 1971 54 50 13 Aug. 1996 4
Gulf Coast Medical Group..... Galveston, TX 1996 21 91 6 Aug. 1996 8
Hattiesburg Clinic........... Hattiesburg, MS 1963 112 45 19 Oct. 1996 25
Toledo Clinic................ Toledo, OH 1926 83 22 18 Nov. 1996 13
Lewis-Gale Clinic............ Roanoke, VA 1909 128 48 24 Nov. 1996 14
Straub Clinic & Hospital..... Honolulu, HI 1921 191 56 26 Jan. 1997(3) 17
The Vancouver Clinic......... Vancouver, WA 1936 76 55 13 Jan. 1997 12
First Physicians Medical
Group..................... Palm Springs, CA 1997 23 57 8 Feb. 1997 16
St. Petersburg-Suncoast
Medical Group............. St. Petersburg, FL 1997 94 37 23 Feb. 1997(4) 9
Greater Chesapeake Medical
Group..................... Anne Arundel, MD 1997 31 90 4 May 1997 8
White Wilson Medical Center.. Ft. Walton, FL 1946 54 52 17 July 1997 7
Welborn Clinic............... Evansville, IN 1947 93 52 23 Aug. 1997 8
The Maui Medical Group....... Maui, HI 1961 33 61 14 Sept. 1997 2
Murfreesboro Medical Clinic.. Murfreesboro, TN 1949 41 59 9 Oct. 1997 1
West Florida Medical Center
Clinic.................... Pensacola, FL 1938 153 32 25 Oct. 1997 18
Northern California Medical
Associates, Inc........... Santa Rosa, CA 1975 35 57 5 Dec. 1997 16
Lakeview Medical Center...... Suffolk, VA 1905 31 52 12 Jan. 1998(5) 5
</TABLE>
- ---------------
(1) Entered into an interim management agreement effective November 1, 1995
and consummated the acquisition of certain assets and entered into a
long-term service agreement effective January 1, 1996.
(2) Entered into a series of agreements whereby PhyCor agreed to provide
management services for up to five years and agreed to acquire certain
assets of the clinic upon the occurrence of certain conditions.
(3) Entered into an administrative services agreement effective October 1,
1996 and consummated the merger with Straub and entered into a
long-term service agreement effective January 17, 1997.
(4) Acquired all of the capital stock of two clinics, combined their
operations and entered into a long-term service agreement with the
newly formed group effective February 28, 1997.
(5) Entered into an interim management agreement effective December 1,
1997 and consummated the acquisition of certain assets and entered into
a long-term service agreement effective January 1, 1998.
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In addition to the 3,863 physicians affiliated with the Company at
December 31, 1997, the PhyCor-affiliated physician groups employ approximately
550 physician extenders, which include physician assistants, nurse practitioners
and other mid-level providers. The Company believes physician extenders comprise
an important component of its integrated network strategy by efficiently
expanding the level of services offered in its clinics.
The physician groups offer a wide range of primary and specialty
physician care and ancillary services. Approximately 53.0% of PhyCor's
affiliated physicians are primary care providers, and approximately 47.0%
practice various medical and surgical specialties. The primary care physicians
are those in family practice, general internal medicine, obstetrics, pediatrics
and emergency and urgent care. The Company is assisting all of its clinics in
recruiting additional primary care physicians. Medical specialties include
allergy, cardiology, dermatology, endocrinology, gastroenterology, infectious
diseases, nephrology, neurology, occupational medicine, oncology, pulmonology
and rheumatology. Surgical specialties include general surgery, ophthalmology,
orthopedics, otolaryngology, thoracic surgery and urology. The clinics vary in
the number and types of specialties offered. Substantially all of the physicians
practicing in the clinics are certified or eligible to be certified by the
applicable medical specialty boards.
The clinics also offer a wide array of ancillary services. Most clinics
provide a range of imaging services, which may include CAT scanning,
mammography, nuclear medicine, ultrasound and x-ray. In addition, many of the
clinics have clinical laboratories and pharmacies. Ambulatory surgery units and
rehabilitation services are in place or being planned in many clinics, in some
cases through joint ventures. Several of the clinics have diabetes centers,
pharmaceutical clinical trial programs and weight management programs. Some
offer renal dialysis and participate, usually by joint venture, in home infusion
therapy. Ancillary revenue accounted for approximately 26.7% of gross clinic
revenue for the year ended December 31, 1997 compared to 25.2% for the year
ended December 31, 1996.
In connection with an acquisition of assets and execution of a service
agreement, the Company investigates the history and reputation of the physician
group and the individual physicians. The Company obtains representations and
covenants from the physician group with respect to historical financial
performance and employment and licensure of individual physicians. As part of
its services performed under the service agreement, PhyCor personnel undertake
administrative tasks in connection with obtaining and maintaining liability
insurance for the physician group, including maintaining and reviewing files
relating to physician licensure and certification. PhyCor does not, however,
control the practice of medicine by physicians or compliance by them with
licensure or certification requirements. PhyCor's affiliated physicians maintain
full professional control over their medical practices, determine which
physicians to hire or terminate and set their own standards of practice in order
to promote high quality health care.
PhyCor Operations
Pursuant to its service agreements with physician groups, PhyCor
manages all aspects of the clinics other than the provision of medical services,
which is controlled by the physician groups. At each clinic, a joint policy
board equally comprised of physicians and
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PhyCor personnel focuses on strategic and operational planning, marketing,
managed care arrangements and other major issues facing the clinic. The joint
policy board involves experienced health care managers in the decision making
process and brings increased discipline and accountability to clinic operations.
PhyCor is not engaged in the practice of medicine.
PhyCor enhances clinic growth by expanding managed care arrangements,
assisting in the recruitment and merger of physicians and expanding and adding
ancillary services. PhyCor works closely with the physician groups in targeting
and recruiting physicians from outside the community and merging physicians in
sole practice or single specialty groups, especially primary care groups, into
the clinics' physician groups. PhyCor assists in the development of new and
expanded ancillary services by providing the needed capital resources and
management services.
Management believes its clinics have the opportunity to form
relationships with managed care organizations, insurance companies and hospitals
to create high-quality, cost-effective health care delivery systems. The Company
is aligning its affiliated clinics with low-cost, high-quality hospitals and
related providers in each of its markets and through various relationships is
seeking to more closely coordinate the overall delivery of health care to
patients. These plans may include participation by affiliated physicians in
physician networks developed and managed by PhyCor or PMC. See "Physician
Networks." Pursuant to certain of the Company's relationships with managed care
organizations and insurance companies, responsibility for physician services,
hospital utilization and overall medical management is assumed by the physician
networks being developed by PhyCor-affiliated clinics. The Company believes that
medical management performed within physician organizations can yield the
greatest value in quality-driven, cost-effective health care and that premiums
collected from purchasers of health care will be allocated based upon the value
of the services performed by the health care provider members of organized
health care systems.
The Company sponsors the PhyCor Institute for Healthcare Management
which provides practical managed care and medical management training for
physicians affiliated or considering affiliation with PhyCor. Through the
Institute's efforts, physicians in many locations work together to achieve
"economies of intellect" and best practice performance through shared data and
experience. The Company believes that, in the future, its ability to
differentiate its physician organizations based upon quality clinical
performance will increasingly impact financial performance.
The Company focuses the attention of the physician groups on practice
patterns. This effort emphasizes outcomes measurement and management and is
intended to improve the physicians' ability to attain the desired clinical
results while containing the utilization of health resources. Similarly, the
Company's quality service initiative seeks to improve the patient's overall
experience with the health care delivered within the Company's affiliated
clinics and networks.
The Company provides support for the selection and implementation of
information systems at its clinics. The Company has selected certain practice
management and other systems considered to be most effective for capitated risk
management, provider profiling and outcomes analysis for implementation at its
clinics. These systems are designed to
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allow physician organizations to successfully capture information that will
enable them to more effectively manage the risk associated with capitated
arrangements.
The Company also negotiates national arrangements that provide cost
savings to its clinics through economies of scale in malpractice insurance,
supplies and equipment. In addition, PhyCor has a service improvement program
that aligns staffing with the volume and service needs of its physician
organizations and focuses on measuring and improving patient satisfaction. Upon
assuming the operations of a clinic, the Company implements certain business
operating policies and reviews procedure coding practices in each clinic.
Service Agreements
The long-term service agreements currently entered into by the Company
are for terms of 40 years. Long-term agreements entered into prior to 1994 are
generally for terms of 30 years. These agreements cannot be terminated by the
Company or the physician groups without cause, which includes material default
or bankruptcy. Upon the expiration of the term of a service agreement or in the
event of termination, the physician group must purchase all of the related
tangible and intangible assets owned by the subsidiary of the Company providing
services to that physician group, generally at then current book value. The
physician group agrees not to compete with PhyCor during the term of the service
agreement and substantially all of the physicians agree not to compete with the
physician group for a period of time or agree to pay liquidated damages if they
compete. The Company agrees not to affiliate with other multi-specialty groups
in the clinic's service area during the term of the service agreement.
Under substantially all of its service agreements, the Company receives
a service fee equal to the clinic expenses it incurred plus a percentage of
operating income of the clinic (net clinic revenue less certain contractually
agreed upon clinic expenses before physician distributions) and, under all other
service agreements except one described below, a percentage of net clinic
revenue. In 1997, approximately 94% of revenue from clinics was derived from
contracts based on a percentage of clinic operating income, approximately 1% of
revenue from clinics was derived from contracts based on a percentage of net
clinic revenue and approximately 4% of revenue from clinics was derived from
contracts based on a combination of a percentage of clinic operating income and
net clinic revenue. As clinic operating income improves, whether as a result of
increased revenue or lower expenses, PhyCor's service fees increase. Under one
service agreement, PhyCor's revenue is based on a flat fee, and it represented
approximately 1% of revenue from clinics in 1997.
Several of the Company's service agreements contain provisions granting
the physician groups termination rights or rights of first refusal in certain
events. Many of the service agreements provide that if any person or persons
acquire the right to vote 50% or more of PhyCor's Common Stock, the physician
group may terminate the service agreement, unless the transaction was approved
by PhyCor's Board of Directors or subsequently approved by two-thirds of
PhyCor's directors who are not members of management or affiliates of the
acquiring person. The physician group in Lexington, Kentucky may also terminate
its service agreement if an entity named therein acquires 15% or more of the
Company's outstanding Common Stock. Other groups may terminate their service
agreement in the event of a merger where PhyCor does not survive or a takeover
or sale of substantially all the assets of PhyCor or in the event of a sale of
all or substantially all of the assets or capital stock of the PhyCor subsidiary
with whom the
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service agreement was entered into. Some physician groups have rights of first
refusal to purchase the clinic assets owned by PhyCor if PhyCor determines to
sell such assets. The above provisions could have an adverse effect on any
efforts to take control of PhyCor without the consent of the Board of Directors
and the physician groups having these rights.
PHYSICIAN NETWORKS
The Company believes that the health care industry will continue to be
driven by local market factors and that organized providers of health care, like
IPAs, will play a significant role in delivering cost-effective, quality medical
care. IPAs offer physicians an opportunity to participate in expanding organized
health care systems and assistance in contracting with insurance companies and
HMOs, and other large purchasers of health care services. IPAs consolidate
independent physicians by providing general organizational structure and
management to the physician network. IPAs provide or contract for medical
management services to assist physician networks in obtaining and servicing
managed care contracts and enable previously unaffiliated physicians to assume
and more effectively manage capitated risk.
As of December 31, 1997, PhyCor managed IPAs with over 19,000
physicians in 28 markets. The Company establishes management companies through
which all health plan contracts are negotiated. These management companies, in
which physicians may have an equity interest, provide information and operating
systems, actuarial and financial analysis, medical management and provider
contract services to the IPA. PhyCor assists physicians in forming networks to
develop a managed care delivery system in which the IPA accepts fiscal
responsibility for providing a wide range of medical services. PhyCor intends to
continue to develop primary care-oriented health care delivery systems in
certain markets that do not have established managed care networks.
In June 1995, PhyCor purchased a minority interest in PMC and manages
PMC pursuant to a ten-year administrative services agreement. PMC develops and
manages IPAs and provides other services to physician organizations. In February
1998, PhyCor sent notices to the PMC shareholders of its intention to exercise
its option to purchase the remaining equity interest of PMC. The acquisition was
completed on March 31, 1998.
REGULATION
General
The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly in the future. In general, regulation of health care
companies is increasing.
Every state imposes licensing requirements on individual physicians and
on facilities and services operated by physicians. In addition, federal and
state laws regulate HMOs and other managed care organizations. Many states
require regulatory approval, including certificates of need, before establishing
certain types of health care facilities, offering certain services or making
expenditures in excess of statutory thresholds for health care equipment,
facilities or programs. To date, neither the Company's clinics nor its managed
IPAs have been required to obtain certificates of need for their activities.
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In connection with the expansion of existing operations and the entry
into new markets and managed care arrangements, the Company and its affiliated
practice groups as well as its managed IPAs may become subject to compliance
with additional regulation.
The Company and its clinics and managed IPAs are also subject to
federal, state and local laws dealing with issues such as occupational safety,
employment, medical leave, insurance regulations, civil rights and
discrimination, and medical waste and other environmental issues. At an
increasing rate, federal, state and local governments are expanding the
regulatory requirements on businesses, including medical practices. The
imposition of these regulatory requirements may have the effect of increasing
operating costs and reducing the profitability of the Company's operations.
PhyCor's managed IPAs and affiliated physician groups enter into
contracts and joint ventures with licensed insurance companies, such as HMOs,
whereby the IPAs and affiliated physician groups may be paid on a capitated fee
basis. Under capitation arrangements, health care providers bear the risk,
subject to certain loss limits, that the aggregate costs of providing medical
services to members will exceed the premiums received. To the extent that the
IPAs and affiliated physician groups subcontract with physicians or other
providers for those physicians or other providers to provide services on a
fee-for-service basis, the managed IPAs and affiliated physician groups may be
deemed to be in the business of insurance, and thus, subject to a variety of
regulatory and licensing requirements applicable to insurance companies or HMOs
resulting in increased costs to the managed IPAs and affiliated physician
groups, and corresponding lower revenue to PhyCor. There can be no assurance,
however, that the Company or its managed IPAs and affiliated physician groups
will not be adversely affected by such regulations. In connection with two
recent multi-specialty medical clinic acquisitions, the Company acquired HMOs
previously affiliated with the clinics and in another multi-specialty medical
clinic acquisition, the Company agreed to provide management services to the
physician group and the HMO owned by the physician group. The HMO industry is
highly regulated at the state level and is highly competitive. Additionally, the
HMO industry has been subject to numerous legislative initiatives within the
past several years that would increase potential HMO liability to patients,
resulting in increased costs to HMOs and correspondingly reduced revenue to
PhyCor. Certain aspects of health care reform legislation being considered at
the federal level have direct and indirect consequences for the HMO industry.
There can be no assurance that developments in any of these areas will not have
an adverse effect on the Company's wholly-owned HMOs or on HMOs in which the
Company has a partial ownership interest or other financial involvement.
Many of the payor contracts entered into on behalf of PhyCor-managed
IPAs are based on capitated fee arrangements. Under capitation arrangements,
health care providers bear the risk, generally subject to certain loss limits,
that the aggregate costs of providing medical services to the members will
exceed the premiums received. The IPA management fees are based, in part, upon a
share of the remaining portion, if any, of capitated amounts of revenue after
payment of expenses. Some agreements with payors also contain shared risk
provisions under which the Company and IPA can earn additional compensation
based on utilization of hospital services by members and may be required to bear
a portion of any loss in connection with such shared risk provisions. Any such
loss could have a material adverse effect on the Company. The profitability of
the managed IPAs is dependent upon the ability of the providers to effectively
manage the per patient costs of providing medical services and the
11
<PAGE> 12
level of utilization of medical services. The management fees are also based
upon a percentage of revenue collected by the IPAs. Any loss of revenue by the
IPAs as a result of losing affiliated physicians, the termination of third party
payor contracts or otherwise could have a material adverse effect on management
fees derived by the Company from its management of IPAs. Through its service
fees, the Company also shares indirectly in capitation risk assumed by its
affiliated physician groups. Managed care providers and management companies
such as the Company are increasingly subject to liability claims arising from
utilization management, provider compensation arrangements and other activities
designed to control costs by reducing services. A successful claim on this basis
against PhyCor or an affiliated clinic or IPA could have a material adverse
effect on the Company.
Federal and state antitrust laws also prohibit agreements in restraint
of trade, the exercise of monopoly power and other practices that are considered
to be anti-competitive. The Company believes that it is in material compliance
with federal and state antitrust laws in connection with the operation of its
clinics and its managed IPAs.
The Company believes its operations are in material compliance with
applicable law and expects to modify its agreements and operations to conform in
all material respects to future regulatory changes. The ability of the Company
to operate profitably will depend in part upon the Company and its affiliated
physician groups and its managed IPAs obtaining and maintaining all necessary
licenses, certificates of need and other approvals and operating in compliance
with applicable health care regulations. The Company is unable to predict what
additional government regulations, if any, affecting its business may be enacted
in the future or how existing or future laws and regulations might be
interpreted. The failure of the Company or any of its affiliated physician
groups or managed IPAs to comply with applicable law could have a material
adverse effect on the Company.
State Legislation
At the state level, all state laws restrict the unlicensed practice of
medicine and many states also prohibit the splitting or sharing of fees with
non-physician entities and the enforcement of noncompetition agreements against
physicians. Many states also prohibit the corporate practice of medicine by an
unlicensed corporation or other non-physician entity and prohibit referrals to
facilities in which physicians have a financial interest. Additionally, the
Florida Board of Medicine has interpreted the Florida fee-splitting law very
broadly so as to arguably include the payment of any percentage-based management
fee, even to a management company that does not refer patients to a managed
group. PhyCor is affiliated with five physician groups in Florida, the service
agreements with these groups provide for percentage-based management fees. The
Florida Board of Medicine decision has been stayed pending judicial
interpretation of the decision. There can be no assurance that future
interpretations of, or changes in, these laws will not require structural and
organizational modifications of the Company's existing relationships with its
clinics or modifications in the existing relationships with its affiliated IPAs,
and there can be no assurance that the Company would be able to appropriately
modify its relationships. In addition, statutes in some states could restrict
expansion of the operations of the Company to those jurisdictions.
Medicare Payment System
The Company's affiliated physician groups and IPAs derived
approximately 22% of their net revenue in 1997 from payments for services
provided to patients enrolled in the federal Medicare program, including
patients covered by risk contracts. Clinics and IPAs managed by the Company
provide medical services under risk contracts to approximately 174,000 Medicare
members. The prior system of Medicare payments, other than for risk
12
<PAGE> 13
contracts, was based on customary, prevailing and reasonable physician charges
and was phased out from 1992 through 1996 and replaced with an annually-adjusted
resource-based relative value scale ("RBRVS"). The Company believes that the
RBRVS fee scale may provide modest increases from historical levels in the per
patient fee-for-service Medicare revenue received by the physician groups and
IPAs with which the Company is affiliated, but does not believe that such
restraints on fee increases will result in a material adverse change in the
results of operations of the Company.
Medicare Fraud and Abuse and Anti-Referral Provisions
The provisions of the Social Security Act addressing illegal
remuneration (the "anti-kickback statute") prohibit providers and others from
soliciting, receiving, offering or paying, directly or indirectly, any form of
remuneration in return for the referral of, or the arranging for the referral
of, Medicare and other federal or state health program patients or patient care
opportunities, or in return for the purchase, lease arrangements or order of any
item or service that is covered by Medicare, certain other federal health
programs, or a state health program. The applicability of these provisions to
many business transactions in the health care industry, including the Company's
service agreements with physician groups, management agreements with IPAs and
joint ventures with other health care providers, has not been subject to any
significant judicial and regulatory interpretation.
Management believes that although it is receiving remuneration under
its service agreements for management services and management fees under
management agreements for services to IPAs, the Company is not in a position to
make or influence referrals of patients or services reimbursed under Medicare or
state health programs to the physician groups or networks. Consequently, the
Company does not believe that the service fees and management fees payable to it
could be viewed as remuneration for referring or influencing referrals of
patients or services covered by such programs as prohibited by the anti-kickback
statute. Currently, the Company is not a separate provider of Medicare or state
health program reimbursed services, however, upon the consummation of the
Company's pending transaction with FPC, the Company, through its subsidiaries,
will be a provider in the states of Florida and Georgia. To the extent that the
Company is deemed to be a separate provider of medical services under its
service agreements or management agreements and to receive referrals from
physicians, the financial arrangements could be subject to scrutiny under the
anti-kickback statute. The Company does not believe that its operation of one
pharmacy under a provider number that is separate from the clinic's creates a
material risk under the anti-kickback statute.
In connection with the transaction with Straub Clinic & Hospital,
Incorporated ("Straub"), the Company provides certain management services to
both a physician group practice and a hospital owned by the group. Because the
hospital is subject to extensive regulation and because hospital management
companies have, in some instances, been viewed as referral sources by federal
regulatory agencies, the relationship between PhyCor and the physician group
could come under increased scrutiny under the Medicare fraud and abuse law. In
addition, the federal government could in certain circumstances suspend or
prevent Straub from participating in government programs, which would have a
negative impact on PhyCor's revenues under its service agreement with Straub.
In July 1991, the federal government published regulations that provide
exceptions, or "safe harbors," for business transactions that will be deemed not
to violate the
13
<PAGE> 14
anti-kickback statute. In September 1993, additional safe harbors were proposed
for eight activities including referrals within group practices consisting of
active investors. Although the arrangements between the Company, the clinics and
third parties, including the arrangements between North American and providers
and provider groups, do not in all instances fall within the protection offered
by these safe harbors or the proposed safe harbors, the Company believes its
operations are in material compliance with applicable Medicare fraud and abuse
laws. If the arrangements were found to be illegal, the Company, the physician
groups and/or the individual physicians would be subject to civil and criminal
penalties, including exclusion from participation in government reimbursement
programs, which could materially adversely affect the Company.
Under legislation known as the "Stark Bill," referrals of Medicare and
Medicaid patients for certain services to entities by physicians with an
ownership interest in, or financial relationship with, that entity have been
prohibited. The covered services include physical therapy services, occupational
therapy services, radiology services, including MRI, CT and ultrasound,
radiation therapy services, durable medical equipment, parenteral and enteral
nutrients, equipment and supplies, prosthetics, orthotics and prosthetic
devices, home health services, outpatient prescription drugs and inpatient and
outpatient hospital services. The Company believes that its clinics are
operating in compliance with the language of statutory exceptions to the Stark
Bill, including, but not limited to, the exceptions for referrals to in-office
ancillary services within a group practice. As a result, the Company does not
believe that physicians who are members of the group practices practicing at its
clinics are prohibited from making referrals of designated health services to
the clinics.
Impact of Health Care Regulatory Changes
The United States Congress and many state legislatures routinely
consider proposals to reform or modify the health care system, including
measures that would control health care spending, convert all or a portion of
government reimbursement programs to managed care arrangements and balance the
federal budget by reducing spending for Medicare and state health programs.
These measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect the
Company's activities include: (i) federal legislation requiring a health plan to
continue coverage for individuals who are no longer eligible for group health
benefits and prohibiting the use of "pre-existing condition" exclusions that
limit the scope of coverage; (ii) a Health Care Financing Administration policy
prohibiting restrictions in Medicare risk HMO plans on a physician's
recommendation of other health plans and treatment options to patients; and
(iii) regulations imposing restrictions on physician incentive provisions in
physician provider agreements. There can be no assurance that such legislation,
programs and other regulatory changes will not have a material adverse effect on
PhyCor.
COMPETITION
The business of providing health care related services is highly
competitive. Many companies, including professionally managed physician practice
management companies, have been organized to pursue the acquisition of medical
clinics, manage such clinics, employ clinic physicians or provide services to
IPAs. Large hospitals, other multi-specialty clinics and health care companies,
HMOs and insurance companies are also involved in
14
<PAGE> 15
activities similar to those of the Company. Some of these competitors have
longer operating histories and significantly greater resources than the Company.
There can be no assurance that the Company will be able to compete effectively,
that additional competitors will not enter the market, or that such competition
will not make it more difficult to acquire the assets of medical clinics or
develop or manage IPAs on terms beneficial to the Company. To the extent that
health care industry reforms make prepaid medical care more attractive and
provide incentives to form organized health care systems, the Company
anticipates facing greater competition. PhyCor's revenues are dependent upon the
continued success of the medical groups with which it has long-term service
agreements and IPAs that it manages. These organizations face competition from
several sources, including sole practitioners, single and multi-specialty groups
and staff model HMOs.
INSURANCE
The Company maintains medical professional liability insurance on a
claims made basis for all of its operations. Insurance coverage under such
policies is contingent upon a policy being in effect when a claim is made,
regardless of when the events which caused the claim occurred. The Company also
maintains general liability and umbrella coverage on an occurrence basis. The
cost and availability of such coverage has varied widely in recent years. While
the Company believes its insurance policies are adequate in amount and coverage
for its current operations, there can be no assurance that the coverage
maintained by the Company is sufficient to cover all future claims or will
continue to be available in adequate amounts or at a reasonable cost. PhyCor and
its subsidiary operating the affiliated physician group are named as additional
insureds on the various policies maintained by each affiliated physician group,
including the professional liability insurance policies carried by the physician
group.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 19,000
people, including 135 in the corporate office. None of the Company's employees
is a member of a labor union, and the Company considers its relations with its
employees to be excellent.
ITEM 2. PROPERTIES
The Company leases approximately 49,000 square feet of rentable space
at 30 Burton Hills Boulevard in Nashville, Tennessee, where the Company's
headquarters are located. The Company pays approximately $83,000 per month in
rent, which rental amount increases over the term of the lease to approximately
$87,000 per month in the final year. The lease expires in 2003. The Company
believes these arrangements and other available space are adequate for its
current uses. The Company plans to build new corporate headquarters adjacent to
its existing headquarters. The Company anticipates the new building, which is
scheduled to be completed in the third quarter of 1999, will be adequate for its
long-term uses. The Company currently is negotiating a synthetic lease
arrangement with Citibank, N.A. to finance the construction of the new building.
The Company intends to sublet its existing facility until the expiration of its
lease in 2003.
The Company leases, subleases or occupies pursuant to its service
agreements the clinic facilities. In many cases, facilities are leased from the
physician groups with the lease cost generally included in the service fees paid
to PhyCor. In connection with the acquisition of the Company's affiliated clinic
in Lexington, Kentucky, the Company
15
<PAGE> 16
acquired the real estate used by the physician group, including the clinic's
main clinic facility in Lexington and other satellite facilities in Lexington
and the surrounding communities. Certain of such properties are subject to
mortgages assumed by the Company as a result of the transaction with an
aggregate outstanding principal balance as of February 28, 1998 of $3.7 million
and bear interest at rates ranging from 8.25% to 10.5%.
In connection with the Company's acquisitions of its affiliated clinics
in Lafayette, Indiana, and St. Petersburg, Florida, the Company acquired the
real estate used by each of the physician groups. At the time of such
acquisitions, certain of the properties were subject to a mortgage, which
indebtedness was assumed by PhyCor as a result of the transactions and repaid in
full. The Company makes these facilities available to the physician groups
pursuant to the long-term service agreements with Lexington Clinic, Arnett
Clinic and St. Petersburg-Suncoast Medical Clinic, respectively.
The Company may from time to time acquire real estate in connection
with the acquisition of clinic assets. The Company anticipates that as the
clinics continue to grow and add new services, expanded facilities will be
required. Such transactions may require PhyCor's assistance in obtaining
financing of the property on behalf of the physician groups.
ITEM 3. LEGAL PROCEEDINGS
Certain litigation is pending against the physician groups affiliated
with the Company and IPAs managed by the Company. The Company has not assumed
any liability in connection with such litigation. Claims against the physician
groups and IPAs could result in substantial damage awards to the claimants which
may exceed applicable insurance coverage limits. While there can be no assurance
that the physician groups and IPAs will be successful in any such litigation,
the Company does not believe any such litigation will have a material adverse
effect on the Company. Certain other litigation is pending against the Company
and certain subsidiaries of the Company none of which management believes would
have a material adverse effect on the Company's financial position or results of
operations on a consolidated basis. Certain litigation is pending against
subsidiaries of North American which was outstanding prior to the acquisition of
North American by the Company. The Company is indemnified by certain former
shareholders of North American for any damages as a result of the litigation and
the amount of any additional payments to be made to the former shareholders of
North American would be offset by any damages resulting from such litigation.
While there can be no assurance that the North American subsidiaries will be
successful in any such litigation, the Company does not believe that the gross
contingency related to North American is material and the Company does not
believe that any such litigation will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information relating to the Common Stock is set forth in the Company's
1997 Annual Report to Shareholders under the caption "Corporate and Investor
Information - Common Stock" and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenue $1,119,594 $ 766,325 $441,596 $242,485 $167,381
Operating expenses:
Clinic salaries, wages and benefits 421,716 291,361 166,031 88,443 63,202
Clinic supplies 181,565 119,081 67,596 37,136 25,031
Purchased medical services 31,171 21,330 17,572 11,778 8,920
Other clinic expenses 171,480 125,947 71,877 40,939 28,174
General corporate expenses 26,360 21,115 14,191 9,417 5,418
Rents and lease expense 100,170 65,577 36,740 23,413 16,441
Depreciation and amortization 62,522 40,182 21,445 12,229 8,394
Nonrecurring charge(1) 83,445 - - - -
- ------------------------------------------------------------------------------------------------------------------------
Operating expenses 1,078,429 684,593 395,452 223,355 155,580
- ------------------------------------------------------------------------------------------------------------------------
Earnings from operations 41,165 81,732 46,144 19,130 11,801
Interest income (3,323) (3,867) (1,816) (1,334) (309)
Interest expense 23,507 15,981 5,230 3,963 3,878
- ------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and minority 20,981 69,618 42,730 16,501 8,232
interest
Income tax expense 6,098 22,775 13,923 4,826 1,092
Minority interest 11,674 10,463 6,933 - -
- ------------------------------------------------------------------------------------------------------------------------
Net earnings $ 3,209(2) $ 36,380 $ 21,874 $ 11,675(3) $ 7,140(3)
========================================================================================================================
Earnings per share(4)
Basic $ .05 $ .67 $ .45 $ .35 $ .31
Diluted .05 .60 .41 .32(3) .27(3)
Diluted-before nonrecurring charge .85 .60 .41 .32(3) .27(3)
- ------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding(4)
Basic 62,899 54,608 48,817 33,240 23,348
Diluted 66,934 61,096 53,662 42,988 26,571
========================================================================================================================
December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 203,301 $ 182,553 $111,420 $ 80,533 $ 46,927
Total assets 1,562,776 1,118,581 643,586 351,385 171,174
Long-term debt 501,107 444,207 140,633 94,653 69,014
Total shareholders' equity 710,488 451,703 388,822 184,125 70,005
</TABLE>
- ---------------
(1) Nonrecurring charge to earnings relates to revaluation of assets of seven of
the Company's affiliated clinics.
(2) Excluding the effect of the nonrecurring charge described in Note 1, the
Company's net earnings would have been approximately $57.0 million.
(3) Excluding the effect of the utilization of a net operating loss carry
forward to reduce income taxes in 1993 and 1994, net earnings and earnings per
share-diluted would have been $5.1 million, or $.19 per share, and $10.2
million, or $.28 per share, in such years.
(4) Per share amounts and weighted average shares outstanding have been adjusted
for the three-for-two stock splits effected in June 1996, September 1995, and
December 1994.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company acquires and operates primary care-oriented multi-specialty
medical clinics and develops and manages IPAs. A substantial majority of the
Company's revenue in 1997 and 1996 was earned under service agreements with
multi-specialty clinics. Revenue earned under substantially all of the service
agreements is equal to the net revenue of the clinics, less amounts retained by
physician groups. The service agreements contain financial incentives for the
Company to assist the physician groups in increasing clinic revenues and
controlling expenses.
Upon the acquisition by PhyCor of a clinic's operating assets, the
affiliated physician group simultaneously enters into a long-term service
agreement with the Company. Under the terms of the service agreement, the
Company provides the physician group with the equipment and facilities used in
its medical practice, manages clinic operations, employs most of the clinic's
non-physician personnel, other than certain diagnostic technicians, and receives
a service fee.
The affiliated physicians maintain full professional control over their
medical practices, determine which physicians to hire or terminate and set their
own standards of practice in order to promote high quality health care. Pursuant
to its service agreements with physician groups, PhyCor manages all aspects of
the clinic other than the provision of medical services, which is controlled by
the physician groups. At each clinic, a joint policy board equally comprised of
physicians and PhyCor personnel focuses on strategic and operational planning,
marketing, managed care arrangements and other major issues facing the clinic.
Under substantially all of its service agreements, the Company receives
a service fee equal to the clinic expenses it has incurred plus a percentage of
operating income of the clinic (net clinic revenue less certain contractually
agreed upon clinic expenses before physician distributions) and, under all other
service agreements except one described below, a percentage of net clinic
revenue. In 1997, approximately 94% of revenue from clinics was derived from
contracts based on a percentage of clinic operating income, approximately 1% of
revenue from clinics was derived from contracts based on a percentage of net
clinic revenue and approximately 4% of revenue from clinics was derived from
contracts based on a combination of a percentage of clinic operating income and
net clinic revenue. As clinic operating income improves, whether as a result of
increased revenue or lower expenses, PhyCor's service fees increase. Under one
service agreement, PhyCor's revenue is based on a flat fee, and it represented
approximately 1% of revenue from clinics in 1997.
The Company currently amortizes the goodwill and other intangible
assets related to its service agreements over the periods during which the
agreements are effective, ranging from 25 to 40 years. The Company recently
has engaged in discussions with the staff of the Securities and Exchange
Commission (the "Commission") regarding the appropriate amortization period for
goodwill and other intangible assets related to the Company's service
agreements. The Company has had discussions with the staff regarding the use of
a 25 year amortization period for such assets for all transactions to be entered
into in the future. There can be no assurance as to the outcome of the current
discussions with the Commission staff or the adoption by the Company of this
policy. Had this policy been in place for 1997, the effect would have been an
approximate 3% reduction in net income before the nonrecurring charge discussed
below in "Liquidity." Management expects a similar effect on 1998 net income
would result based on its current preliminary internal estimates of intangible
asset additions.
To increase clinic revenue, the Company works with the affiliated
physician groups to recruit additional physicians, merge other physicians
practicing in the area into the affiliated physician groups, negotiate contracts
with managed care organizations and provide additional ancillary services. To
reduce or control expenses, among other things, PhyCor utilizes national
purchasing contracts for key items, reviews staffing levels to
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<PAGE> 19
make sure they are appropriate and assists the physicians in developing more
cost-effective clinical practice patterns.
In November 1997, the Emerging Issues Task Force reached a consensus on
EITF 97-2, "Application of APB Opinion No. 16 and FASB Statement No. 94 to
Physician Practice Entities", which was passed in November 1997, and relates
primarily to the consolidation of physician practices controlled by a company.
The Company has not consolidated the physician practices it manages as it does
not have operating control as defined in EITF 97-2.
The Company has increased its focus on the development of IPAs to
enable the Company to provide services to a broader range of physician
organizations, to enhance the operating performance of existing clinics and to
further develop physician relationships. The Company develops IPAs that include
affiliated clinic physicians to enhance the clinics' attractiveness as providers
to managed care organizations. Fees earned from managing the IPAs are based upon
a percentage of revenue collected by the IPAs and also upon a share of surplus,
if any, of capitated revenue of the IPAs. In 1997, approximately 6% of the
Company's revenue was earned under IPA management agreements.
The table below indicates the number of clinics and physicians
affiliated with the Company and provides certain information with respect to the
Company's IPA operations at the end of the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Clinic operations:
Number of affiliated clinics 55 44 31 22 18
Number of affiliated physicians 3,863 3,050 1,955 1,143 674
IPA operations:
Number of markets 28 17 13 7(1) --
Number of physicians 19,000 8,700 5,300 3,600(1)
Number of commercial members 420,000 306,000 180,000 105,000(1) --
Number of Medicare members 99,000 69,000 38,000 24,000(1) --
- ----------------------------------------------------------------------------------
</TABLE>
(1)Information as of January 1, 1995
The table below indicates the payor mix of the aggregate net clinic
revenue earned by the physician groups and IPAs currently affiliated with the
Company.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Medicare 22% 20% 20% 29% 32%
Medicaid 4 3 3 3 4
Managed care(1) 41 42 37 25 24
Private payor and insurance 33 35 40 43 40
- --------------------------------------------------------------------------------
100% 100% 100% 100% 100%
</TABLE>
(1)Includes HMO, PPO, Medicare risk contracts and direct employer contracts, of
which approximately two-thirds of 1997 revenue was attributable to capitated
contracts.
The payor mix varies from clinic to clinic and changes as acquisitions
are made. Since 1993, managed care revenue as a percentage of all revenue has
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<PAGE> 20
increased with significant increases since 1994 relating to the management of
IPAs. PhyCor believes that this trend will continue as a greater portion of the
population in the Company's markets joins managed care plans. The Company also
believes that the revenue received from managed care plans will increasingly be
in the form of capitation rather than fee-for-service contracts. Other changes
in payor mix have resulted from the acquisition of clinics with payor mixes
different from historical payor mixes experienced by the Company's affiliated
groups.
Many of the payor contracts entered into on behalf of PhyCor-managed
IPAs are based on capitated fee arrangements. Under capitation arrangements,
health care providers bear the risk, subject to certain loss limits, that the
aggregate costs of providing medical services to members will exceed the
payments received. The IPA management fees are based, in part, upon a share of
the remaining portion, if any, of capitated amounts of revenues after payment of
expenses. Agreements with payors also contain shared risk provisions under which
the Company and the IPA can earn additional compensation based on utilization of
hospital services by members and may be required to bear a portion of any loss
in connection with such shared risk provisions. The profitability of the managed
IPAs is dependent upon the ability of the providers to effectively manage the
per patient costs of providing medical services and the level of utilization of
medical services. The management fees are also based upon a percentage of
revenue collected by the IPAs. Through its service fees, the Company also shares
indirectly in capitation risk assumed by its affiliated physician groups.
During 1997, PhyCor affiliated with 11 multi-specialty clinics and
numerous smaller medical practices, and completed its previously announced
merger with Straub, located in Honolulu, Hawaii, adding $430.8 million in
assets. The principal assets acquired were accounts receivable, property and
equipment and service agreement costs, an intangible asset. The consideration
for the 1997 clinic acquisitions consisted of approximately 65% cash, 30%
liabilities assumed and 5% stock and convertible notes. The cash portion of the
consideration was funded by a combination of operating cash flow and borrowings
under the Company's bank credit facility. Property and equipment acquired
consisted mostly of clinic operating equipment, although the Company has
purchased certain land and buildings. Service agreement costs are amortized over
the life of the related service agreement, with recoverability assessed
periodically.
In the third quarter of 1997, PhyCor announced that it had signed a
letter of intent with New York and Presbyterian Hospitals Care Network, Inc. to
create and operate a regional managed care contracting network, which will
include hospitals and IPAs in New York City, northern New Jersey and southern
Connecticut.
In December 1997, the Company announced that it had signed two separate
agreements to purchase Atlanta-based First Physician Care, Inc., a provider of
practice management services, and Seattle-based CareWise, Inc., a nationally
recognized leader in the consumer decision support industry. Both transactions,
which are expected to be accounted for as pooling-of-interests, are expected to
close in the second quarter of 1998. The Company expects to issue approximately
5.6 million shares of Common Stock in conjunction with these transactions.
20
<PAGE> 21
RESULTS OF OPERATIONS
The following table shows the percentage of net revenue represented by
various expense categories reflected in the Company's Consolidated Statements of
Income.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0%
Operating expenses:
Clinic salaries, wages and benefits 37.7 38.0 37.6
Clinic supplies 16.2 15.5 15.3
Purchased medical services 2.8 2.8 4.0
Other clinic expenses 15.3 16.4 16.3
General corporate expenses 2.4 2.8 3.2
Rents and lease expense 8.9 8.6 8.3
Depreciation and amortization 5.6 5.2 4.8
Nonrecurring charge 7.4 -- --
- -----------------------------------------------------------------------------------
Operating expenses 96.3(1) 89.3 89.5
Earnings from operations 3.7(1) 10.7 10.5
Interest income (0.3) (0.5) (0.4)
Interest expense 2.1 2.1 1.2
- -----------------------------------------------------------------------------------
Earnings before income taxes and
minority interest 1.9(1) 9.1 9.7
Income tax expense 0.5(1) 3.0 3.1
Minority interest 1.1 1.4 1.6
- -----------------------------------------------------------------------------------
Net earnings 0.3%(1) 4.7% 5.0%
===================================================================================
</TABLE>
(1)Excluding the effect of the nonrecurring charge in 1997, net operating
expenses, earnings from operations, earnings before income taxes and minority
interest, income tax expense and net earnings, as a percent of net revenue,
would have been 88.9%, 11.1%, 9.3%, 3.2% and 5.1%, respectively.
1997 COMPARED TO 1996
Net revenue increased from $766.3 million for 1996 to $1.12 billion for
1997, an increase of 46.2%. Net revenue from the 31 service agreements and 13
IPA markets in effect for both years increased $75.3 million, or 12.8%, in 1997
compared with 1996. Same market growth resulted from the addition of new
physicians, the expansion of ancillary services, and increases in patient volume
and fees. The remaining increase results from the addition of new clinic service
agreements in 1997 and the timing of entering into new service agreements in
1996.
During 1997, most categories of operating expenses were relatively
stable as a percentage of net revenue when compared to 1996, despite the large
increase in the dollar amounts resulting from acquisitions and clinic growth.
The decrease in clinic salaries, wages and benefits and other clinic expenses as
a percentage of net revenue resulted from the acquisition of clinics with lower
levels of these expenses compared to the existing base of clinics. The increase
in clinic supplies and rents and lease expense as a percentage of net
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<PAGE> 22
revenue resulted from the acquisition of clinics with higher levels of these
expenses compared to the existing base of clinics. The addition of pharmacies at
certain existing clinics and new clinics which operate pharmacies also resulted
in increased clinic supplies expense as a percentage of net revenue. While
general corporate expenses decreased as a percentage of net revenue, the dollar
amount of general corporate expenses increased as a result of the addition of
corporate personnel to accommodate increased acquisition activity and to respond
to increasing physician group needs for support in managed care negotiations,
information systems implementation and clinical outcomes management programs.
The nonrecurring charge in 1997 relates to the asset revaluation of seven of the
Company's multi-specialty clinics. For a more detailed discussion of the
nonrecurring charge, see "See Liquidity and Capital Resources".
The Company's effective tax rate was approximately 38.5% in 1997 and
1996.
1996 COMPARED TO 1995
Net revenue increased from $441.6 million for 1995 to $766.3 million
for 1996, an increase of $324.7 million, or 73.5%. Net revenue from the 23
service agreements in effect as of January 1, 1995 increased $62.1 million, or
16.1%, in 1996. Same clinic growth resulted from the addition of new physicians,
the expansion of ancillary services, increases in both patient volume and fees.
The remaining increase results from the addition of new clinic service
agreements in 1996 and the timing of entering into new service agreements in
1995.
During 1996, most categories of operating expenses were relatively
stable as a percentage of net revenue when compared to 1995, despite the large
increase in the dollar amounts resulting from acquisitions and clinic growth.
The increase in clinic salaries, wages and benefits resulted from the
acquisition of clinics with higher levels of these expenses compared to the
existing base of clinics and the addition of primary care physicians at existing
clinics. The ratio of staffing costs to net revenues is higher for primary care
practices than for specialty care. The reduction in purchased medical services
as a percentage of net revenue resulted from the Company's continuing efforts to
reduce clinic operating costs by improving the productivity of non-physician
personnel and limiting payments for outside medical services. While general
corporate expenses decreased as a percentage of net revenue, the dollar amount
of general corporate expenses increased as a result of the addition of corporate
personnel to accommodate increased acquisition activity and to respond to
increasing physician group needs for support in managed care negotiations,
information systems implementation and clinical outcomes management programs.
Income tax expense increased from the prior year as a result of the
Company's increased profitability. The Company's effective tax rate was
approximately 38.5% in 1996.
SUMMARY OF OPERATIONS BY QUARTER
The following table presents unaudited quarterly operating results for
1997 and 1996. The Company believes that all necessary adjustments have been
included in the amounts stated below to present fairly the quarterly results
when read in conjunction with the Consolidated Financial Statements. Results of
operations for any particular quarter
22
<PAGE> 23
are not necessarily indicative of results of operations for a full year or
predictive of future periods.
<TABLE>
<CAPTION>
1997 Quarter Ended 1996 Quarter Ended
Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30 Dec 31
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per
share
Net revenue $250,652 $267,354 $284,291 $317,297 $162,501 $176,643 $196,418 $230,763
Earnings (loss) before taxes 20,011 22,395 24,576 (57,675)(1) 12,504 13,690 14,753 18,208
Net (loss) earnings 12,307 13,706 15,040 (37,844)(1) 7,690 8,419 9,073 11,198
Earnings (loss) per
share-diluted $.19 $.20 $.22 $(.56)(1) $.13 $.14 $.15 $.18
</TABLE>
- ----------
(1) Excluding the effect of nonrecurring charges, the Company's earnings before
taxes, net earnings and net earnings per share-diluted for the fourth quarter of
1997 would have been approximately $25.8 million, $16.0 million and $.24,
respectively.
(2) Adjusted to reflect the three-for-two stock split effected June 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $203.3 million in working
capital, up from $182.6 million as of December 31, 1996. Also, the Company
generated $116.0 million of cash flow from operations in 1997 compared to $75.1
million in 1996. At December 31, 1997, net accounts receivable of $391.7 million
amounted to 72 days of net clinic revenue compared to $295.4 million and 73 days
at the end of the prior year.
In the first quarter of 1997, the Company completed a public offering
of 7,295,000 shares of its Common Stock at a price of $30.00 per share. Net
proceeds from the offering of approximately $210.0 million were used to repay
bank debt and accrued interest. As a result of the issuance of Common Stock
during 1997, debt was 41.4% of total capitalization at December 31, 1997,
compared to 49.6% at the end of 1996.
In 1997, $14.8 million of convertible subordinated notes issued in
connection with physician group asset acquisitions were converted into Common
Stock. These conversions, the issuance of Common Stock, option exercises and net
earnings for 1997 resulted in an increase of $258.8 million in shareholders'
equity compared to December 31, 1996.
Capital expenditures during 1997 totaled $66.5 million. The Company is
responsible for capital expenditures at its affiliated clinics under the terms
of its service agreements. The Company expects to make approximately $75 million
in capital expenditures during 1998.
Effective January 1, 1995, the Company completed its acquisition of
North American. The Company paid $20.0 million at closing and has made
additional payments pursuant to an earn-out formula during 1996 and 1997,
totaling $35.0 million. A final payment of $35.0 million will be made pursuant
to the earnout formula in 1998. A portion of the final payment will be paid in
shares of the Company's Common Stock.
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<PAGE> 24
In addition, deferred acquisition payments are payable to physician
groups in the event such physician groups attain predetermined financial targets
during established periods of time following the acquisitions. If each group
satisfied its applicable financial targets for the periods covered, the Company
would be required to pay an aggregate of approximately $83.0 million of
additional consideration over the next five years, of which a maximum of $19.2
million would be payable during 1998.
In the fourth quarter of 1997, PhyCor recorded a nonrecurring pre-tax
charge to earnings of $83.4 million related to the revaluation of assets of
seven of the Company's multi-specialty clinics. In addition, the Company also
announced that it expects to take an additional charge of approximately $22.0
million in the first quarter of 1998 relating to these clinics that will be
restructured or sold. The restructured groups primarily represent first
generation attempts at new group formations, and these charges address problems
that developed in these markets. The Company has modified its approach to this
type of market and the more recent new group formations have been more
successful.
The Company also announced that it expects to record a pre-tax charge
to earnings of approximately $15.0 million in the first quarter of 1998 relating
to its terminated merger with MedPartners, Inc. This charge represents PhyCor's
share of investment-banking, legal, travel, accounting and other expenses
incurred during the merger process.
In June 1995, the Company purchased a minority interest of
approximately 9% in PMC and manages PMC pursuant to a 10-year administrative
services agreement. PMC develops and manages IPAs and provides other services to
physician organizations. PhyCor acquired the remaining interests of PMC on March
31, 1998 for an aggregate purchase price of approximately $23.0 million paid in
shares of the Company's Common Stock.
PhyCor has been the subject of an audit by the Internal Revenue Service
(IRS) covering the years 1988 through 1993. The IRS has proposed adjustments
relating to the timing of recognition for tax purposes of certain revenue and
deductions relating to uncollectible accounts and the Company's relationship
with affiliated physician groups. PhyCor disagrees with the positions asserted
by the IRS, including any recharacterization, and is vigorously contesting these
proposed adjustments. The Company believes that any adjustments resulting from
resolution of this disagreement would not affect reported net earnings of
PhyCor, but would defer tax benefits and change the levels of current and
deferred tax assets and liabilities. For the years under audit, and potentially,
for subsequent years, any such adjustments could result in material cash
payments by the Company. PhyCor does not believe the resolution of this matter
will have a material adverse effect on its financial condition or results of
operations, although there can be no assurance as to the outcome of this matter.
In July 1997, the Company completed modifications to its bank credit
facility, which included the revision of certain terms and condition and the
addition of seven participating financial institutions. The Company's bank
credit facility provides for a five-year, $250.0 million revolving line of
credit for use by the Company prior to July 2002 and a $150.0 million 364-day
facility for acquisitions, working capital, capital expenditures and general
corporate purposes. The total drawn cost under the facility is either .375% to
.75% above the applicable eurodollar rate or the agents base rate plus .10% to
.225% per annum. On
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<PAGE> 25
October 17, 1997, the Company entered into an interest rate swap agreement to
fix the interest rate on $100.0 million of debt at 5.85% for a two-year period.
In March 1998, the Company obtained commitments from its bank group to expand
the existing bank credit facility to a total of $500.0 million. The expanded
facility, with terms similar to the existing facility, is expected to close in
the second quarter of 1998.
The Company's current bank credit facility contains covenants which,
among other things, require the Company to maintain certain financial ratios and
impose certain limitations or prohibitions on the Company with respect to: (i)
the incurrence of certain indebtedness, (ii) the creation of security interests
on the assets of the Company, (iii) the payment of cash dividends on, and the
redemption or repurchase of, securities of the Company, (iv) investments and (v)
acquisitions. The Company is required to obtain bank consent for an acquisition
with an aggregate purchase price of $75.0 million or more. The Company was in
compliance with such covenants at December 31, 1997.
PhyCor has assessed its practice management systems, managed care
information systems, business information systems and other clinic systems for
compliance with the Year 2000 issue. The Company is in its normal process of
standardizing the various systems utilized by its clinics and IPAs. This
standardization includes implementation of Year 2000 compliant systems. The
Company has performed an assessment of its various clinics and IPAs to identify
which systems specifically require replacement or upgrade due to the Year 2000
issue in order to ensure timely upgrade or installation. The Company believes it
has a replacement strategy in place such that the Year 2000 issue will not have
a significant effect on its operations. Total capital costs to implement new
systems and to address the Year 2000 issue are expected to be less than $20.0
million.
At March 19, 1998, the Company had cash and cash equivalents of
approximately $38.0 million and $134.6 million available under its current bank
credit facility. The Company believes that the combination of funds available
under the Company's anticipated expanded bank credit facility, together with
cash reserves and cash flow from operations, should be sufficient to meet the
Company's current planned acquisition, expansion, capital expenditure and
working capital needs through 1998. In addition, in order to provide the funds
necessary for the continued pursuit of the Company's long-term expansion
strategy, the Company expects to continue to incur, from time to time,
additional short-term and long-term indebtedness and to issue equity and debt
securities, the availability and terms of which will depend upon market and
other conditions. There can be no assurance that such additional financing will
be available on terms acceptable to the Company or that the expanded bank credit
facility will be entered into.
RISK FACTORS
This discussion also identifies important cautionary factors that could
cause PhyCor's actual results to differ materially from those projected in
forward-looking statements of PhyCor and included herein or incorporated by
reference. In particular, forward-looking statements including, but not limited
to, those regarding future business prospects, the acquisition of additional
clinics, the development of additional IPAs, the adequacy of PhyCor's capital
resources, the future profitability of capitated fee arrangements and other
statements regarding trends relating to various revenue and expense items, could
be affected by a number of risks and uncertainties including those described
below.
25
<PAGE> 26
No Assurance of Continued Rapid Growth
PhyCor's continued growth will be primarily dependent upon its ability
to achieve significant consolidation of multi-specialty medical clinics, to
sustain and enhance the profitability of those clinics and to develop and manage
IPAs. The process of identifying suitable acquisition candidates and proposing,
negotiating and implementing an economically feasible affiliation with a
physician group or formation or management of a physician network is lengthy and
complex. Clinic and physician network operations require intensive management in
a dynamic marketplace increasingly subject to cost containment pressures. There
can be no assurance that PhyCor will be able to sustain its historically rapid
rate of growth. The success of PhyCor's strategy to develop and manage IPAs is
largely dependent upon its ability to form networks of physicians, to obtain
favorable payor contracts, to manage and control costs and to realize economies
of scale. Many of the agreements entered into by physicians participating in
PhyCor-managed IPAs are not exclusive arrangements. The physicians, therefore,
could join competing networks or terminate their relationships with the IPAs.
There can be no assurance that PhyCor will be successful in acquiring additional
physician practice assets or PPMs, establishing new IPA networks or maintaining
relationships with affiliated physicians.
Additional Financings
PhyCor's multi-specialty medical clinic acquisition and expansion
program and its IPA development and management plans require substantial capital
resources. The operations of existing clinics require ongoing capital
expenditures for renovation and expansion and the addition of costly medical
equipment and technology utilized in providing ancillary services. PhyCor, in
certain circumstances, has acquired real estate in connection with clinic
acquisitions. PhyCor will require additional financing for the development of
additional IPAs and expansion and management of existing IPAs. PhyCor expects
that its capital needs over the next several years will exceed capital generated
from operations. PhyCor plans to incur indebtedness and to issue, from time to
time, additional debt or equity securities, including the issuance of PhyCor
Common Stock or convertible notes in connection with acquisitions. PhyCor's bank
credit facility requires the lenders' consent for borrowings in connection with
the acquisition of certain clinic assets. There can be no assurance that
sufficient financing will be available on terms satisfactory to PhyCor or at
all.
Competition
The business of providing health care related services is highly
competitive. Many companies, including professionally managed PPM companies like
PhyCor have been organized to pursue the acquisition of medical clinics, manage
such clinics, employ clinic physicians or provide services to IPAs. Large
hospitals, other multi-specialty clinics and health care companies HMOs and
insurance companies are also involved in activities similar to those of PhyCor.
Some of these competitors have longer operating histories and significantly
greater resources than PhyCor. There can be no assurance that PhyCor will be
able to compete effectively, that additional competitors will not enter the
market, or that such competition will not make it more difficult to acquire the
assets of multi-specialty clinics on terms beneficial to PhyCor.
26
<PAGE> 27
Dependence on Affiliated Physicians
Substantially all of PhyCor's revenue is derived from service or
management agreements with PhyCor's affiliated clinics, the loss of certain of
which could have a material adverse effect on PhyCor as a result of the loss of
revenue from such agreements and the loss of any funds advanced by PhyCor to
cover expenses of such clinics. In addition, any material decline in revenue by
PhyCor's affiliated physician groups, whether as a result of physicians leaving
the affiliated physician groups or otherwise, could have a material adverse
effect on PhyCor.
Risks Associated with Managed Care and Capitation; Reliance on
Physician Networks
Many of the payor contracts entered into on behalf of PhyCor-managed
IPAs are based on capitated fee arrangements. Under capitation arrangements,
health care providers bear the risk, subject to certain loss limits, that the
aggregate costs of providing medical services to the members will exceed the
premiums received. The IPA management fees are based, in part, upon a share of
the remaining portion, if any, of capitated amounts of revenue. Some agreements
with payors also contain "shared risk" provisions under which the Company and
IPA can earn additional compensation and may be required to bear a portion of
any loss in connection with such shared risk provisions based on utilization of
hospital services by members. Any such losses could have a material adverse
effect on PhyCor. The profitability of a capitated fee arrangement is dependent
upon the ability of the providers to effectively manage the per patient costs of
providing medical services and the level of utilization of medical services. The
management fees are also based upon a percentage of revenue collected by the
IPA. Any loss of revenue by the IPAs as a result of losing affiliated
physicians, the termination of third party payor contracts or otherwise could
have a material adverse effect on management fees derived by PhyCor. Managed
care providers and management entities such as PhyCor are increasingly subject
to liability claims arising from utilization management, provider compensation
arrangements and other activities designed to control costs by reducing
services. A successful claim on this basis against PhyCor or an affiliated
clinic or IPA could have a material adverse effect on PhyCor.
Risks of Changes in Payment for Medical Services
The United States Congress and many state legislatures routinely
consider proposals to reform or modify the health care system, including
measures that would control health care spending, convert all or a portion of
government reimbursement programs to managed care arrangements and reduce
spending for Medicare and state health programs. These measures can affect a
health care company's cost of doing business and contractual relationships. For
example, recent developments that affect PhyCor's activities include: (i)
federal legislation requiring a health plan to continue coverage for individuals
who are no longer eligible for group health benefits and prohibiting the use of
"pre-existing condition" exclusions that limit the scope of coverage; (ii) a
Health Care Financing Administration policy prohibiting restrictions in Medicare
risk HMO plans on a physician's recommendation of other health plans and
treatment options to patients; and (iii) regulations imposing restrictions on
physician incentive provisions in physician
27
<PAGE> 28
provider agreements. There can be no assurance that such legislation, programs
and other regulatory changes will not have a material adverse effect on PhyCor.
The profitability of PhyCor may be adversely affected by Medicare and
Medicaid regulations, cost containment decisions of third party payors and other
payment factors over which PhyCor has no control. The federal Medicare program
has undergone significant legislative and regulatory changes in the
reimbursement and fraud and abuse areas, including the adoption of the
resource-based relative value scale ("RBRVS") schedule for physician
compensation under Medicare, which may continue to have a negative impact on
PhyCor's revenue. Efforts to control the cost of health care services are
increasing. Many of PhyCor's physician groups are becoming affiliated with
provider networks, managed care organizations and other organized health care
systems, which often provide fixed fee schedules or capitation payment
arrangements that are lower than standard charges. Future profitability in the
changing health care environment, with differing methods of payment for medical
services, is likely to be affected significantly by management of health care
costs, pricing of services and agreements with payors. Because PhyCor derives
its revenues from the revenues generated by its affiliated physician groups and
from managed IPAs, further reductions in payments to physicians generally or
other changes in payment for health care services could have a material adverse
effect on PhyCor.
Additional Regulatory Risks
The health care industry and physicians' medical practices are highly
regulated at the state and federal levels. At the state level, all state laws
restrict the unlicensed practice of medicine, and many states also prohibit the
splitting or sharing of fees with nonphysician entities and the enforcement of
noncompetition agreements against physicians. Furthermore, most state
fee-splitting laws provide that it is a violation only if a physician shares
fees with a referral source. PhyCor is not a referral source for its managed
groups, and therefore the fee-splitting laws in most states should not restrict
the payment of a management fee by the physician groups to PhyCor. Many states
also prohibit the "corporate practice of medicine" by an unlicensed corporation
or other nonphysician entity that employs physicians. Currently, PhyCor merely
manages physician groups, and the physicians continued to be employed at the
group level by professional associations or corporations, which are specifically
authorized under most state laws to employ physicians. Upon consummation of the
FPC transaction, however, subsidiaries of PhyCor will directly employ physicians
in the states of Florida and Georgia.
Additionally, the Florida Board of Medicine has interpreted the Florida
fee-splitting law very broadly so as to arguably include the payment of any
percentage-based management fee, even to a management company that does not
refer patients to a managed group. PhyCor is affiliated with five physician
groups in Florida, the service agreements with which provide for
percentage-based management fees. The Florida Board of Medicine decision has
been stayed pending judicial interpretation of the decision. Because of the
structure of the relationships of PhyCor with its affiliated physician groups
and managed IPAs, and because of the recent broad fee-splitting interpretation
in the State of Florida, there can be no assurance that review of PhyCor's
business by courts or health care, or other regulatory authorities will not
result in determinations that could adversely affect the financial condition or
results of operations of PhyCor. If for any reason PhyCor were found to have
violated the corporate practice of medicine or fee-splitting statutes, possible
consequences could include revocation or suspension of the physicians' license,
resulting in lowered revenue to PhyCor. Courts could also refuse to uphold the
contracts between PhyCor and its managed physicians on the
28
<PAGE> 29
grounds that PhyCor was engaging in the unlicensed practice of medicine and that
therefore its contracts were invalid.
On the federal level, federal law prohibits the offer, payment,
solicitation, or receipt of any form of remuneration in return for the referral
of, or the arranging for the referral of, Medicare or other federal or state
health program patients or patient care opportunities, or in return for the
purchase, lease or order of items or services that are covered by Medicare or
other federal or state health programs. In addition, federal law prohibits
physicians with certain financial relationships with health care providers from
referring certain types of Medicare or Medicaid reimbursed "designated health
services" to those providers unless the referral fits within an exception to the
law. One of the exceptions that is used most often requires that physician
groups be included within a definition of "group practice" in order to be
permitted to make referrals within the group. Federal antitrust laws also
prohibit conduct that may result in price fixing or other anticompetitive
conduct.
The PhyCor arrangements have been carefully structured so that the
physician groups being managed fit within the definition of "group practice",
and all referrals from those physicians to ancillary centers are structured to
fit within an applicable exception to federal law. In addition, PhyCor does not
make or influence referrals to its managed or employed physicians, and the
compensation received by PhyCor is not directly related to any referral levels
between the parties. Nevertheless, because of the structure of the relationships
of PhyCor with its affiliated physician groups and managed IPAs, there can be no
assurance that review of PhyCor's business by courts or healthcare, tax,
regulatory authorities will not result in determinations that could adversely
affect the financial condition or results of operations of PhyCor, or that the
health care regulatory environment will not change in the manner that would
restrict PhyCor's existing operations or limit the expansion of PhyCor's
business or otherwise adversely affect PhyCor. In addition to civil and, in some
cases, criminal penalties for violation of Medicare and Medicaid statutes,
violators of these statutes may be excluded from further participation in
Medicare or state health care programs.
Increased Government Scrutiny of Health Care Arrangements
There is increasing scrutiny by law enforcement authorities, the Office
of Inspector General ("OIG") of the Department of Health and Human Services
("DHHS"), the courts, and the United States Congress of arrangements between
health care providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
patient care referrals and opportunities. Investigators have also demonstrated a
willingness to look behind the documents evidencing a business transaction to
determine the underlying purpose of payments between health care providers and
potential referral sources. Enforcement actions have increased as evidenced by
recent highly publicized enforcement investigations of certain hospital
activities. Although, to its knowledge PhyCor is not currently the subject of
any investigation which is likely to have a material adverse effect on their
respective businesses, there can be no assurance that they will not be the
subject of investigations or inquiries in the future.
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<PAGE> 30
Risks Associated with Straub Transaction
In January 1997, PhyCor consummated its merger with Straub, an
integrated health care system with a 152-physician multi-specialty clinic and
159-bed acute care hospital located in Honolulu, Hawaii. In connection with the
transaction with Straub, PhyCor agreed to provide certain management services to
both a physician group practice and a hospital owned by the group. Because the
hospital is subject to extensive regulation and because hospital management
companies have, in some instances, been viewed as referral sources by federal
regulatory agencies, the relationship between PhyCor and the physician group
could come under increased scrutiny under the Medicare fraud and abuse law.
Tax Audit
PhyCor has been subject to an audit by the IRS covering the years 1988
through 1993. The IRS has proposed adjustments relating to the timing of
recognition for tax purposes of certain revenue and deductions relating to
uncollectible accounts and PhyCor's relationship with affiliated physician
groups. PhyCor disagrees with the positions asserted by the IRS including any
recharacterization and is vigorously contesting these proposed adjustments.
PhyCor believes that any adjustments resulting from resolution of this
disagreement would not affect reported net earnings of PhyCor but would defer
tax benefits and change the levels of current and deferred tax assets and
liabilities. For the years under audit and, potentially, for subsequent years,
any such adjustments could result in material cash payments by PhyCor. PhyCor
does not believe the resolution of this matter will have a material adverse
effect on its financial condition, although there can be no assurance as to the
outcome of this matter.
Applicability of Insurance Regulations
PhyCor's managed IPAs enter into contracts and joint ventures with
licensed insurance companies, such as HMOs, whereby the IPAs may be paid on a
capitated fee basis. Under capitation arrangements, health care providers bear
the risk, subject to certain loss limits, that the aggregate costs of providing
medical services to members will exceed the premiums received. To the extent
that the IPAs subcontract with physicians or other providers for those
physicians or other providers to provide services on a fee-for-service basis,
the managed IPAs may be deemed to be in the business of insurance, and thus,
subject to a variety of regulatory and licensing requirements applicable to
insurance companies or HMOs resulting in increased costs to the managed IPAs,
and corresponding lower revenue to PhyCor. In connection with multi-specialty
medical clinic acquisitions, PhyCor has and may continue to acquire HMOs
previously affiliated with such clinics. The HMO industry is highly regulated at
the state level and is highly competitive. Additionally, the HMO industry has
been subject to numerous legislative initiatives within the past several years,
including initiatives that would pose additional liabilities on HMOs for patient
malpractice, thereby increasing costs to HMOs, which would result in
correspondingly lower revenue to PhyCor. There can be no assurance that
developments in any of these areas will not have an adverse effect on PhyCor's
wholly-owned HMOs or on HMOs in which PhyCor has a partial ownership interest or
other financial involvement.
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<PAGE> 31
Risks Inherent in Provision of Medical Services
The physician groups with which PhyCor affiliates and the physicians
participating in networks developed and managed by PhyCor are involved in the
delivery of medical services to the public and, therefore, are exposed to the
risk of professional liability claims. Claims of this nature, if successful,
could result in substantial damage awards to the claimants which may exceed the
limits of any applicable insurance coverage. Insurance against losses related to
claims of this type can be expensive and varies widely from state to state.
PhyCor does not control the practice of medicine by affiliated physicians or the
compliance with certain regulatory and other requirements directly applicable to
physicians, physician networks and physician groups. PhyCor is indemnified under
its service agreements for claims against the physician groups, maintains
liability insurance for itself and negotiates liability insurance for the
physicians affiliated with its clinics and under its management agreements for
claims against the IPAs and physician members. Successful malpractice claims
asserted against the physician groups, the managed IPAs or PhyCor, however,
could have a material adverse effect on PhyCor. Moreover, PhyCor may in the
future acquire entities, such as other PPMs that directly employ physicians. The
acquisition of such companies would subject PhyCor to increased risk of
malpractice liability, as well as increased scrutiny under healthcare
regulations and laws.
Anti-takeover Considerations
PhyCor is authorized to issue up to 10,000,000 shares of preferred
stock, the rights of which may be fixed by the Board of Directors. In February
1994, the Board of Directors approved the adoption of a Shareholder Rights Plan
(the "PhyCor Rights Plan"). The PhyCor Rights Plan is intended to encourage
potential acquirers to negotiate with PhyCor's Board of Directors and to
discourage coercive, discriminatory and unfair proposals. PhyCor's stock
incentive plans provide for the acceleration of the vesting of options in the
event of a change in control. The PhyCor Charter provides for the classification
of its Board of Directors into three classes, with each class of directors
serving staggered terms of three years. Provisions in the executive officers'
employment agreements provide for post-termination compensation, including
payment of certain of the executive officers' salaries for 24 months, following
a change in control. Most physician groups may terminate their service
agreements with PhyCor in certain events, including a change in control of
PhyCor which is not approved by a majority of PhyCor's Board of Directors. A
change in control of PhyCor also constitutes an event of default under PhyCor's
bank credit facility. The foregoing matters may, together or separately, have
the effect of discouraging or making more difficult an acquisition or change of
control of PhyCor.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and the related notes, together with
the report of KPMG Peat Marwick LLP thereon, are set forth in the Company's 1997
Annual Report to Shareholders and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the executive officers of the Company is
set forth in the Company's Definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 21, 1998 under the caption "Executive
Compensation - Executive Officers of the Company" and is incorporated herein by
reference. Information with respect to the directors of the Company is set forth
in the Company's Definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 21, 1998 under the caption "Election of
Directors" and is incorporated herein by reference. Information with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 is set
forth in the Company's Definitive Proxy Statement relating to the Annual Meeting
of Shareholders to be held on May 21, 1998 under the caption "Compliance With
Reporting Requirements of the Exchange Act" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth in the
Company's Definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 21, 1998 under the caption "Executive
Compensation" and is incorporated herein by reference, except that the
Comparative Performance Graph and the Compensation Committee Report on Executive
Compensation included in the Definitive Proxy Statement are expressly not
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management is set forth in the Company's Definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 21,
1998 under the caption "Voting Securities and Principal Holders Thereof" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is set forth in the Company's Definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 21, 1998 under the
caption "Certain Relationships and Related Transactions" and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Financial Statement Schedules
and Exhibits
(1) FINANCIAL STATEMENTS: See Item 8 herein.
32
<PAGE> 33
(2) FINANCIAL STATEMENT SCHEDULES:
Independent Auditors' Report...............................S-1
Schedule II - Valuation and Qualifying Accounts............S-2
All other schedules are omitted, because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
33
<PAGE> 34
(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C> <C>
3.1 -- Amended Bylaws of the Registrant (1)
3.2 -- Restated Charter of the Registrant (1)
3.3 -- Amendment to Restated Charter of the Registrant (2)
3.4 -- Amendment to Restated Charter of the Registrant (3)
4.1 -- Form of 4.5% Convertible Subordinated Debenture due 2003 (4)
4.2 -- Form of Indenture by and between the Registrant and First
American National Bank, N.A. (4)
10.1 -- Form of Amended and Restated Employment Agreements dated
August 1, 1997 entered into by each of Messrs. Hutts, Reeves,
Dent and Wright (5)
10.2 -- Registrant's Amended 1988 Incentive Stock Plan (6)
10.3 -- Registrant's Amended 1992 Non-Qualified Stock Option Plan for
Non-Employee Directors (6)
10.4 -- Registrant's 1991 Amended Employee Stock Purchase Plan (7)
10.5 -- Registrant's Savings and Profit Sharing Plan (7)
10.6 -- $150,000,000 Amended and Restated Credit Agreement, dated as
of July 1, 1997, among the Registrant, the Banks named
therein and Citibank, N.A. (5)
10.7 -- $250,000,000 Amended and Restated Revolving Credit Agreement
dated as of July 1, 1997, among the Registrant, the Banks
named therein and Citibank, N.A. (5)
10.8 -- Amended and Restated Agreement of Merger, dated October 1,
1996, by and between the Registrant and Straub Clinic &
Hospital, Incorporated (8)
10.9 -- Service Agreement, dated as of January 17, 1997, by and between
PhyCor of Hawaii, Inc. and Straub Clinic & Hospital, Inc. (8)
10.10 -- Supplemental Executive Retirement Plan (5)
13 -- Portions of the Registrant's Annual Report to Shareholders for
the year ended December 31, 1997 (5)
21 -- List of subsidiaries of the Registrant (5)
23 -- Consent of KPMG Peat Marwick LLP (5)
27.1 -- Financial Data Schedule for fiscal year ended December 31,
1997(for SEC use only) (5)
27.2 -- Financial Data Schedule for fiscal year ended December 31,
1996(for SEC use only) (5)
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
Commission No. 0-19786.
(2) Incorporated by referenced to exhibits filed with the Registrant's
Registration Statement on Form S-3, Commission No. 33-93018.
(3) Incorporated by referenced to exhibits filed with the Registrant's
Registration Statement on Form S-3, Commission No. 33-98528.
(4) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-3, Registration No. 333-328.
(5) Filed herewith.
(6) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993,
Commission No. 0-19786.
(7) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991,
Commission No. 0-19786.
(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-4, Commission No. 333-15459.
34
<PAGE> 35
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans and
arrangements filed as exhibits to this Annual Report on Form 10-K:
(1) Form of Amended Employment Agreement, dated as of August 1, 1997,
between the Registrant and each of Messrs. Hutts, Reeves, Dent
and Wright (filed as Exhibit 10.1)
(2) Registrant's Amended 1988 Incentive Stock Plan (filed as Exhibit
10.2)
(3) Registrant's Amended 1992 Non-Qualified Stock Option Plan for
Non-Employee Directors (filed as Exhibit 10.3)
(4) Supplemental Executive Retirement Plan (filed as Exhibit 10.10)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated October 31, 1997
announcing the execution of a definitive merger agreement with
MedPartners, Inc.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(3)
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 14(a)(2).
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on March 30, 1998.
PHYCOR, INC.
By: /s/ Joseph C. Hutts
----------------------------------
Joseph C. Hutts
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Joseph C. Hutts Chairman of the Board, President March 30, 1998
- ----------------------------------- and Chief Executive Officer
Joseph C. Hutts (Principal Executive Officer)
and Director
/s/ Derril W. Reeves Executive Vice President, March 30, 1998
- ----------------------------------- Development and Director
Derril W. Reeves
/s/ John K. Crawford Vice President and Chief Financial March 30, 1998
- ----------------------------------- Officer (Principal Financial and
John K. Crawford Accounting Officer)
/s/ Thompson S. Dent Executive Vice President, March 30 1998
- ----------------------------------- Operations and Director
Thompson S. Dent
/s/ Richard D. Wright Executive Vice President, March 30, 1998
- ----------------------------------- Corporate Services and Director
Richard D. Wright
/s/ Ronald B. Ashworth Director March 30, 1998
- -----------------------------------
Ronald B. Ashworth
/s/ Sam A. Brooks, Jr. Director March 30, 1998
- -----------------------------------
Sam A. Brooks, Jr.
/s/ Winfield Dunn Director March 30, 1998
- -----------------------------------
Winfield Dunn
/s/ C. Sage Givens Director March 30, 1998
- -----------------------------------
C. Sage Givens
/s/ Joseph A. Hill, M.D. Director March 30, 1998
- -----------------------------------
Joseph A. Hill, M.D.
/s/ James A. Moncrief, M.D. Director March 30, 1998
- -----------------------------------
James A. Moncrief, M.D.
Director
- -----------------------------------
Kay Coles James
</TABLE>
36
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
PhyCor, Inc.:
Under date of February 18, 1998, we reported on the consolidated balance sheets
of PhyCor, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997, as
contained in the 1997 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
Nashville, Tennessee
February 18, 1998
S-1
<PAGE> 38
PHYCOR, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
BEGINNING EXPENSE DEDUCTIONS OTHER (1) ENDING
--------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS AND CONTRACTUAL
ADJUSTMENTS (IN THOUSANDS)
December 31, 1995 $ 68,860 359,652 (360,684) 14,377 82,205
======== ========= ========== ====== =======
December 31, 1996 $ 82,205 699,186 (688,276) 41,441 134,556
======== ========= ========== ====== =======
December 31, 1997 $134,556 1,090,329 (1,050,164) 33,813 208,534
======== ========= ========== ====== =======
</TABLE>
- ---------------
(1) Represents allowances of acquired clinics.
S-2
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C> <C>
3.1 -- Amended Bylaws of the Registrant (1)
3.2 -- Restated Charter of the Registrant (1)
3.3 -- Amendment to Restated Charter of the Registrant (2)
3.4 -- Amendment to Restated Charter of the Registrant (3)
4.1 -- Form of 4.5% Convertible Subordinated Debenture due 2003 (4)
4.2 -- Form of Indenture by and between the Registrant and First
American National Bank, N.A. (4)
10.1 -- Form of Amended and Restated Employment Agreements dated
August 1, 1997 entered into by each of Messrs. Hutts, Reeves,
Dent and Wright (5)
10.2 -- Registrant's Amended 1988 Incentive Stock Plan (6)
10.3 -- Registrant's Amended 1992 Non-Qualified Stock Option Plan for
Non-Employee Directors (6)
10.4 -- Registrant's 1991 Amended Employee Stock Purchase Plan (7)
10.5 -- Registrant's Savings and Profit Sharing Plan (7)
10.6 -- $150,000,000 Amended and Restated Credit Agreement, dated as
of July 1, 1997, among the Registrant, the Banks named
therein and Citibank, N.A. (5)
10.7 -- $250,000,000 Amended and Restated Revolving Credit Agreement
dated as of July 1, 1997, among the Registrant, the Banks
named therein and Citibank, N.A. (5)
10.8 -- Amended and Restated Agreement of Merger, dated October 1,
1996, by and between the Registrant and Straub Clinic &
Hospital, Incorporated (8)
10.9 -- Service Agreement, dated as of January 17, 1997, by and between
PhyCor of Hawaii, Inc. and Straub Clinic & Hospital, Inc. (8)
10.10 -- Supplemental Executive Retirement Plan (5)
13 -- Portions of the Registrant's Annual Report to Shareholders for
the year ended December 31, 1997 (5)
21 -- List of subsidiaries of the Registrant (5)
23 -- Consent of KPMG Peat Marwick LLP (5)
27.1 -- Financial Data Schedule for fiscal year ended December 31,
1997(for SEC use only) (5)
27.2 -- Financial Data Schedule for fiscal year ended December 31,
1996(for SEC use only) (5)
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
Commission No. 0-19786.
(2) Incorporated by referenced to exhibits filed with the Registrant's
Registration Statement on Form S-3, Commission No. 33-93018.
(3) Incorporated by referenced to exhibits filed with the Registrant's
Registration Statement on Form S-3, Commission No. 33-98528.
(4) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-3, Registration No. 333-328.
(5) Filed herewith.
(6) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993,
Commission No. 0-19786.
(7) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991,
Commission No. 0-19786.
(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-4, Commission No. 333-15459.
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement is made this
first day of August, 1997, between PhyCor, Inc., a Tennessee corporation (the
"Company") and ______________ ("Employee").
W I T N E S S E T H :
WHEREAS, the Company and Employee entered into an Employment
Agreement, dated August 30, 1991, as amended and restated March 25, 1994, and
have renegotiated the terms of such Employment Agreement; and
WHEREAS, the Company desires to continue to employ Employee
and Employee desires to accept such continued employment by the Company subject
to the terms and conditions contained herein; and
WHEREAS, in serving as an employee of the Company, Employee
will be in a position in which Employee will participate in the use and
development of confidential proprietary information about the Company's present
and future products, its customers and suppliers and the methods which the
Company and its employees use in competition with other companies, as to which
the Company desires to protect fully its rights;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein set forth, the parties hereto agree as
follows:
1. Employment. The Company hereby employs Employee and
Employee accepts such employment with the Company, subject to the terms and
conditions set forth herein. Employee shall be employed as Chairman, President
and Chief Executive Officer of the Company, shall perform all duties and
services incident to his position, and such other duties and services as may be
prescribed by the Bylaws of the Company or established by the Board of Directors
of the Company from time to time; provided, however, that without Employee's
written consent: (i) the duties and services of Employee hereunder shall not be
materially altered in a manner inconsistent with Employee's position and
original duties hereunder, and (ii) Employee shall not be required to relocate
more than 25 miles from the Company's Nashville, Tennessee office. During his
employment hereunder, Employee shall devote his best efforts and attention, on a
full-time basis, to the performance of the duties required of him as an employee
of the Company.
2. Compensation. As compensation for services rendered by
Employee hereunder, Employee shall receive:
(a) An annual salary of $______, or such higher
salary as shall be determined by the Company's
<PAGE> 2
Compensation Committee payable in arrears in equal monthly
installments, plus insurance and other benefits equivalent to
the benefits provided other similar employees of the Company,
which are set forth in Appendix I hereto; and
(b) Six weeks of compensated vacation time, to be
taken at any time during each year of the term of this
Agreement;
(c) Participation in the Company's employee bonus
program as such program may be amended or modified by the
Company from time to time; and
(d) Reimbursement for all reasonable expenses
incurred by Employee in the performance of his duties under
this Agreement, provided that Employee submits verification of
such expenses in accordance with the policies of the Company.
(e) Immediate vesting of all options granted under
the Company's Employee Incentive Stock Plan or any
similar plan adopted by the Company.
3. Confidential Information and Trade Secrets.
3.1 Employee recognizes that Employee's position with the
Company requires considerable responsibility and trust, and, in reliance on
Employee's loyalty, the Company may entrust Employee with highly sensitive
confidential, restricted and proprietary information involving Trade Secrets and
Confidential Information.
3.2 For purposes of this Agreement, a "Trade Secret" is any
scientific or technical information, design, process, procedure, formula or
improvement that is valuable and not generally known to competitors of the
Company. "Confidential Information" is any data or information, other than Trade
Secrets, that is important, competitively sensitive, and not generally known by
the public, including, but not limited to, the Company's initial business plan,
business prospects, training manuals, product development plans, bidding and
pricing procedures, market strategies, internal performance statistics,
financial data, confidential personnel information concerning employees of the
Company, supplier data, operational or administrative plans, policy manuals, and
terms and conditions of contracts and agreements. The terms "Trade Secret" and
"Confidential Information" shall not apply to information which is (i) already
in Employee's possession at the time of employment (unless such information was
used in connection with formulating the Company's initial business plan,
obtained by Employee from the Company or was obtained by Employee in the course
of Employee's employment by the Company), (ii) received by Employee
2
<PAGE> 3
from a third party with no restriction on disclosure, or (iii) required to be
disclosed by any applicable law.
3.3 Except as required to perform Employee's duties hereunder,
Employee will not use or disclose any Trade Secrets or Confidential Information
of the Company during employment, at any time after termination of employment
and prior to such time as they cease to be Trade Secrets or Confidential
Information through no act of Employee in violation of Section 3.
3.4 Upon the request of the Company and, in any event, upon
the termination of employment hereunder, Employee will surrender to the Company
all memoranda, notes, records, drawings, manuals or other documents pertaining
to the Company's business or Employee's employment (including all copies
thereof). Employee will also leave with the Company all materials involving any
Trade Secrets or Confidential Information of the Company. All such information
and materials, whether or not made or developed by Employee, shall be the sole
and exclusive property of the Company, and Employee hereby assigns to the
Company all of Employee's right, title and interest in and to any and all of
such information and materials.
4. Covenant Not to Compete.
4.1 Employee hereby covenants and agrees with the Company that
except as provided below, commencing on the date hereof and ending 24 months
after the stated expiration date of this Agreement (whether or not this
Agreement terminates at an earlier date), Employee will not directly or
indirectly (i) operate, develop or own any interest other than the ownership of
less than 5% of the equity securities of a publicly traded company, in any
business which has significant activities (viewed in relation to the business of
the Company, its subsidiaries and affiliates), or has announced intentions to
focus significant resources, relating to the ownership, management or operation
of multi-specialty medical clinics, physician group practices, independent
practice associations, or other similar entities (a "Business"); (ii) compete
with the Company or its subsidiaries and affiliates in the operation or
development of any Business within the United States of America; (iii) be
employed by any business which owns, manages or operates a Business; (iv)
interfere with, solicit, disrupt or attempt to disrupt any past, present or
prospective relationship, contractual or otherwise, between the Company, or its
subsidiaries or affiliates, and any customer, client, supplier or employee of
the Company, or its subsidiaries or affiliates; or (v) solicit any employee of
the Company, or its subsidiaries or affiliates, to leave their employment with
the Company or its subsidiaries or affiliates, as the case may be, or hire any
such employee to work for a Business; provided, however, that if Employee's
employment hereunder is terminated without cause prior to the expiration of this
Agreement, this provision shall
3
<PAGE> 4
apply only for the period in which the Company is obligated to pay
and pays Employee's compensation.
4.2 If a judicial determination is made that any of the
provisions of this Section 4 constitutes an unreasonable or otherwise
unenforceable restriction against Employee, the provisions of this Section 4
shall be rendered void only to the extent that such judicial determination finds
such provisions to be unreasonable or otherwise unenforceable. In this regard,
the parties hereto hereby agree that any judicial authority construing this
Agreement shall be empowered to sever any portion of the territory or prohibited
business activity from the coverage of this Section 4 and to apply the
provisions of this Section 4 to the remaining portion of the territory or the
remaining business activities not so severed by such judicial authority.
Moreover, notwithstanding the fact that any provisions of this Section 4 are
determined not to be specifically enforceable, the Company shall nevertheless be
entitled to recover monetary damages as a result of the breach of such provision
by Employee. The time period during which the prohibitions set forth in this
Section 4 shall apply shall be tolled and suspended as to Employee for a period
equal to the aggregate quantity of time during which Employee violates such
prohibitions in any respect.
5. Specific Enforcement. Employee specifically acknowledges
and agrees that the restrictions set forth in Sections 3 and 4 hereof are
reasonable and necessary to protect the legitimate interest of the Company and
that the Company would not have entered into this Agreement in the absence of
such restrictions. Employee further acknowledges and agrees that any violation
of the provisions of Sections 3 or 4 hereof will result in irreparable injury to
the Company, that the remedy at law for any violation or threatened violation of
such Sections will be inadequate and that in the event of any such breach, the
Company, in addition to any other remedies or damages available to it at law or
in equity, shall be entitled to temporary injunctive relief before trial from
any court of competent jurisdiction as a matter of course and to permanent
injunctive relief without the necessity of proving actual damages.
6. Term. This Agreement shall continue for an initial period
of five years from the date hereof, unless sooner terminated by either party in
the manner set forth herein. Commencing 30 months prior to the end of the
initial term (and thereafter commencing on each date which is 30 months prior to
the end of the then term), the Company and Employee will negotiate in good faith
for the renewal of this Agreement for an additional term with the intent that
this Agreement shall at all times have a remaining term of greater than 24
months, subject to earlier termination as hereinafter provided. In the event (a)
the Company elects not to renew this Agreement or (b) the parties have failed to
enter into a renewal agreement by 24 months prior to the end of the then term
4
<PAGE> 5
or extend the negotiation period, or (c) the parties have failed to enter into a
renewal agreement by the end of the extended negotiation period, then the
Company shall be deemed to have terminated this Agreement pursuant to the
provisions of Section 10 hereof, effective 24 months prior to the end of the
then term or effective the date the extended negotiation period terminates,
whichever is later. In the event Employee elects not to renew this Agreement,
Employee shall continue to be employed and perform his obligations and
responsibilities hereunder for the remaining term of this Agreement, and be
bound by the provisions of Section 4 of this Agreement as hereinafter provided.
The date upon which this Agreement and Employee's employment hereunder shall
terminate, whether pursuant to the terms of this Section or pursuant to any
other provision of this Agreement shall hereafter be referred to as the
"Termination Date."
7. Termination Upon Death of the Employee. In the event the
Employee dies during the term of this Agreement, this Agreement shall
immediately terminate and neither the Employee nor the Company shall have any
further obligations hereunder, except that (a) the Company shall continue to be
obligated under Section 2(a) hereof for any unpaid salary, bonus or unreimbursed
expenses owed to Employee or his estate that have accrued but not been paid as
of the Termination Date and any death benefits to which Employee is entitled
under the Company's benefit programs and (b) the Company shall pay to Employee's
estate an amount equal to three months salary.
8. Termination by Employee. Employee may at any time terminate
his employment by giving the Company ninety (90) days prior written notice of
his intent to terminate the Agreement. At the Termination Date, the Company
shall have no further obligation to Employee and Employee shall have no further
rights or obligations hereunder, except as set forth in Sections 3 and 4 above,
and except for the Company's obligation under Section 2(a) hereof for unpaid
salary, bonus or unreimbursed expenses that have accrued but have not been paid
as of the Termination Date. A termination by Employee pursuant to the last
sentence of Section 10 hereof shall not constitute a termination under this
Section 8.
9. Termination for Cause. The Company shall have the right at
any time to terminate Employee's employment immediately for cause, which shall
include any of the following reasons:
(a) If Employee shall violate the provisions of
Sections 3 or 4 of this Agreement, or shall fail to comply
with any other material term or condition of this Agreement or
shall engage in any material misconduct, neglect of duties or
failure to act which materially and adversely affects the
business or affairs of the Company; or
5
<PAGE> 6
(b) If Employee shall (i) be convicted of a felony or
(ii) commit an act of dishonesty, fraud or embezzlement
against the Company.
Employee's obligations under Sections 3 and 4 hereof shall survive the
termination of the Agreement pursuant to this Section 9. In the event Employee's
employment hereunder is terminated in accordance with this Section, the Company
shall have no further obligation to make any payments to Employee hereunder
except for unpaid salary, bonus or unreimbursed expenses that have accrued but
have not been paid as of the Termination Date.
10. Termination Without Cause. In the event Employee is
terminated without cause during the term hereof (which shall not include a
termination pursuant to Sections 7, 8, 9 or 11), the Company shall pay Employee
all bonuses and unreimbursed expenses owed to Employee that have accrued but
have not been paid as of the Termination Date. The Company shall (a) continue to
pay to Employee his salary set forth in Section 2(a) hereof for the longer of
(i) the remaining term of this Agreement or (ii) a period of 24 months, (b)
continue to provide the insurance and other benefits of Section 2(a) hereof for
the period the salary is paid, (c) cause all grants of outstanding options,
restricted stock, bonus stock and any other incentive stock award to become
fully vested, and (d) cause all deferred compensation, supplemental retirement
programs and similar programs to become fully funded. The Company's obligations
pursuant to this Section 10 shall terminate immediately if Employee obtains
employment which is in violation of Section 4 hereof, whether or not the
provisions of Section 4 are then applicable to Employee.
In the event the Company is merged or consolidated with or
into another company and the Company does not survive the transaction or
survives only as a subsidiary of another company, or in the event any person or
group (as such terms are defined in Section 13 (d) of the Securities Exchange
Act of 1934, as amended) becomes the holder of 50% or more of the outstanding
voting securities of the Company or has the power, directly or indirectly, to
designate a majority of the members of the Board of Directors of the Company,
then in any such event a termination of this Agreement by Employee for any
reason within the first two years after the consummation of any of the foregoing
transactions shall constitute a termination without cause by the Company and
Employee shall be entitled to the amounts provided for in this Section 10.
11. Disability of Employee. If, on account of physical or
mental disability, Employee shall fail or be unable to perform his assigned
duties in any material respect for a period of sixty (60) consecutive days, the
Company shall pay Employee his full salary as set forth in Section 2(a) hereof
and shall provide the insurance, bonus and other benefits of Section 2(a) for a
period of six months from the date such disability began or for such shorter
6
<PAGE> 7
period as Employee is unable to perform his duties hereunder; provided, however,
that Employee's salary shall be reduced by any disability income paid to him
pursuant to any disability insurance policy maintained under this Agreement. In
the event Employee is unable to perform his duties hereunder after the
expiration of the six-month period, this Agreement shall automatically
terminate. Employee shall not be required to perform his obligations under
Section 1 hereof during any period of disability. Furthermore, the Company's
obligations pursuant to this Section 11 shall continue regardless of whether
Employee seeks, accepts or undertakes other employment during the six-month
period unless such employment is in violation of Section 4 hereof, as determined
in good faith by the Board of Directors.
12. Assignment.
(a) The rights and benefits of Employee under this
Agreement, other than accrued and unpaid amounts due under
Section 2(a) hereof, are personal to him and shall not be
assignable. Discharge of Employee's undertakings in Sections 3
and 4 hereof shall be an obligation of Employee's executors,
administrators, or other legal representatives or heirs.
(b) This Agreement may not be assigned by the Company
except to an affiliate of the Company, provided, however, that
if the Company shall merge or effect a share exchange with or
into, or sell or otherwise transfer substantially all its
assets to, another corporation, the Company shall assign its
rights hereunder to that corporation and cause such
corporation to assume the Company's obligations under this
Agreement.
13. Notices. Any notice or other communications under this
Agreement shall be in writing, signed by the party making the same, and shall be
delivered personally or sent by certified or registered mail, postage prepaid,
addressed as follows:
If to Employee:
------------------------------
------------------------------
------------------------------
If to the Company: PhyCor, Inc.
Suite 400
30 Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: President
or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.
7
<PAGE> 8
14. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Tennessee.
15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any one or more of the provisions contained in this Agreement shall be
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability for any such provisions in every other respect and
of the remaining provisions of this Agreement shall not be in any way impaired.
16. Entire Agreement. This Agreement contains the entire
agreement of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, covenants, or undertakings, other
than those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter. This Agreement may not be changed except by a writing executed by the
parties.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement on the day and year first above written.
PHYCOR, INC.
Attest: By:
/s/ -------------------------------
- -------------------------- Title: Executive Vice President
Title: Secretary ------------------------
Witness: EMPLOYEE
- --------------------------
---------------------------------
8
<PAGE> 9
APPENDIX I
GENERAL BENEFITS
A. Insurance
The following insurance plans will be part of the benefit package:
* Life Insurance - benefits pursuant to programs adopted by
the Company's Compensation Committee from time to time
* General Medical and Dental Insurance - Employee and dependent,
basic and major medical indemnity plans, will be provided.
* Long Term Disability Coverage per individual policies
B. Such other benefits, such as supplemental retirement benefits, as may
be approved from time to time by the Company's Compensation Committee.
9
<PAGE> 1
EXHIBIT 10.6
U.S. $150,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF JULY 1, 1997
AMONG
PHYCOR, INC.
AS BORROWER,
THE BANKS NAMED HEREIN,
AS BANKS,
AND
CITIBANK, N.A.,
AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS...................................................................1
SECTION 1.01 Certain Defined Terms..................................................................1
SECTION 1.02 Computation of Time Periods...........................................................24
SECTION 1.03 Accounting Terms......................................................................24
ARTICLE II - AMOUNTS AND TERMS OF THE ADVANCES................................................................24
SECTION 2.01 The Committed Rate Advances...........................................................24
SECTION 2.02 The Competitive Bid Advances..........................................................26
SECTION 2.03 Fees..................................................................................29
SECTION 2.04 Optional Reduction of the Commitments.................................................30
SECTION 2.05 Repayment.............................................................................30
SECTION 2.06 Interest..............................................................................30
SECTION 2.07 Interest Rate Determination and Protection............................................31
SECTION 2.08 Voluntary and Automatic Conversion of Committed Rate Advances.........................32
SECTION 2.09 Prepayments...........................................................................32
SECTION 2.10 Increased Costs.......................................................................34
SECTION 2.11 Illegality............................................................................34
SECTION 2.12 Payments and Computations.............................................................35
SECTION 2.13 Taxes.................................................................................36
SECTION 2.14 Sharing of Payments, Etc..............................................................38
SECTION 2.15 Evidence of Debt/Register.............................................................38
SECTION 2.16 Use of Proceeds.......................................................................38
SECTION 2.17 Existing Credit Agreement B Advances; Existing Collateral.............................39
ARTICLE III - CONDITIONS OF LENDING...........................................................................39
SECTION 3.01 Conditions Precedent to Any Borrowing..................................................39
SECTION 3.02 Conditions Precedent to Initial Advances..............................................39
ARTICLE IV - REPRESENTATIONS AND WARRANTIES...................................................................41
SECTION 4.01 Representations and Warranties of the Borrower........................................41
ARTICLE V - COVENANTS OF THE BORROWER.........................................................................45
SECTION 5.01 Affirmative Covenants.................................................................45
SECTION 5.02 Negative Covenants....................................................................49
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5.03 Financial Covenants...................................................................58
SECTION 5.04 Reporting Requirements................................................................60
ARTICLE VI - EVENTS OF DEFAULT................................................................................62
SECTION 6.01 Events of Default.....................................................................62
ARTICLE VII - THE AGENT.......................................................................................66
SECTION 7.01 Authorization and Action..............................................................66
SECTION 7.02 Agent's Reliance, Etc.................................................................66
SECTION 7.03 Citibank and Affiliates...............................................................67
SECTION 7.04 Bank Credit Decision..................................................................67
SECTION 7.05 Indemnification.......................................................................67
SECTION 7.06 Successor Agent.......................................................................67
SECTION 7.07 Documentation Agent...................................................................68
ARTICLE VIII - MISCELLANEOUS..................................................................................68
SECTION 8.01 Amendments, Etc.......................................................................68
SECTION 8.02 Notices, Etc..........................................................................68
SECTION 8.03 No Waiver; Remedies...................................................................69
SECTION 8.04 Costs, Expenses and Taxes.............................................................69
SECTION 8.05 Right of Set-off......................................................................70
SECTION 8.06 Indemnification.......................................................................70
SECTION 8.07 Binding Effect........................................................................71
SECTION 8.08 Assignments and Participations........................................................71
SECTION 8.09 Headings..............................................................................74
SECTION 8.10 Confidentiality.......................................................................74
SECTION 8.11 Severability of Provisions............................................................74
SECTION 8.12 Independent of Provisions.............................................................74
SECTION 8.13 Consent to Jurisdiction...............................................................75
SECTION 8.14 GOVERNING LAW.........................................................................75
SECTION 8.15 WAIVER OF JURY TRIAL..................................................................75
SECTION 8.16 Execution in Counterparts.............................................................75
</TABLE>
ii
<PAGE> 4
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule I - Real Property
Schedule II - Subsidiaries
Schedule III - Service Agreements
Schedule IV - Existing Debt
Schedule V - Existing Liens
Schedule VI - Litigation
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A-1 - Form of Committed Rate Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit B-1 - Form of Notice of Borrowing
Exhibit B-2 - Form of Competitive Bid Request
Exhibit C - Form of Guaranty
Exhibit D - Form of Intercompany Subordination Agreement
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Subordination Agreement
Exhibit G - Forms of Opinion of Counsel
Exhibit H - Form of Acquisition Approval Letter
</TABLE>
iv
<PAGE> 6
Amended and Restated Credit Agreement, dated as of July 1, 1997 (this
"Agreement"), among PHYCOR, INC., a Tennessee corporation (the "Borrower"), the
banks (the "Banks") listed on the signature pages hereof and from time to time
parties hereto, and CITIBANK, N.A. ("Citibank"), as agent (the "Agent") for the
Banks.
PRELIMINARY STATEMENT:
The Borrower has requested that a portion of the Fifth Amended and
Restated Revolving Credit Agreement, dated as of July 22, 1996, as amended,
among the Borrower, the banks named therein, NationsBank, N.A., as documentation
agent, and Citibank, as agent (the "Existing Credit Agreement") be amended and
restated to provide for the making of advances to it under a revolving credit
facility in the principal amount of up to $150,000,000, on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
$250,000,000 Credit Agreement" means the Revolving
Credit Agreement, dated as of July 1, 1997, among the
Borrower, the banks named therein and Citibank as issuing bank
and as agent, providing for a revolving credit facility in the
principal amount of up to $250,000,000, as amended,
supplemented, restated or otherwise modified from time to
time.
"Accounts" means all present and future rights of the
Borrower or any Subsidiary of the Borrower to payment for
goods (including medications) sold or leased or for services
rendered pursuant to any Service Agreement (except those
evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising and whether
or not earned by performance (including, without limitation,
accounts receivable purchased by the Borrower or any of its
Subsidiaries from any physician group which has entered into a
Service Agreement with the Borrower or such Subsidiary).
"Administrative Details Reply Form" means, with
respect to each Bank, an administrative questionnaire in the
form prepared by the Agent, submitted by such Bank to the
Agent (with a copy to the Borrower) and duly completed by such
Bank.
<PAGE> 7
"Advance" means a Committed Rate Advance or a
Competitive Bid Advance. In the case of Committed Rate
Advances, "Advance" also refers to a Base Rate Advance or
Eurodollar Rate Advance (each of which shall be a "Type" of
Committed Rate Advance). In the case of Competitive Bid
Advances, "Advance" also refers to a Fixed Rate Advance or a
LIBOR Advance (each of which shall be a "Type" of Competitive
Bid Advance).
"Affiliate" means, with respect to any Person, any
other entity that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, such Person.
"Applicable Eurodollar Rate Margin" means for the
Initial Effective Period (as defined below) 0.4750% per annum
and thereafter 0.5625% per annum; provided, however, that if
the Borrower shall have satisfied the Consolidated Debt/EBITDA
Ratio test indicated in the table below, the Applicable
Eurodollar Rate Margin for any Advance, as applicable, made on
or after the fifth Business Day after the delivery of
quarterly certified Consolidated financial statements and a
schedule evidencing financial covenant compliance delivered to
the Banks pursuant to Section 5.04(b) (each a "Quarterly
Delivery"), and while the Borrower is in compliance with
Section 5.04(b), shall be the percentage rate per annum set
forth opposite the appropriate test for the fiscal quarter
reported on for such Quarterly Delivery for such Advance in
the table below.
<TABLE>
<CAPTION>
Applicable Eurodollar
Consolidated Rate Margin for
Debt/EBITDA Ratio Advances
------------------------------------------------- ---------------------
<S> <C>
Greater than 3.25 to 1.00 0.5625%
Less than or equal to 3.25 to 1.00 but greater 0.4750%
than 2.50 to 1.00
Less than or equal to 2.50 to 1.00 but greater 0.3750%
than 2.00 to 1.00
Less than or equal to 2.00 to 1.00 but greater 0.3175%
than 1.50 to 1.00
Less than or equal to 1.50 to 1.00 0.2750%
</TABLE>
The Applicable Eurodollar Rate Margin shall be determined by
the Agent each quarter on the basis of quarterly certified
Consolidated financial statements and a schedule evidencing
financial covenant compliance delivered to the Banks pursuant
to Section 5.04(b). The "Initial Effective Period" shall be
the period commencing on the Closing Date and ended the fifth
Business Day after the Quarterly Delivery for the fiscal
quarter ending June 30, 1997. Notwithstanding
2
<PAGE> 8
the foregoing, the Applicable Eurodollar Rate Margin shall be
deemed to be 0.5625% per annum made on any day as of which the
deliveries required to calculate the Applicable
Eurodollar Rate Margin shall not have been made.
"Applicable Facility Fee Rate" means for the Initial
Effective Period 0.1500% per annum and thereafter for each
Effective Period (as defined below) 0.1875% per annum;
provided, however, that if the Borrower shall have satisfied
the Consolidated Debt/EBITDA Ratio test indicated in the table
below, the Applicable Facility Fee Rate for the Effective
Period as to which such test is satisfied shall be the
percentage rate per annum set forth opposite the appropriate
test for the Commitment in the table below.
<TABLE>
<CAPTION>
Consolidated Applicable Facility Fee
Debt/EBITDA Ratio Rate for the Commitment
----------------------------------------------- -------------------------------
<S> <C>
Greater than 3.25 to 1.00 0.1875%
Less than or equal to 3.25 to 1.00 but greater 0.1500%
than 2.50 to 1.00
Less than or equal to 2.50 to 1.00 but greater 0.1250%
than 2.00 to 1.00
Less than or equal to 2.00 to 1.00 but greater 0.1200%
than 1.50 to 1.00
Less than or equal to 1.50 to 1.00 0.1000%
</TABLE>
The Applicable Facility Fee Rate shall be determined by the
Agent each quarter on the basis of quarterly certified
Consolidated financial statements and a schedule evidencing
financial covenant compliance delivered to the Banks pursuant
to Section 5.04(b). The "Effective Period" with respect to the
Applicable Facility Fee Rate shall be the period commencing on
the fifth Business Day after the Borrower shall have delivered
to the Agent the quarterly certified Consolidated financial
statements and financial covenant compliance schedule for such
quarter and ending on the date that is five Business Days
after delivery to the Agent of quarterly certified
Consolidated financial statements and financial covenant
compliance certificate for the subsequent quarter.
Notwithstanding the foregoing, the Applicable Facility Fee
Rate shall be deemed to be 0.1875% per annum for each day
during an Effective Period as of which the deliveries required
to calculate the Applicable Facility Fee Rate shall not have
been made.
"Applicable Lending Office" means, with respect to
each Bank, such Bank's Domestic Lending Office in the case of
a Base Rate Advance or a Fixed
3
<PAGE> 9
Rate Advance and such Bank's Eurodollar Lending Office in the
case of a Eurodollar Rate Advance or a LIBOR Advance.
"Asset Purchase Agreement" means any agreement
between the Borrower or any of its Subsidiaries and any Person
relating to the purchase by the Borrower or any of its
Subsidiaries of the assets of any Facility or Related
Business.
"Assignment and Acceptance" means an assignment and
acceptance entered into by an assigning Bank and an Eligible
Assignee, and accepted by the Agent, in accordance with
Section 8.08 and in substantially the form of Exhibit E.
"Banks" means the banks listed on the signature pages
hereof and, after the date hereof, includes each Eligible
Assignee that has entered into an Assignment and Acceptance
which has been accepted by the Agent.
"Base Rate" means, for any period, a fluctuating
interest rate per annum as shall be in effect from time to
time which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly
by Citibank in New York, New York, from time to time,
as Citibank's base rate; or
(b) 1/2 of one percent per annum above the
latest three-week moving average of secondary market
morning offering rates in the United States for
three-month certificates of deposit of major United
States money market banks, such three-week moving
average being determined weekly on each Monday (or,
if any such day is not a Business Day, on the next
succeeding Business Day) for the three-week period
ending on the previous Friday by Citibank on the
basis of such rates reported by certificate of
deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from
three New York certificate of deposit dealers of
recognized standing selected by Citibank in either
case adjusted to the nearest 1/16 of one percent or,
if there is no nearest 1/16 of one percent, to the
next higher 1/16 of one percent; or
(c) the Federal Funds Rate plus 1/2 of one
percent.
"Base Rate Advance" means a Committed Rate Advance
which bears interest as provided in Section 2.06(a)(i).
"Bid Due Date" has the meaning set forth in Section
2.02(c).
"Borrowing" means a Borrowing that is a Committed
Rate Borrowing or a Competitive Bid Borrowing.
4
<PAGE> 10
"Business Day" means a day of the year on which banks
are not required or authorized to close in New York City and,
if the applicable Business Day relates to any Eurodollar Rate
Advances or LIBOR Advances, on which dealings in dollar
deposits are carried on in the London interbank market.
"Capital Expenditures" means, with respect to any
Person for any period, the aggregate of all expenditures paid
or accrued by such Person during such period that, in
accordance with generally accepted accounting principles,
should be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in the
balance sheet of such Person.
"Capital Investments" means (without duplication),
with respect to any Person for any period, the aggregate of
all investments by such Person in (i) Capital Expenditures,
(ii) joint ventures, general or limited partnerships, limited
liability companies or any other type of Person that is not a
Subsidiary, including loans and advances to such Person
(including loans and advances to any physician group or other
third party related to a Facility or Related Business, or any
third party with whom such Person has entered into a Service
Agreement), (iii) capital investments in, and loans and
advances to, a Subsidiary which becomes a Subsidiary as a
result of such investment, (iv) the purchase of the homes of
employees of such Person in connection with the relocation of
such employees, and (v) Existing Clinic Acquisitions.
"Capital Lease" of any Person means any lease of any
property (whether real, personal or mixed) by such Person as
lessee, which lease should, in accordance with generally
accepted accounting principles, be required to be accounted
for as a capital lease on the balance sheet of such Person.
"CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. ss. 9601 et seq.), and any regulations promulgated
thereunder.
"Change of Control" means the occurrence, after the
date of this Agreement, of (i) any Person or two or more
Persons acting in concert acquiring beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
as amended), directly or indirectly, of securities of the
Borrower (or other securities convertible into such
securities) representing 50% or more of the combined voting
power of all securities of the Borrower entitled to vote in
the election of directors; or (ii) during any period of up to
24 consecutive months, commencing before or after the date of
this Agreement, individuals who at the beginning of such
24-month period were directors of the Borrower ceasing for any
reason to constitute a majority of the Board of Directors of
the Borrower unless the Persons replacing such individuals
were nominated by the Board of Directors of the Borrower; or
(iii) any Person or two or more Persons acting in concert
acquiring by contract or
5
<PAGE> 11
otherwise, or entering into a contract or arrangement which
upon consummation will result in its or their acquisition of,
or control over, securities of the Borrower (or other
securities convertible into such securities) representing 50%
or more of the combined voting power of all securities of the
Borrower entitled to vote in the election of directors.
"Closing Date" means the Business Day on which all of
the conditions set forth in Section 3.02 shall have been
fulfilled.
"Committed Rate Advance" means an Advance pursuant to
Section 2.01.
"Committed Rate Borrowing" means a Borrowing pursuant
to Section 2.01.
"Committed Rate Note" means a promissory note of the
Borrower payable to the order of a Bank, in substantially the
form of Exhibit A-1, evidencing the aggregate indebtedness of
the Borrower to such Bank resulting from the Committed Rate
Advances made by such Bank, and "Committed Rate Notes" means
such promissory notes collectively.
"Commitment" means, as to any Bank, the amount of
commitment to make Committed Rate Advances set forth opposite
such Bank's name on the signature pages hereof or, if such
Bank has entered into one or more Assignments and Acceptances,
the amount thereof set forth for such Bank in the Register
maintained by the Agent pursuant to Section 8.08(c), as such
amount may be reduced from time to time pursuant to Section
2.04.
"Commitment Percentage" means, as to any Bank, the
percentage equal to such Bank's Commitment divided by the
aggregate Commitments of all Banks.
"Common Stock" means Securities having ordinary
voting power for the election of directors that are not
entitled to any preference as to dividends or other
distributions or on liquidation.
"Competitive Bid" has the meaning set forth in
Section 2.02(c).
"Competitive Bid Advance" means an Advance made
pursuant to Section 2.02.
"Competitive Bid Reduction" has the meaning set forth
in Section 2.01(a).
"Compeititive Bid Borrowing" means a Borrowing
pursuant to Section 2.02.
"Competitive Bid Note" means a promissory note of the
Borrower payable to the order of a Designated Bidder, in
substantially the form of Exhibit A-2,
6
<PAGE> 12
evidencing the indebtedness of the Borrower to such Designated
Bidder resulting from Competitive Bid Advances made by such
Designated Bidder, and "Competitive Bid Notes" means such
promissory notes collectively.
"Competitive Bid Request" has the meaning set forth
in Section 2.02(b).
"Consolidated" and any derivative thereof each means,
with reference to the accounts or financial reports of any
Person, the consolidated accounts or financial reports of such
Person and each Subsidiary of such Person determined in
accordance with generally accepted accounting principles,
including principles of consolidation, consistent with those
applied in the preparation of the Borrower's December 31, 1996
Consolidated financial statements delivered to the Banks prior
to the date hereof.
"Contingent Obligation" of any Person means, without
duplication, (i) any direct or indirect liability, contingent
or otherwise, of such Person with respect to any obligation of
the type specified in clause (ii) or (iii) below or other
obligation of another Person, including, without limitation,
any obligation directly or indirectly guaranteed, endorsed
(other than for collection or deposit in the ordinary course
of business), co-made, discounted or sold with recourse by
such Person, or in respect of which such Person is otherwise
directly or indirectly liable (including, without limitation,
liable through any agreement to purchase, repurchase or
otherwise acquire such obligation or provide or purchase any
security therefor, or to provide funds for the payment or
discharge of such obligation, or to maintaining any financial
condition of the obligor of such obligation, or to make
payment for any products, materials or supplies or for any
transportation, services or lease (regardless of the
non-delivery or non-furnishing thereof), in any such case if
the purpose or intent of such agreement is to provide
assurance that such obligation will be paid or discharged, or
that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against
loss in respect thereof), (ii) obligations of such Person with
respect to undrawn letters of credit or unpaid bankers'
acceptances, bankers' assurances or guarantees or similar
items, and (iii) obligations of such Person with respect to
any interest rate protection, hedge, cap, collar or similar
agreement or any foreign exchange or forward sale agreement,
or any similar agreement.
"Convert", "Conversion" and "Converted" each refers
to a conversion of Advances of one Type into Advances of
another Type pursuant to Section 2.07 or 2.08.
"Current Liabilities" of any Person means, as of any
date of determination, (i) all Debt (excluding any Debt under
Operating Leases) which by its terms is payable on demand or
matures within one year from the date of creation (excluding
any Debt renewable or extendible, at the exclusive option of
the debtor, to a date more than one year from such date or
arising under a revolving
7
<PAGE> 13
credit or similar agreement that unconditionally obligates the
lender or lenders to extend credit in respect thereof during a
period of more than one year from such date), and (ii) all
other items (including taxes accrued as estimated) which in
accordance with generally accepted accounting principles
should be included as current liabilities of such Person, in
each case, including all amounts required to be paid or
prepaid with respect to any Debt of such Person within one
year from the date of determination.
"Debt" of any Person means, without duplication, (i)
all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (but
excluding, in the case of the acquisition of any Facility (or
the assets thereof), any Existing Clinic Acquisition or the
acquisition of a Related Business, any contingent obligation
to make payments (other than deferred purchase price payments)
after the closing of such acquisition), (ii) all obligations
of such Person in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any
Securities of such Person or any warrants, rights or options
to acquire such Securities, now or hereafter outstanding,
(iii) all obligations of such Person evidenced by bonds,
notes, debentures, convertible debentures or other similar
instruments, (iv) all indebtedness created or arising under
any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such
agreement in the event of default, acceleration, or
termination are limited to repossession or sale of such
property), (v) all obligations of such Person under Capital
Leases, (vi) the amount of all Contingent Obligations (other
than guarantees of medical group real property leases at
Facilities to the extent the amount thereof incurred in any
twelve - month period does not exceed $5,000,000 in the
aggregate), (vii) all Debt referred to in clause (i), (ii),
(iii), (iv), (v) or (vi) above secured by (or for which the
holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any lien, security interest or
other charge or encumbrance upon or in property (including,
without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become
liable for the payment of such Debt, (viii) all mandatorily
redeemable preferred stock, valued at the applicable
redemption price, plus accrued and unpaid dividends payable in
respect of such mandatorily redeemable preferred stock, (ix)
if an ERISA Event shall have occurred with respect to any
Plan, the Insufficiency (if any) of such Plan (or, in the case
of a Plan with respect to which an ERISA Event described in
clauses (iii) through (vi) of the definition of ERISA Event
shall have occurred, the liability related thereto), and (x)
net obligations under any interest rate, currency or other
protection, hedge, cap, collar, swap or similar agreement.
"Debt/EBITDA Ratio" of any Person means, at any date
of determination, the ratio that (a) such Person's total Debt
outstanding at such date of determination (including, without
limitation, all Subordinated Debt other than, in the case of
the Borrower and its Subsidiaries, the Excluded Convertible
Acquisition Debt), less
8
<PAGE> 14
the amount, if any, by which such Person's unrestricted cash
and cash equivalents exceeds $15,000,000 at such date of
determination, bears to (b) such Person's EBITDA.
"Debt/Total Capitalization Ratio" of any Person
means, at any date of determination, the ratio that such
Person's Funded Debt at such date of determination bears to
such Person's Total Capitalization.
"Deferred Acquisition Consideration" means, in the
case of the acquisition of any Facility (or the assets
thereof) or any Related Business, all deferred cash and
non-cash consideration to be paid by the Borrower or any of
its Subsidiaries after the closing of such acquisition;
provided that Deferred Acquisition Consideration shall not
include any contingent payments that may be made by the
Borrower or any of its Subsidiaries after such closing.
"Designated Bidder" means each Bank (or its nominee
so long as the beneficial interest in the Competitive Bid
Advances held by such nominee is retained by such Bank) unless
such Bank has elected, by notice in writing to the Agent, the
other Banks and the Borrower, not to be a potential bidder in
respect of Competitive Bid Advances. Any such election may be
terminated, at any time, by notice in writing to the Agent,
the other Banks and the Borrower.
"Documentation Agent" means NationsBank, N.A.
"Domestic Lending Office" means, with respect to any
Bank, the office of such Bank specified as its "Domestic
Lending Office" in its Administrative Details Reply Form or on
the signature page of the Assignment and Acceptance pursuant
to which it became a Bank, or such other office or Affiliate
of such Bank as such Bank may from time to time specify to the
Borrower and the Agent.
"EBITDA" means, with respect to any Person for any
fiscal period, the sum (without duplication) of (i) Net Income
(whether positive or negative), plus (ii) Interest Expense,
plus (iii) income tax expense, plus (iv) depreciation expense,
plus (v) amortization expense, plus (vi) extraordinary losses
(determined in accordance with GAAP), minus (vi) extraordinary
gains (determined in accordance with GAAP).
"EBITDAL" means, with respect to any Person for any
fiscal period, the sum (without duplication) of EBITDA plus
Lease Expense.
"Eligible Assignee" means (i) a commercial bank
organized under the laws of the United States, or any state
thereof, having a combined capital and surplus of at least
$100,000,000; (ii) a savings and loan association or savings
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; (iii) a commercial bank organized under
the laws of any other country which is a member of the OECD,
9
<PAGE> 15
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, agency
or Affiliate located in the United States or managed and
controlled by a branch, agency or affiliate located in the
United States; (iv) any Affiliate of any Bank if such
Affiliate has Total Assets in excess of $100,000,000; (v) any
insurance company organized under the laws of the United
States or any state thereof, and having Total Assets in excess
of $100,000,000 and any other commercial financial entity
having Total Assets in excess of $100,000,000; and (vi) any
other Person mutually agreed to in writing by the Borrower and
the Agent.
"Environmental Activity" means any past, present or
future storage, holding, existence, release, threatened
release, emission, discharge, generation, processing,
abatement, disposition, handling or transportation of any
Hazardous Substance (i) from, under, into or on any Facility,
or (ii) relating to any Facility, or the ownership, use,
operation or occupancy thereof, or any threat of such
activity.
"Environmental Laws" means any and all laws,
statutes, ordinances, rules, regulations, judgments, orders,
decrees, permits, licenses, or other governmental restrictions
or requirements relating to the environment, any Hazardous
Substance or any Environmental Activity in effect in any and
all jurisdictions in which the Borrower or any of its
Subsidiaries is or from time to time may be doing business, or
where any of the Facilities are from time to time located,
including, without limitation, CERCLA and RCRA.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person who for purposes
of Title IV of ERISA is a member of the Borrower's controlled
group, or under common control with the Borrower, within the
meaning of Section 414 of the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated
pursuant thereto and the rulings issued thereunder.
"ERISA Event" means (i) the occurrence of a
reportable event, within the meaning of Section 4043 of ERISA,
unless the 30-day notice requirement with respect thereto has
been waived by the PBGC; (ii) the provision by the
administrator of any Plan of a notice of intent to terminate
such Plan, pursuant to Section 4041(a)(2) of ERISA (including
any such notice with respect to a plan amendment referred to
in Section 4041(e) of ERISA); (iii) the cessation of
operations at a facility in the circumstances described in
Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower
or an ERISA Affiliate from a Multiple Employer Plan during a
plan year for which it was a substantial
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<PAGE> 16
employer, as defined in Section 4001(a)(2) of ERISA; (v) the
failure by the Borrower or any ERISA Affiliate to make a
material payment to a Plan required under Section 302(f)(1) of
ERISA; (vi) the adoption of an amendment to a Plan requiring
the provision of initial or additional security to such Plan,
pursuant to Section 307 of ERISA; or (vii) the institution by
the PBGC of proceedings to terminate a Plan, pursuant to
Section 4042 of ERISA, or the occurrence of any event or
condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee
to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned
to that term in Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to
any Bank, the office of such Bank specified as its "Eurodollar
Lending Office" in its Administrative Details Reply Form or on
the signature page of the Assignment and Acceptance pursuant
to which it became a Bank (or, if no such office is specified,
its Domestic Lending Office), or such other office of such
Bank as such Bank may from time to time specify to the
Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for
each Eurodollar Rate Advance or LIBOR Advance comprising part
of the same Borrowing, an interest rate per annum obtained by
dividing (i) the rate of interest determined by the Agent to
be equal to the average (rounded upward to the nearest whole
multiple of 1/16 of one percent per annum, if such average is
not such a multiple) of the rate per annum at which deposits
in United States dollars are offered by the principal office
of Citibank in London to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before
the first day of such Interest Period in an amount
substantially equal to the Advance comprising part of such
Borrowing and for a period equal to such Interest Period by
(ii) a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period. The Eurodollar
Rate for any Interest Period for each Eurodollar Rate Advance
or LIBOR Advance comprising part of the same Borrowing shall
be determined by the Agent on the basis of applicable rates
furnished to and received by the Agent from Citibank two
Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.07.
"Eurodollar Rate Advance" means a Committed Rate
Advance which bears interest as provided in Section
2.06(a)(ii).
"Eurodollar Rate Reserve Percentage" of any Bank for
any Interest Period for any Eurodollar Rate Advance or LIBOR
Advance means the reserve percentage applicable during such
Interest Period (or if more than one such percentage shall be
so
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<PAGE> 17
applicable, the daily average of such percentages for those
days in such Interest Period during which any such percentage
shall be so applicable) under regulations issued from time to
time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such
Bank with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities having a term equal to such
Interest Period.
"Event of Default" has the meaning specified in
Section 6.01.
"Excluded Convertible Acquisition Debt" means the
subordinated convertible notes issued by the Borrower or any
of its Subsidiaries as consideration for the acquisition of
Facilities that, at any date of determination, are convertible
into shares of the Borrower's common stock having a Market
Value, as of such date, equal to 140% of the conversion price
of such notes.
"Existing Clinic Acquisition" means the acquisition
of an additional Facility or single-specialty clinic, or the
assets thereof, by the Borrower or a Subsidiary of the
Borrower which already owns and operates one or more
Facilities, or the addition of physicians to such Facilities,
which acquisition or addition will supplement the operations
of the existing Facilities.
"Facility" means any multi-specialty medical clinic
(including any satellite locations and all real, personal and
mixed property relating to any such clinic) and related
businesses certain of the assets of which are now owned or
leased and operated or hereafter owned or leased and operated
by the Borrower or any existing or future Subsidiary of the
Borrower or, in the case of an acquisition, that such a
Subsidiary intends to acquire.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fixed Charge Coverage Ratio" of any Person means, at
any date of determination for any period, the ratio that such
Person's EBITDAL for such period, minus (i) Consolidated cash
income tax expense and minus (ii) Capital Expenditures other
than Capital Expenditures which are funded by Advances or
other Debt (to the extent such Debt is permitted under this
Agreement) or by Net Cash Proceeds received from the issuance,
sale or disposition of the Borrower's Securities (common,
preferred or special), securities convertible into or
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<PAGE> 18
exchangeable for Securities, and any rights, options, warrants
and similar instruments, bears to such Person's Interest
Expense for such period plus (i) Lease Expense, and plus (ii)
all scheduled Debt principal payments (including the principal
component of payments in respect of Capital Leases but
excluding payments of any deferred purchase price in
connection with the acquisition of any Facility (or the assets
thereof), any Existing Clinic Acquisition or the acquisition
of any Related Business and any contingent payments made in
connection with such acquisition) for such period.
"Fixed Rate" has the meaning set forth in Section
2.02(c).
"Fixed Rate Advance" means a Competitive Bid Advance
which bears interest as provided in Section 2.06(b).
"Funded Debt" of any Person means Debt (including,
without limitation, all Subordinated Debt other than, in the
case of the Borrower and its Subsidiaries, the Excluded
Convertible Acquisition Debt) which matures more than one year
from the date of determination or matures within one year from
such date but is renewable or extendible, at the option of
such Person, to a date more than one year from such date or
arises under a revolving credit or similar agreement which
obligates the lender or lenders to extend credit during a
period of more than one year from such date, including,
without limitation, all amounts of Funded Debt required to be
paid or prepaid within one year from the date of
determination.
"Guarantors" means the Subsidiaries listed on
Schedule II hereto and each other Subsidiary that from time to
time may enter into a Guaranty pursuant hereto; provided that
Immaterial Subsidiaries shall not be required to be
Guarantors; provided further that Arnett Health Systems, Inc.
and its Subsidiaries as of the date hereof (the "Arnett
Subsidiaries") shall not be Guarantors so long as less than
3.0% of the EBITDA of the Borrower and its Subsidiaries
(calculated on a rolling four quarter basis) is attributable
to their interests in the Arnett Subsidiaries.
"Guaranty" means a guaranty of payment in favor of
the Agent, in substantially the form of Exhibit C, as amended,
supplemented, restated or otherwise modified from time to
time.
"Hazardous Substance" means (i) any hazardous
substance and toxic substance as such terms are presently
deemed or used in ss. 101(14) of CERCLA (42 U.S.C. ss.
9601(14)), in 33 U.S.C. ss. 1251 et seq. (Clean Water Act), or
15 U.S.C. ss. 2601 et seq. (Toxic Substances Control Act),
(ii) any additional substances or materials which are now or
hereafter hazardous or toxic substances under any applicable
laws, and (iii) as of any date of determination, any
additional substances or materials which are hereafter
incorporated in or added to the definition or use of
"hazardous substance" or "toxic substance" for purposes of
CERCLA or any other applicable law.
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<PAGE> 19
"Immaterial Subsidiary" means a Subsidiary of the
Borrower that, on a Consolidated basis with its Subsidiaries,
as of the end of each fiscal quarter, does not account for 1%
or more of the Consolidated Total Assets of the Borrower or 1%
or more of the Consolidated total revenues of the Borrower, as
determined in accordance with generally accepted accounting
principles; provided that if as of the end of any fiscal
quarter the Immaterial Subsidiaries shall account, in the
aggregate, for 5% or more of the Consolidated Total Assets of
the Borrower or 5% or more of the Consolidated total revenues
of the Borrower as so determined, the Borrower shall promptly,
by written notice to the Agent, designate one or more of such
Subsidiaries not to be Immaterial Subsidiaries so that the
Immaterial Subsidiaries do not account for 5% or more of such
Consolidated Total Assets or such Consolidated total revenues,
and the Subsidiaries so designated shall thereupon cease to be
Immaterial Subsidiaries.
"Indemnitee" or "Indemnitees" has the meaning set
forth in Section 8.06.
"Insufficiency" means, with respect to any Plan, the
amount, if any, of its unfunded benefit liabilities, as
defined in Section 4001(a)(18) of ERISA.
"Intercompany Creditor" means PhyCor of Nashville,
Inc., a Tennessee corporation and wholly owned Subsidiary of
the Borrower.
"Intercompany Debt" means any and all indebtedness
from time to time owed (i) to the Borrower by any of its
Subsidiaries, (ii) to the Intercompany Creditor by any other
Subsidiary of the Borrower, or (iii) to any Subsidiary of the
Borrower by the Borrower, including any investments by the
Borrower in any of its Subsidiaries to the extent such
investments are made in the form of loans or advances by the
Borrower to such Subsidiary. All Intercompany Debt shall be
payable on demand.
"Intercompany Subordination Agreement" means an
intercompany subordination agreement in substantially the form
of Exhibit D among the Borrower and each of its Subsidiaries
other than, subject to Section 5.01(j), Immaterial
Subsidiaries, as the same may be amended, supplemented or
otherwise modified from time to time.
"Interest Expense" of any Person means the aggregate
amount of interest paid, accrued or scheduled to be paid or
accrued in respect of any Debt (including the interest portion
of rentals under Capital Leases, but excluding, in the case of
the Borrower and its Subsidiaries, any interest paid, accrued
or scheduled to be paid or accrued in respect of the Excluded
Convertible Acquisition Debt to the extent, and only to the
extent, that such interest is offset by a corresponding
increase in fees payable to the Borrower or its Subsidiary
pursuant to the Service Agreement relating to such
acquisition) and all but the principal component of payments
in respect of conditional sales, equipment trust or other
title retention
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<PAGE> 20
agreements paid, accrued or scheduled to be paid or accrued by
such Person, in each case determined in accordance with
generally accepted accounting principles.
"Interest Period" means, for each Eurodollar Rate
Advance or LIBOR Advance, as the case may be, comprising part
of the same Borrowing, the period commencing on the date of
such Advance or, in the case of a Eurodollar Rate Advance, the
date of the Conversion of any Advance into such Type of
Advance and ending on the last day of the period selected by
the Borrower pursuant to the provisions below and, thereafter,
in the case of a Eurodollar Rate Advance, each subsequent
period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three
or six months in the case of a Eurodollar Rate Advance or a
LIBOR Advance; provided, however, that:
(i) the Borrower may not select any Interest Period
which ends after the Revolver Termination Date;
(ii) Interest Periods commencing on the same date for
Advances comprising part of the same Committed Rate Borrowing
shall be of the same duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day; provided, in the case of any
Interest Period for a Eurodollar Rate Advance or LIBOR
Advance, that if such extension would cause the last day of
such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the
next preceding Business Day; and
(iv) the Borrower may not have more than eight
Eurodollar Rate Borrowings outstanding on any given date.
"Investment Grade" means a rating of Debt of at least
BBB by Standard & Poor's Ratings Group or Baa2 by Moody's
Investors Service, Inc.
"Lease" means any lease, rental contract, occupancy
agreement, license or other arrangement pursuant to which any
Person occupies or has the right to occupy all or any part of
the Real Property.
"Lease Expense" of any Person means all payments made
by such Person under Operating Leases. For the purpose of
calculating the Fixed Charge Coverage Ratio of the Borrower
and its Subsidiaries, Lease Expense shall refer to all
payments made by (i) PhyCor Vero Beach pursuant to that
certain Lease entered into by and between PhyCor Vero Beach
and Healthcare Realty Trust, and
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<PAGE> 21
(ii) the Borrower or any of its Subsidiaries in connection
with any other Lease entered into in the future by such Person
which is not cancelable upon termination of the related
Service Agreement or for which the payments thereunder are not
fully reimbursable to the Borrower or such Subsidiary pursuant
to the related Service Agreement.
"LIBOR Advance" means a Competitive Bid Advance which
bears interest as provided in Section 2.06(b).
"LIBOR Margin" has the meaning set forth in Section
2.02(c).
"Lien" means any assignment, chattel mortgage, pledge
or other security interest or any mortgage, deed of trust or
other lien, or other charge or encumbrance, upon property or
rights (including after-acquired property or rights), or any
preferential arrangement with respect to property or rights
(including after-acquired property or rights) which has the
practical effect of constituting a security interest or lien.
"Loan Documents" means this Agreement, the Notes, the
Guaranty, the Subordination Agreements, the Intercompany
Subordination Agreement and all other documents delivered by
the Loan Parties in connection with this Agreement, in each
case as amended, supplemented, restated or otherwise modified
from time to time.
"Loan Party" means, individually, the Borrower and
each Guarantor; and "Loan Parties" means the Borrower and the
Guarantors, collectively.
"Majority Banks" means, at any time, Banks holding at
least 66-2/3% of the then aggregate unpaid principal amount of
the Committed Rate Advances owing to the Banks, or, if no such
principal amount is then outstanding, having at least 66-2/3%
of the Commitments.
"Market Value" means, with respect to any publicly
traded Security at any date of determination, the amount equal
to the average closing price for such Security during the 15
trading days immediately preceding the date of determination.
The closing price of a publicly traded security on each day
shall be the closing price on such day as reported on any
stock exchange, the National Market System of the National
Association of Securities Dealers' Automated Quotation System,
or an established securities quotation service, as the case
may be.
"Merger Agreement" means any agreement between the
Borrower or any of its Subsidiaries and any Person relating to
the purchase by and merger into the Borrower or any of its
Subsidiaries of any Facility (or the assets thereof) or any
Related Business.
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<PAGE> 22
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which the Borrower
or any ERISA Affiliate is making or accruing an obligation to
make contributions, or has within any of the preceding five
plan years made or accrued an obligation to make
contributions, such plan being maintained pursuant to one or
more collective bargaining agreements.
"Multiple Employer Plan" means a single employer
plan, as defined in Section 4001(a)(15) of ERISA, which (i) is
maintained for employees of the Borrower or an ERlSA Affiliate
and at least one Person other than the Borrower and its ERISA
Affiliates or (ii) was so maintained and in respect of which
the Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been
or were to be terminated.
"NAMM" means North American Medical Management, Inc.,
a Tennessee corporation.
"Net Cash Proceeds" means, as to any sale, lease or
other disposition of any Facility (or the assets thereof) or
any Related Business, or of the assets of the Borrower and its
Subsidiaries, by the Borrower or any Subsidiary of the
Borrower to any Person other than the Borrower or any
Subsidiary of the Borrower, or the sale or issuance of any
Securities, any securities convertible into or exchangeable
for Securities, or any warrants, rights or options to acquire
Securities of the Borrower or any of its Subsidiaries to any
Person other than the Borrower or any Subsidiary of the
Borrower (other than such sale or issuance pursuant to the
Borrower's employee stock purchase plans or employee and
director stock option plans and other than the issuance of
Securities as consideration for the acquisition of any
Facility (or the assets thereof), any Existing Clinic
Acquisition or the acquisition of any Related Business to the
extent such acquisition satisfies the applicable requirements
of Section 5.02(f)(i) or (ii)), or the issuance of any
Subordinated Debt, whether convertible into or exchangeable
for Securities (other than in the case of the Borrower and its
Subsidiaries, the subordinated convertible notes issued by the
Borrower or any of its Subsidiaries as consideration for the
acquisition of Facilities (or the assets thereof), Existing
Clinic Acquisitions or the acquisition of Related Businesses),
an amount equal to (i) the cash and other consideration paid
by such Person (but not including (i) any Debt of the Borrower
or its Subsidiaries assumed by such Person in connection with
such sale, lease or other disposition or (ii) any Debt of the
Borrower or its Subsidiaries owed to such Person which is
offset against the Total Consideration of such Facility or
Related Business), minus (ii) the sum of (A) in the case of a
Facility, the unpaid principal balance on the date of such
sale or other disposition of any Debt secured by a Lien on
such Facility that may be accelerated as a result of such sale
or secured by Liens not prohibited by the terms of this
Agreement and affecting only such Facility, in each case which
is required to be repaid, and is actually repaid, by the
Borrower or any of its existing or future Subsidiaries on the
date of such sale or
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<PAGE> 23
other disposition, (B) any tax paid or payable by the Borrower
or any of its existing or future Subsidiaries in connection
with or as a consequence of such sale or other disposition
(excluding any such tax for which the Borrower or any of its
existing or future Subsidiaries seller is reimbursed by such
Person to the extent not otherwise included in the
determination of Net Cash Proceeds), (C) the amount of any
reserve (other than in respect of inventory) required to be
retained in connection with such sale or other disposition
under generally accepted accounting principles (excluding any
reserve in respect of any amounts not payable within 180
days), provided, however, that the unused amount of such
reserve at the termination of such reserve in accordance with
generally accepted accounting principles shall be deemed Net
Cash Proceeds in the amount of such unused amount, and (D)
reasonable out-of-pocket costs of such sale or other
disposition incurred by the Borrower or any of its existing or
future Subsidiaries to third parties directly in connection
therewith, including, without limitation, sales commissions,
escrow fees, legal fees, title insurance premiums and similar
expenses.
"Net Income" of any Person, for any period, means the
net income of such Person for such period, determined in
accordance with generally accepted accounting principles,
excluding:
(i) the proceeds of any life insurance policy;
(ii) any earnings (or losses), prior to the date of
acquisition, of any other Person acquired in any manner;
(iii) in the case of a successor to such Person by
consolidation or merger or a transferee of its assets, any
earnings (or losses) of the successor or transferee
corporation prior to the consolidation, merger or transfer of
assets; and
(iv) any deferred credit (or debit) (or amortization
of a deferred credit) arising from the acquisition of any
Person.
"Net Worth" of any Person, as of any date of
determination, means the excess of such Person's Total Assets
over Total Liabilities.
"Note" means a Committed Rate Note or a Competitive
Bid Note, and "Notes" means such promissory notes
collectively.
"Notice of Borrowing" means a written notice, in
substantially the form of Exhibit B-1 hereto, delivered in
accordance with, and within the periods specified in, Section
2.01(b).
"OECD" means the Organization for Economic
Cooperation and Development or any successor.
18
<PAGE> 24
"Operating Lease" means any lease of real, personal
or mixed property which is not a Capital Lease.
"Other Taxes" has the meaning set forth in Section
2.13(b).
"PBGC" means the Pension Benefit Guaranty Corporation
or any successor.
"Permitted Lien" means:
(i) Any Liens (other than Liens securing Debt,
taxes, assessments or governmental charges or levies,
obligations under ERISA or the Environmental Laws, or other
obligations) affecting any of the Real Property which do not
materially adversely affect the use of such Real Property;
(ii) Liens for taxes, assessments or governmental
charges or levies to the extent not past due or to the extent
contested, in good faith, by appropriate proceedings and for
which adequate reserves have been established;
(iii) Liens imposed by law, such as materialman's,
mechanic's, carrier's, workman's, and repairman's Liens and
other similar Liens arising in the ordinary course of business
which relate to obligations which are not overdue for a period
of more than 30 days or which are being contested in good
faith, by appropriate proceedings and for which adequate
reserves have been established;
(iv) pledges or deposits in the ordinary course of
business to secure nondelinquent obligations under workman's
compensation or unemployment laws or similar legislation or to
secure the performance of leases or contracts entered into in
the ordinary course of business or of public or nondelinquent
statutory obligations, bids, or appeal bonds;
(v) Liens upon or in any property acquired or held
by the Borrower or any of its Subsidiaries (other than the
Intercompany Creditor) to secure the purchase price or
construction costs (and, to the extent financed, sales and
excise taxes, delivery and installation costs and other
related expenses) of such property or to secure indebtedness
incurred solely for the purpose of financing or refinancing
the acquisition or construction of any such property to be
subject to such Liens, or Liens existing on any such property
at the time of acquisition, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser
amount, provided that such Lien is established within thirty
days of the acquisition of said property or expenditure of
said construction costs, and provided, further, that no such
Lien shall extend to or cover any property other than the
property being acquired and no such extension, renewal or
replacement shall extend to or cover any property not
theretofore subject to the Lien being extended, renewed or
replaced, and provided, further, that the incurrence of any
19
<PAGE> 25
Debt secured by the Liens permitted by this clause (v) shall
not exceed the amount then allowed under any of the covenants
set forth in Section 5.03;
(vi) zoning restrictions, easements, licenses,
landlord's liens or restrictions on the use of real property
owned or leased by the Borrower or any of its Subsidiaries,
which do not materially impair the use of such property in the
operation of the business of the Borrower or any of its
Subsidiaries or the value of such property for the purpose of
such business;
(vii) Liens on the property or assets of any
Subsidiary in favor of the Borrower or a Subsidiary, provided
that the holder and grantor of such Lien have each entered
into the Intercompany Subordination Agreement;
(viii) Liens listed on Schedule V; and
(ix) Liens not described in subclauses (i) through
(viii) above that relate to liabilities which are not in
excess of $10,000,000 in the aggregate.
"Person" means a individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or
a government or any political subdivision or agency or
instrumentality thereof.
"Plan" means a Single Employer Plan or a Multiple
Employer Plan.
"Process Agent" has the meaning set forth in Section
8.13(a).
"RCRA" means the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. ss. 6901 et seq.), and any
regulations promulgated thereunder.
"Real Property" means the real property of the
Borrower and its Subsidiaries located in the United States
described in Schedule I hereto, consisting of real property or
any interest in real property, including a leasehold interest
or an option to purchase, and all buildings, structures and
improvements now or hereafter located on all or any portion of
said real property, provided, that, notwithstanding the
foregoing, only leasehold interests of the Borrower and its
Subsidiaries which relate to the main clinic of any Facility
or for which the Borrower or any of its Subsidiaries incurs
Lease Expense equal to or in excess of $100,000 per year shall
be described in Schedule I.
"Register" has the meaning specified in Section
8.08(c).
"Related Business" means (i) a business that
principally operates (A) one or more independent practice
associations (each an "IPA") providing general organizational
structure and management to physician networks and related
management companies providing information and operating
systems, actuarial
20
<PAGE> 26
and financial analysis, medical management and provider
contract services to the IPAs or (B) one or more management
service organizations (each a "MSO") providing IPAs with
practice management services, including billing, staffing and
financial management services, or (ii) a business (other than
a single-specialty clinic, or the assets thereof) related to
the operation of a Facility, IPA or MSO, the acquisition or
operation of which would not result in a material change in
the nature of the Borrower's business as of the date hereof. A
Related Business shall also include all real, personal and
mixed property relating thereto.
"Restricted Payment" of any Person, means any
dividend payment or other distribution of assets, properties,
cash, rights, obligations or securities on account of any
shares of any class of Securities of such Person, or any
purchase, redemption or other acquisition for value of any
shares of any class of Securities of such Person, or any
warrants, rights or options to acquire any such Securities,
now or hereafter outstanding; provided, however, that (i) any
dividend payment or other distribution payable in common stock
of such Person and (ii) any purchase, redemption or other
acquisition of shares of such Person's Securities or warrants,
rights or options to acquire any such Securities with the
proceeds received from the substantially concurrent issue of
new shares of such Person's Securities shall not be considered
a Restricted Payment.
"Revolver Termination Date" means June 29, 1998, or
the earlier date of termination in whole of the Commitments
pursuant to Section 2.04 or 6.01.
"Securities" means shares of capital stock of a
corporation (or similar property right in the case of
partnerships, limited liability companies and trusts).
"Senior Debt" means all Debt outstanding pursuant to
this Agreement and any other Debt of the Borrower and its
Subsidiaries not expressly subordinated on terms satisfactory
to the Majority Banks to the Debt outstanding under this
Agreement.
"Senior Debt/EBITDA Ratio" of any Person means, at
any date of determination, the ratio that (i) such Person's
total Senior Debt outstanding at such date of determination,
less the amount, if any, by which such Person's unrestricted
cash or cash equivalents exceed $15,000,000 at such date of
determination, bears to (ii) such Person's EBITDA.
"Service Agreement" means any of (i) the Service
Agreements listed on Schedule III and (ii) any similar
agreement entered into by the Borrower or any existing or
future Subsidiary of the Borrower or related professional
association or corporation after the Closing Date, in each
case as any of such agreements may from time to time be
amended, restated, supplemented or otherwise modified.
"Single-Employer Plan" means a single-employer plan,
as defined in Section 4001(a)(15) of ERISA, which (i) is
maintained for employees of the
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Borrower or an ERISA Affiliate and no Person other than the
Borrower and its ERISA Affiliates or (ii) was so maintained
and in respect of which the Borrower or an ERISA Affiliate
could have liability under Section 4069 of ERISA in the event
such plan has been or were to be terminated.
"Solvent" means, with respect to any Person, that as
of any date of determination, (i) the then fair saleable value
of the assets of such Person is (a) greater than the then
total amount of liabilities (including contingent,
subordinated, matured and unliquidated liabilities) of such
Person and (b) greater than the amount that will be required
to pay such Person's probable liability on such Person's then
existing debts as they become absolute and matured, (ii) such
Person's capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction, and
(iii) such Person does not intend to incur, or believe or
reasonably should believe that it will incur, debts beyond its
ability to pay such debts as they become due.
"Stock Purchase Agreement" means any agreement
between the Borrower or any of its Subsidiaries and any Person
that operates a Facility or a Related Business relating to the
purchase by the Borrower or any of its Subsidiaries of all of
the Securities of such Person.
"Subordinated Debt" means any Debt of the Borrower
that is subordinated to the Debt of the Borrower under this
Agreement and the Notes on, and that otherwise contains, terms
and conditions satisfactory to the Majority Banks.
"Subordination Agreement" means a duly executed
subordination agreement in substantially the form of Exhibit
F, as amended, supplemented or otherwise modified from time to
time.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, trust or
other Person of which more than 50% of the outstanding
Securities having ordinary voting power to elect a majority of
the board of directors of such corporation (or similar
governing body or Person with respect to partnerships, limited
liability companies and trusts) (irrespective of whether or
not at the time Securities of any other class or classes of
such Person shall or might have voting power upon the
occurrence of any contingency) is at the time directly or
indirectly owned by such Person, or one or more other
Subsidiaries of such Person, or by one or more other
Subsidiaries of such Person.
"Tangible Net Assets" of any Person, as at any date
of determination, means (without duplication) such Person's
cash, net Accounts, inventory, equipment, fixtures, real
property and the refundable portion of any prepaid expense
which, in accordance with generally accepted accounting
principles, are treated as tangible assets of such Person, in
each case (to the extent applicable),
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<PAGE> 28
less the sum of (i) Current Liabilities, (ii) cash held in a
sinking or other analogous fund established for the purpose of
redemption, retirement or prepayment of Securities or Debt,
and (iii) any write-up in the book value of such asset
resulting from a revaluation (but not a valuation of an asset
in connection with an acquisition subject to purchase
accounting treatment under generally accepted accounting
principles; provided that such valuation is accomplished in
accordance with such principles).
"Taxes" has the meaning set forth in Section 2.13(a).
"Total Assets" of any Person, as of the date of
determination, means all property, whether real, personal,
tangible, intangible or otherwise, which, in accordance with
generally accepted accounting principles, should be included
in determining total assets as shown on the assets portion of
a balance sheet of such Person.
"Total Capitalization" of any Person, as of the date
of determination, means the sum of such Person's Funded Debt
plus Net Worth.
"Total Consideration" means, with respect to the
acquisition of any Facility (or the assets thereof) or Related
Business, whether or not such acquisition is accomplished by
Securities purchase or asset purchase or by merger, the sum of
(i) all cash and non-cash consideration (including, without
limitation, assumed liabilities and equity consideration) paid
by the Borrower or any of its Subsidiaries at the closing of
such transaction, and (ii) all Deferred Acquisition
Consideration; provided that Total Consideration shall not
include any contingent payments that may be made by the
Borrower or any of its Subsidiaries after such closing.
"Total Liabilities" of any Person, as of the date of
determination, means all obligations, including, without
limitation, all Debt of such Person, which, in accordance with
generally accepted accounting principles, should be included
in determining total liabilities as shown on the liabilities
portion of a balance sheet of such Person, including all
Subordinated Debt other than, in the case of the Borrower and
its Subsidiaries, the Excluded Convertible Acquisition Debt.
"Unused Commitment" means, with respect to any Bank
at any time, (a) such Bank's Commitment at such time (as such
Commitment may be reduced pursuant to Section 2.04 or on
account of an Assignment and Acceptance entered into by such
Bank) minus (b) the aggregate principal amount of all
Committed Rate Advances made by such Bank outstanding at such
time.
"Welfare Plan" means a welfare plan, as defined in
Section 3(1) of ERISA, which section covers plans, funds and
programs providing (among other things) medical, surgical, or
hospital care or benefits, or benefits in the event of
sickness, accident, disability, death or unemployment,
together with plans which provide
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workmen's compensation, unemployment compensation or
disability insurance benefits.
"Withdrawal Liability" has the meaning given such
term under Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated, the word "from" or "commencing" means "from and
including" and the word "to" or "until" means "to but excluding."
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with United States generally
accepted accounting principles consistent with those applied in the preparation
of the Borrower's December 31, 1996 Consolidated financial statements delivered
to the Banks prior to the date hereof.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Committed Rate Advances.
(a) Each Bank severally agrees, on the terms and conditions hereinafter
set forth, to make Committed Rate Advances to the Borrower from time to time on
any Business Day during the period from the Closing Date until the Revolver
Termination Date, in an amount for each such Advance not to exceed such Bank's
Unused Commitment on such Business Day; provided, however, that such Bank shall
not be obligated to make such Committed Rate Advance if, after giving effect to
such Committed Rate Advance and the other Committed Rate Advances to be made by
the other Banks as part of the same Borrowing, the then outstanding aggregate
principal amount of all Committed Rate Advances shall exceed the aggregate
Commitments of the Banks less the then outstanding aggregate principal amount of
all Competitive Bid Advances; provided further that, for the purposes of this
Section 2.01(a), such Bank's Unused Commitment shall be deemed to be reduced on
such Business Day by an amount equal to the product of (i) the then outstanding
principal amount of all Competitive Bid Advances and (ii) such Bank's Commitment
Percentage (the "Competitive Bid Reduction"). Each Committed Rate Borrowing
shall be in an aggregate amount of $3,000,000 or an integral multiple of
$1,000,000 in excess thereof, and shall consist of Advances made on the same day
by the Banks ratably according to their respective Commitments. Within the
limits of each Bank's Unused Commitment (as deemed reduced by the Competitive
Bid Reduction) in effect from time to time, the Borrower may borrow under this
Section 2.01(a), prepay pursuant to Section 2.09 and reborrow under this Section
2.01(a); provided that the Borrower may not borrow or reborrow under this
Section 2.01(a) while there are any Unused Commitments (as defined in the
$250,000,000 Credit Agreement) other than in respect of the then existing Letter
of Credit Liability (as defined in the $250,000,000 Credit Agreement).
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<PAGE> 30
(b) Each Committed Rate Borrowing shall be made on notice, given not
later than 11:00 A.M. (New York City time) (i) on the second Business Day prior
to the date of the proposed Borrowing, in the case of Eurodollar Rate Advances,
and (ii) on the date of the proposed Borrowing, in the case of Base Rate
Advances, by the Borrower to the Agent, which shall give each Bank prompt notice
thereof by telecopier, telex or cable. Each such notice of a Borrowing (a
"Notice of Borrowing") shall be by telecopier, telex or cable, confirmed
immediately in writing, in substantially the form of Exhibit B-1 hereto,
specifying therein (i) the requested date of such Borrowing, (ii) the requested
Type of Advances comprising such Borrowing, (iii) the requested aggregate amount
of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar
Rate Advances, the requested initial Interest Period for each such Advance. Each
Bank shall, before 12:00 noon (New York City time) on the date of such
Borrowing, make available for the account of its Applicable Lending Office to
the Agent at its address referred to in Section 8.02, in same day funds, such
Bank's ratable portion of such Borrowing. After the Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Agent will make such funds available to the Borrower at the Agent's
aforesaid address. Anything in this subsection (b) above to the contrary
notwithstanding, (A) the Borrower may not select Eurodollar Rate Advances for
any Committed Rate Borrowing if the obligation of the Banks to make Eurodollar
Rate Advances shall then be suspended pursuant to Section 2.11 and (B) no more
than eight Committed Rate Borrowings consisting of Eurodollar Rate Advances may
be outstanding at any one time.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Committed Rate Borrowing which the related Notice
of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrower shall indemnify each Bank against any loss (including loss of
anticipated profits), cost or expense incurred by such Bank as a result of any
failure to fulfill on or before the date specified in such Notice of Borrowing
for such Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such Bank
to fund the Advance to be made by such Bank as part of such Borrowing when such
Advance, as a result of such failure, is not made on such date.
(d) Unless the Agent shall have received notice from a Bank prior to
the date of any Committed Rate Borrowing that such Bank will not make available
to the Agent such Bank's ratable portion of such Borrowing, the Agent may assume
that such Bank has made such portion available to the Agent on the date of such
Borrowing in accordance with subsection (b) above and the Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such ratable portion available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Advances comprising such Borrowing and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's Advance as part of
such Borrowing for purposes of this Agreement. To
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<PAGE> 31
the extent that any Bank makes a payment of principal or interest to the Agent
pursuant to this subsection (d), the Borrower shall not be obligated to make
such payment.
(e) The failure of any Bank to make the Advance to be made by it as
part of any Committed Rate Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Bank shall be responsible for the failure of any other Bank to make the
Advance to be made by such other Bank on the date of any Committed Rate
Borrowing.
SECTION 2.02. The Competitive Bid Advances.
(a) Each Designated Bidder severally agrees, on the terms and
conditions hereinafter set forth, that the Borrower may avail itself of
Competitive Bid Advances from time to time on any Business Day during the period
from the Closing Date until 30 days prior to the Revolver Termination Date, in
the manner set forth in this Section 2.02; provided that the aggregate principal
amount of Competitive Bid Advances made on any Business Day may not exceed the
aggregate Unused Commitments of the Banks on such Business Day and the then
outstanding principal amount of any other Competitive Bid Advances; provided
further that Competitive Bid Advances may not be made while there are any Unused
Commitments (as defined in the $250,000,000 Credit Agreement) other than in
respect of the then existing Letter of Credit Liability (as defined in the
$250,000,000 Credit Agreement).
(b) The Borrower may request a Competitive Bid Borrowing by delivering
to the Agent, by telecopier, telex or cable, confirmed immediately in writing, a
request, in substantially the form of Exhibit B-2 (a "Competitive Bid Request"),
specifying therein (i) whether Fixed Rate Advances or LIBOR Advances are being
requested, (ii) the date (which shall be a Business Day) and aggregate amount of
the proposed Competitive Bid Borrowing, (iii) the maturity date for repayment of
the Competitive Bid Advances to be made as part of such Borrowing (which
maturity date shall be a date occurring (A) not less than seven days after the
date of such Borrowing in the case of a request for Fixed Rate Advances or 30
days after the date of such Borrowing in the case of a request for LIBOR
Advances, but (B) not later than the Revolver Termination Date), (iv) the
interest payment date or dates relating thereto, in the case of a request for
Fixed Rate Advances, and the applicable Interest Period, in the case of a
request for LIBOR Advances, and (v) any other terms to be applicable to such
Borrowing, not later than 11:00 A.M. (New York City time) at least (A) one
Business Day, in the case of a request for Fixed Rate Advances, or (B) four
Business Days, in the case of a request for LIBOR Advances, prior to the date of
the proposed Competitive Bid Borrowing. The Agent shall in turn promptly notify
each Designated Bidder of each request for such Competitive Bid Borrowing
received by it by sending such Designated Bidder a copy of the related
Competitive Bid Request.
(c) Each Designated Bidder may, if, in its sole discretion, it elects
to do so, irrevocably offer to make one or more Competitive Bid Advances to the
Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates
of interest specified by such Designated Bidder in its sole discretion. Any such
offer (a "Competitive Bid") may be made by notifying the Agent (i) before 10:00
A.M. (New York City time) on the date of such proposed Competitive
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<PAGE> 32
Bid Borrowing, in the case of a request for Fixed Rate Advances, and (ii) before
10:00 A.M. (New York City time) on the third Business Day before the date of
such proposed Competitive Bid Borrowing, in the case of a request for LIBOR
Advances (the "Bid Due Date"), specifying the following:
(A) the amount of each Competitive Bid Borrowing which such
Designated Bidder would be willing to make as part of such proposed
Competitive Bid Borrowing (which amount may, subject to the proviso to
the first sentence of subsection (a) above, exceed a Bank's Commitment
but may not exceed the principal amount of the Competitive Bid Advances
of the Type and maturity requested by the Borrower);
(B) in the case of a request for a LIBOR Advance, the margin
above or below the applicable Eurodollar Rate (the "LIBOR Margin")
offered for such Competitive Bid Advance, expressed as a percentage
(rounded upwards, if necessary, to the nearest 1/16 of one percent) to
be added to or subtracted from the applicable Eurodollar Rate;
(C) in the case of a request for a Fixed Rate Advance, the
rate of interest per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent) (the "Fixed Rate") offered for such
Competitive Bid Advance; and
(D) the identity of the Designated Bidder submitting the
Competitive Bid;
provided that if the Agent in its capacity as a Designated Bidder shall, in its
sole discretion, elect to make any such Competitive Bid, it shall notify the
Borrower of such Competitive Bid before 9:30 A.M. (New York City time) on the
Bid Due Date. If any Designated Bidder shall elect not to make such a
Competitive Bid, such Designated Bidder shall so notify the Agent, before 10:00
A.M. (New York City time) on the Bid Due Date, and such Designated Bidder shall
not be obligated to, and shall not, make any Advance as part of such Competitive
Bid Borrowing; provided that the failure by any Designated Bidder to give such
notice shall not cause such Designated Bidder to be obligated to make any
Advance as part of such proposed Competitive Bid Borrowing. Unless otherwise
agreed by the Borrower and the Agent, no Competitive Bid shall contain
qualifying, conditional or similar language or propose terms other than or in
addition to those set forth in the Competitive Bid Request and, in particular,
no Competitive Bid may be conditioned upon acceptance by the Borrower of all (or
some specified minimum) of the principal amount of the Competitive Bid Advances
offered.
(d) The Agent shall, as promptly as practicable after the Competitive
Bid is submitted (but in any event not later than 10:15 A.M. (New York City
time) on the Bid Due Date), notify the Borrower of the terms (A) of any
Competitive Bid submitted that is in accordance with subsection (c) above and
(B) of any Competitive Bid that amends, modifies or is otherwise inconsistent
with a previous Competitive Bid with respect to the same Competitive Bid
Request. Any such subsequent Competitive Bid may be submitted solely to correct
a manifest error in such former Competitive Bid. The Agent's notice to the
Borrower shall specify (1) the aggregate principal amount of the Competitive Bid
Borrowing for which Competitive Bids have been received and (2) the respective
principal amounts and the Fixed Rates and LIBOR Margins, as
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<PAGE> 33
the case may be, so offered by each Designated Bidder (identifying the
Designated Bidder that made each Competitive Bid).
(e) The Borrower shall, in turn, before 11:00 A.M. (New York City time)
(i) on the day of the proposed Competitive Bid Borrowing, in the case of
requests for Fixed Rate Advances, or (ii) on the third Business Day prior to the
date of the proposed Competitive Bid Advances, in the case of a request for
LIBOR Advances, (or, in any such case, such other time and date as the Borrower
and the Agent, with the consent of the Majority Banks, may agree), either:
(i) cancel such Competitive Bid Borrowing by giving the Agent
notice to that effect, or
(ii) accept one or more of the Competitive Bids, in its sole
discretion, by giving notice to the Agent of the amount of each
Competitive Bid Advance to be made by each Designated Bidder as part of
such Competitive Bid Borrowing, and reject any remaining Competitive
Bids by giving the Agent notice to that effect; provided that (A) the
Borrower may only accept Competitive Bids in the order of the lowest to
the highest Fixed Rates or LIBOR Margins, as the case may be, offered,
(B) the Borrower may not accept Competitive Bids in excess of the
amount requested pursuant to subsection (b) above, or the amount
offered pursuant to subsection (c) above, for any maturity date or
Interest Period, and (C) if two or more Designated Bidders make
Competitive Bids at the same Fixed Rates or LIBOR Margins, as the case
may be, for the same maturity date or Interest Period, the Borrower may
only accept such Competitive Bids in proportion (as nearly as possible)
to the amounts which such Designated Bidders offered at such rate for
such maturity or Interest Period (in amounts of not less than
$1,000,000 or an integral multiple of $100,000 in excess thereof).
(f) If the Borrower notifies the Agent that such Competitive Bid
Borrowing is canceled pursuant to subsection (d)(i) above, the Agent shall give
prompt notice thereof to the Designated Bidders, and such Competitive Bid
Borrowing shall not be made.
(g) If the Borrower accepts one or more of the Competitive Bids made by
any Designated Bidder or Designated Bidders pursuant to subsection (d)(ii)
above, the Agent shall in turn promptly notify (A) each Designated Bidder that
has made a Competitive Bid as described in subsection (c) above, of the date and
aggregate amount of such Competitive Bid Borrowing and whether or not any
Competitive Bid or Bids made by such Designated Bidder pursuant to subsection
(c) above have been accepted by the Borrower, (B) each Designated Bidder that is
to make an Advance as part of such Competitive Bid Borrowing, of the amount of
each Advance to be made by such Bank as part of such Borrowing, and (C) each
Designated Bidder that is to make an Advance as part of such Competitive Bid
Borrowing, as to whether such Competitive Bid Borrowing conforms of the
requirements of Section 2.02. Each Designated Bidder that is to make an Advance
as part of such Competitive Bid Borrowing shall, before 11:30 A.M. (New York
City time) on the date of such Competitive Bid Borrowing specified in the notice
received from the Agent pursuant to clause (A) of the preceding sentence
(provided such Designated
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Bidder shall have received a Competitive Bid Note and a favorable notice from
the Agent pursuant to clause (C) of the preceding sentence), make available to
the Agent at its address referred to in Section 8.02, in same day funds, such
Designated Bidder's portion of such Competitive Bid Borrowing. Upon fulfillment
of the applicable conditions set forth in Article III and after receipt by the
Agent of such funds, the Agent will make such funds available to the Borrower at
the Agent's aforesaid address. Promptly after each Competitive Bid Borrowing,
the Agent shall notify each Bank of the amount of the Competitive Bid Borrowing,
the consequent Competitive Bid Reduction and the dates upon which such
Competitive Bid Reduction commenced and will terminate.
(h) Each Competitive Bid Borrowing shall be in an aggregate amount not
less than $3,000,000 or an integral multiple of $1,000,000 in excess thereof
and, following the making of such Competitive Bid Borrowing, the Borrower shall
be in compliance with the limitations set forth in the proviso to the first
sentence of subsection (a) above.
(i) Each acceptance by Borrower pursuant to subsection (g) above shall
be irrevocable and binding on the Borrower. In the case of any acceptance of a
Competitive Bid for LIBOR Advances, the Borrower shall indemnify each Designated
Bidder against any loss (including loss of anticipated profits), cost or expense
incurred by such Designated Bidder as a result of any failure to fulfill on or
before the date specified pursuant to subsection (g) above for such Competitive
Bid Borrowing the applicable conditions set forth in Article III, including,
without limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Designated Bidder to fund the LIBOR Advance to be made by such Bank as part of
such Borrowing when such Advance, as a result of such failure, is not made on
such date.
(j) The failure of any Designated Bidder to make the Advance to be made
by it as part of any Competitive Bid Borrowing shall not relieve any other
Designated Bidder of its obligation, if any, hereunder to make its Advance on
the date of such Borrowing, but no Designated Bidder shall be responsible for
the failure of any other Designated Bidder to make the Advance to be made by
such other Designated Bidder on the date of any Competitive Bid Borrowing.
(k) Within the limits and on the conditions set forth in this Section
2.02, the Borrower may from time to time borrow under this Section 2.02, repay
pursuant to Section 2.05 and reborrow under this Section 2.02; provided that not
more than ten Competitive Bid Borrowings may be outstanding at any time (for
which purpose Competitive Bid Advances made on the same date, but having
different maturities or representing Borrowings under different Commitments,
shall be deemed to be separate Competitive Bid Borrowings).
SECTION 2.03. Fees.
(a) Facility Fees. The Borrower agrees to pay to the Agent, for the
account of each of the Banks, a facility fee on the average daily Commitment of
such Bank from the Closing Date until the Revolver Termination Date at the
Applicable Facility Fee Rate from time to time in
29
<PAGE> 35
effect, payable quarterly in arrears on the last day of September and December
1997 and March 1998 and on the Revolver Termination Date.
(b) Agency, Auction and Arrangement Fees. The Borrower agrees to pay to
the Agent, for its own account, the agency fees and the auction fees and to an
Affiliate of the Agent, the arrangement fee, in such amounts and on such dates
as are specified in the letter agreement dated as of June 2, 1997, between the
Borrower and the Agent.
SECTION 2.04. Optional Reduction of the Commitments. The Borrower shall
have the right, upon at least three Business Days' notice to the Agent,
permanently to terminate in whole or reduce ratably in part the Unused
Commitments; provided that (a) each partial reduction shall be in the aggregate
amount of $3,000,000 or an integral $1,000,000 multiple in excess thereof, (b)
each reduction shall be made ratably among the Banks in accordance with their
Unused Commitments, and (c) no reduction may reduce the aggregate Commitments of
the Banks below the aggregate amount of the then outstanding principal amount of
the Competitive Bid Advances.
SECTION 2.05. Repayment.
(a) The Borrower shall repay on the Revolver Termination Date the
aggregate principal amount of the Committed Rate Advances of each Bank
outstanding on the Revolver Termination Date, together with accrued interest
thereon.
(b) The Borrower shall repay the aggregate principal amount of the
Competitive Bid Advances of each Designated Bidder, together with accrued
interest thereon, in such amounts and on such dates as specified pursuant to
Section 2.02(b).
SECTION 2.06. Interest.
(a) The Borrower shall pay interest on the unpaid principal amount of
each Committed Rate Advance made by each Bank from the date of such Advance
until such principal amount shall be paid in full, at the following rates per
annum:
(i) Base Rate Advances. During such periods as such Advance is a
Base Rate Advance, a rate per annum equal at all times to the sum
of the Base Rate in effect from time to time, payable quarterly in
arrears on the last day of each March, June, September and December
during such periods and on the date such Base Rate Advance shall be
Converted or paid in full. Notwithstanding the foregoing, during the
continuance of an Event of Default, the principal amount of each Base
Rate Advance shall bear interest, to the fullest extent permitted by
law, from the date on which such amount is due until such amount is
paid in full, payable on demand, at a fluctuating rate per annum equal
at all times to 2% per annum above the Base Rate in effect from time to
time.
(ii) Eurodollar Rate Advances. During such periods as such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times
during the Interest Period for such Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Eurodollar
Rate Margin, payable on the last day of such Interest Period and, if
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such Interest Period has a duration of six months, on the day that
occurs during such Interest Period three months from the first day of
such Interest Period; provided, however, that in the event that the
Applicable Eurodollar Rate Margin for any fiscal quarter of the
Borrower has not yet been determined in accordance with the provisions
of the definition of Applicable Eurodollar Rate Margin in Section 1.01
as of the time when interest on a Eurodollar Rate Advance becomes due,
the Borrower shall pay such interest on the date when due based on the
then existing Applicable Eurodollar Rate Margin and any necessary
subsequent adjustments in the amount of interest payable hereunder (due
to any subsequent change in the Applicable Eurodollar Rate Margin)
shall be made on the first date on which any interest on any Committed
Rate Advance is payable after the date of determination of the
Applicable Eurodollar Rate Margin. Notwithstanding the foregoing,
during the continuance of an Event of Default, the principal amount of
each Eurodollar Rate Advance shall bear interest, to the fullest extent
permitted by law, from the date on which such amount is due until such
amount is paid in full, payable on demand, at a rate per annum equal at
all times to 2% per annum above the Eurodollar Rate plus the Applicable
Eurodollar Rate Margin until the end of the Interest Period applicable
to such Eurodollar Rate Advance, at which time the rate per annum shall
become 2% per annum above the Base Rate, in each case as in effect from
time to time.
(b) The Borrower shall pay interest on the unpaid principal amount of
each Competitive Bid Advance from the date of such Advance until such principal
amount shall be paid in full, at the rate of interest for such Advance specified
by the Designated Bidder making such Advance in its Competitive Bid with respect
thereto delivered pursuant to Section 2.02(c), payable on the interest payment
date or dates specified by the Borrower for such Advance in the related
Competitive Bid Request delivered pursuant to Section 2.02(b) and on the
maturity date of such Competitive Bid Advance. Notwithstanding the foregoing,
during the continuance of an Event of Default, the principal amount of each
Competitive Bid Advance shall bear interest, to the fullest extent permitted by
law, from the date on which such amount is due until such amount is paid in
full, payable on demand, at a rate equal to 2% per annum above the interest rate
specified by the Designated Bidder that made such Advance in its Competitive Bid
with respect thereto delivered pursuant to Section 2.02(c).
SECTION 2.07. Interest Rate Determination and Protection.
(a) The Agent shall give prompt notice to the Borrower and the Banks of
the applicable interest rate under Section 2.06(a)(i) or (ii).
(b) If, with respect to any Eurodollar Rate Advance, the Majority Banks
notify the Agent that the Eurodollar Rate for any Interest Period for such
Advance will not adequately reflect the cost to such Majority Banks of making,
funding or maintaining their respective Eurodollar Rate Advance for such
Interest Period, the Agent shall forthwith so notify the Borrower and the Banks,
whereupon:
(i) each Eurodollar Rate Advance will automatically, on the last
day of the then existing Interest Period therefor, Convert into a
Base Rate Advance, and
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(ii) the obligation of the Banks to make, or to Convert Advances
into, Eurodollar Rate Advances shall be suspended until the Agent
shall notify the Borrower and the Banks that the circumstances causing
such suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advance in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Banks and such Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.
SECTION 2.08. Voluntary and Automatic Conversion of Committed Rate
Advances.
(a) The Borrower may on any Business Day, upon notice given to the
Agent not later than 11:00 A.M. (New York City time) on the second Business Day
prior to the date of the proposed Conversion and subject to the provisions of
Sections 2.07 and 2.11, Convert all Committed Rate Advances of one Type
comprising the same Borrowing into Committed Rate Advances of another Type;
provided, however, that any Conversion of any Eurodollar Rate Advances into Base
Rate Advances shall be made on, and only on, the last day of an Interest Period
for such Eurodollar Rate Advances. Each such notice of Conversion shall, within
the restrictions specified above, specify (i) the date of such Conversion, (ii)
the Advances to be Converted, and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the Interest Period for each such Advance.
(b) On the date on which the unpaid aggregate principal amount of
Eurodollar Rate Advances comprising any Committed Rate Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $3,000,000, the
Eurodollar Rate Advances comprising such Borrowing shall automatically Convert
into Base Rate Advances, and on and after such date the Borrower may not convert
such Base Rate Advances to Eurodollar Rate Advances until such time as the
aggregate principal amount of Base Rate Advances equals or exceeds $3,000,000.
SECTION 2.09. Prepayments.
(a) Voluntary Prepayments. The Borrower may, upon at least (i) in the
case of Eurodollar Rate Advances, two Business Days' and (ii) in the case of
Base Rate Advances, the same Business Day's notice to the Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given, the Borrower shall, prepay the outstanding principal amounts of
the Advances comprising part of the same Committed Rate Borrowing in whole or
ratably in part, together with accrued interest to the date of such prepayment
on the principal amount prepaid and, in the case of Eurodollar Rate Advances,
any amounts payable under Section 8.04(b); provided, however, that each partial
prepayment shall be in an aggregate principal amount not less than $3,000,000 or
any integral multiple of $1,000,000 in excess thereof. The Borrower may not
prepay any Competitive Bid Advances.
(b) Asset Sales Mandatory Prepayments. Subject to Section 2.09(f), upon
the sale, lease or other disposition by the Borrower or any Subsidiary of the
Borrower of assets of the Borrower and its Subsidiaries constituting more than
5% of the Consolidated Total Assets of the
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Borrower and its Subsidiaries at the time of sale, lease or other disposition,
then (x) the Net Cash Proceeds of such sale, lease or other disposition shall be
delivered as soon as practicable to the Agent and (y) any deferred cash proceeds
of such sale, lease, or other disposition shall be delivered to the Agent as
soon as practicable after their receipt (at which time the same shall become Net
Cash Proceeds). Any such Net Cash Proceeds shall be applied in accordance with
Section 2.09(e).
(c) Subordinated Debt Issuance Mandatory Prepayments. Subject to
Section 2.09(f), upon the issuance, if permitted in writing by the Majority
Banks, by the Borrower or any of its Subsidiaries of any Subordinated Debt,
whether or not convertible into or exchangeable for Securities (other than the
subordinated convertible notes issued by the Borrower or any of its Subsidiaries
as consideration for the acquisition of Facilities (or the assets thereof), any
Existing Clinic Acquisitions or the acquisition of Related Businesses), then (x)
75% of the Net Cash Proceeds of such issuance shall be delivered as soon as
practicable to the Agent and (y) 75% of any deferred cash proceeds of such
issuance shall be delivered to the Agent as soon as practicable after their
receipt (at which time the same shall become Net Cash Proceeds). Any such Net
Cash Proceeds shall be applied in accordance with Section 2.09(e).
(d) Securities Issuance Mandatory Prepayment. Subject to Section
2.09(f), upon the sale or issuance by the Borrower or any of its Subsidiaries of
any Securities, any securities convertible into or exchangeable for Securities
(other than Subordinated Debt subject to Section 2.09(c)), or any warrants,
rights or options to acquire Securities to any Person other than the Borrower or
any of its Subsidiaries other than such sale or issuance pursuant to the
Borrower's employee stock purchase plans or employee and director stock option
plans or similar plan available to physicians practicing at a Facility or
Related Business and other than the issuance of Securities as consideration for,
or the proceeds of which are within 180 days after receipt used for, or the
issuance of subordinated convertible notes as consideration for, the acquisition
of any Facility (or the assets thereof) or any Existing Clinic Acquisitions or
the acquisition of any Related Businesses to the extent such acquisition
satisfies all the requirements of Section 5.02(f)(i) or (ii), as the case may
be), then (x) 50% of the Net Cash Proceeds of such sale or issuance shall be
delivered as soon as practicable to the Agent and (y) 50% of any deferred cash
proceeds of such sale or issuance shall be delivered to the Agent as soon as
practicable after their receipt (at which time the same shall become Net Cash
Proceeds). Any such Net Cash Proceeds shall be applied in accordance with
Section 2.09(e).
(e) Application of Prepayments. Mandatory prepayments pursuant to
Section 2.09(b), (c) or (d) shall be: first, applied to the payment of any
amount then owing to the Agent or any Bank pursuant to Section 8.04(a); second,
applied to the ratable payment of outstanding Committed Rate Advances, together
with accrued interest to the date of such payment on the principal amount repaid
and any amounts payable pursuant to Section 8.04(b) in respect thereof; and
third, delivered to the Agent to be held as pledged collateral to be applied to
the ratable payment when due of outstanding Competitive Bid Advances, together
with accrued interest to the date of such payment on the principal amount
repaid, to the extent of the aggregate amount of such principal and interest.
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(f) Effect of Investment Grade Rating. Notwithstanding Sections
2.09(b), (c), (d) or (e), no prepayment shall be required by any of such
sections if at the time of the sale, lease or other disposition, issuance or
sale referred to therein any of the then outstanding Debt of the Borrower shall
then be rated Investment Grade.
SECTION 2.10. Increased Costs.
(a) If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements, in the case
of Eurodollar Rate Advances or LIBOR Advances, included in the Eurodollar Rate
Reserve Percentage) in or in the interpretation of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Bank of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances or LIBOR Advances, then the Borrower shall
from time to time, upon demand by such Bank (with a copy of such demand to the
Agent), pay to the Agent for the account of such Bank additional amounts
sufficient to compensate such Bank for such increased cost. A certificate as to
the amount of such increased cost, submitted to the Borrower and the Agent by
such Bank, shall be conclusive and binding for all purposes, absent manifest
error.
(b) If any Bank determines that compliance with any law or regulation
or any guideline or request from any central bank or other governmental
authority (whether or not having the force of law) affects or would affect the
amount of capital (or the rate of return on capital) required or expected to be
maintained by such Bank or any corporation controlling such Bank and that the
amount of such capital is increased (or such rate of return is reduced) by or
based upon the existence of such Bank's commitment, or offer or agreement, to
lend hereunder and other commitments, or offers or agreements, of this type,
then, upon notice by such Bank (with a copy of such notice to the Agent), the
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital (or
reduction in rate of return) to be allocable to the existence of such Bank's
commitment, or offer or agreement, to lend hereunder. Such notice as to such
amounts submitted and delivered to the Borrower and the Agent by such Bank shall
set forth in summary fashion the basis of such allocation and shall be
conclusive and binding for all purposes, absent manifest error.
SECTION 2.11. Illegality. Notwithstanding any other provision of this
Agreement, if any Bank shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for any Bank or its Eurodollar Lending Office to perform its obligations or
agreements hereunder to make Eurodollar Rate Advances or LIBOR Advances or to
fund or maintain Eurodollar Rate Advances or LIBOR Advances hereunder: (a) in
the case of Eurodollar Rate Advances, (i) the obligation of the Banks to make,
or to Convert Advances into, Eurodollar Rate Advances shall be suspended until
the Agent shall notify the Borrower and the Banks that the circumstances causing
such suspension no longer exist and (ii) the Borrower shall
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forthwith prepay in full all Eurodollar Rate Advances of all Banks then
outstanding, together with interest accrued thereon and any costs payable
pursuant to Section 8.04(b), unless the Borrower, within five Business Days of
notice from the Agent, Converts all Eurodollar Rate Advances of all Banks then
outstanding into Base Rate Advances in accordance with Section 2.08, and (b) in
the case of LIBOR Advances, such Bank shall no longer be obligated to fund any
LIBOR Advance it has agreed to fund thereafter.
SECTION 2.12. Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the Notes
not later than 11:00 A.M. (New York City time) on the day when due free and
clear of any taxes, offset or other charge in United States dollars to the Agent
at its address referred to in Section 8.02 in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or facility fees (i) ratably (other than amounts
payable pursuant to Section 2.10, 2.13 or 8.04) to the Banks for the account of
their respective Applicable Lending Offices, in the case of Committed Rate
Advances, and to the applicable Designated Bidder (for the account of its
Applicable Lending Office), in the case of Competitive Bid Advances, and like
funds relating to the payment of any other amount payable to any Bank to such
Bank for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement. Upon its acceptance of
an Assignment and Acceptance and recording of the information contained therein
in the Register pursuant to Section 8.08(d), from and after the effective date
specified in such Assignment and Acceptance, the Agent shall make all payments
hereunder in respect of the interest assigned thereby to the Bank assignee
thereunder, and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) The Borrower hereby authorizes each Bank, if and to the extent
payment owed to such Bank is not made when due hereunder or under the Note held
by such Bank, to charge from time to time against any or all of the Borrower's
accounts with such Bank any amount so due.
(c) All computations of interest (other than interest on Base Rate
Advances) and of fees shall be made on the basis of a year of 360 days, and all
computations of interest on Base Rate Advances shall be made on the basis of a
year of 365 or 366 days (as the case may be), in each case for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination by the
Agent of an interest rate or fee hereunder shall be conclusive and binding for
all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, if such extension would cause payment of interest on
or principal of Eurodollar Rate Advances or LIBOR Advances to be made
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in the next following calendar month, such payment shall be made on the next
preceding Business Day.
(e) Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to the Banks hereunder in respect of
Committed Rate Advances that the Borrower will not make such payment in full,
the Agent may assume that the Borrower has made such payment in full to the
Agent on such date and the Agent may, in reliance upon such assumption, cause to
be distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent the Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Agent, at the Federal Funds Rate.
(f) Notwithstanding any provision in this Agreement or any other Loan
Document to the contrary, all payments received by the Agent under the other
Loan Documents, the application of which are not provided for in such Loan
Documents, may be then or at any time thereafter be applied in whole or in part
by the Agent for the ratable benefit of the Banks (except in the case of
Competitive Bid Advances), against all or part of the Advances or other
obligations of the Borrower hereunder or under the other Loan Documents, in such
order and manner as the Agent shall elect.
SECTION 2.13. Taxes.
(a) Any and all payments by the Borrower hereunder or under the Notes
shall be made, in accordance with Section 2.12, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Bank and the Agent, taxes imposed on its income, and franchise
taxes imposed on it, by the jurisdiction under the laws of which such Bank or
the Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Bank, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.13) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Notes or from
the execution, delivery or
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registration of, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Bank and the Agent for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.13) paid by such Bank or the Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be made within 30 days from the date such
Bank or the Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Agent, at its address referred to in Section 8.02, the
original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.13 shall survive the payment in full of principal and interest
hereunder and under the Notes.
(f) Prior to the date of the first Borrowing under this Agreement in
the case of each Bank party hereto on the date hereof, on the date of the
effectiveness of the Assignment and Acceptance pursuant to which it became a
Bank in the case of each other Bank, and within 30 days following the first day
of each calendar year or if otherwise requested from time to time by the
Borrower or the Agent, each Bank organized under the laws of a jurisdiction
outside the United States shall provide the Agent and the Borrower with two
counterparts of each of the forms prescribed by the Internal Revenue Service
(Form 1001 or 4224, or successor form(s), as the case may be, or another
appropriate form) of the United States certifying as to such Bank's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to such Bank under any Loan Document. Unless
the Borrower and the Agent have received such forms or other documents
satisfactory to them indicating that payments under any Loan Document are not
subject to United States withholding tax, the Borrower or the Agent (if not
withheld by the Borrower) shall withhold taxes from such payments at the
applicable statutory rate, without any obligation to "gross-up" or make such
Bank or the Agent whole under Section 2.13(a); provided, however, that the
Borrower shall have the obligation to make such Bank or the Agent whole and to
"gross-up" under Section 2.13(a), if the failure to so deliver such forms or
make such statements (other than the forms and statements required to be
delivered on or made prior to the date of the initial Borrowing, on the date of
the Assignment and Acceptance pursuant to which an Eligible Assignee became a
Bank) is the result of the occurrence of an event (including, without
limitation, any change in treaty, law or regulation) which (alone or in
conjunction with other events) renders such forms inapplicable, that would
prevent such Bank or the Agent from making the statements contemplated by such
forms or which removes or reduces an exemption (whether partial or complete)
from withholding tax previously available to such Bank or the Agent. Each Bank
(and the Agent, if applicable) will promptly notify the Borrower of the
occurrence (when known to it) of an event contemplated by the foregoing proviso.
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SECTION 2.14. Sharing of Payments. Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of any Committed Rate Advances made by it
(other than pursuant to Section 2.10, 2.13 or 8.04) in excess of its ratable
share of payments on account of such Committed Rate Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in such Committed Rate Advances made by them as shall be
necessary to cause such purchasing Bank to share the excess payment ratably with
each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase from
each Bank shall be rescinded and such Bank shall repay to the purchasing Bank
the purchase price to the extent of such recovery together with an amount equal
to such Bank's ratable share (according to the proportion of (i) the amount of
such Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower agrees
that any Bank so purchasing a participation from another Bank pursuant to this
Section 2.14 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation.
SECTION 2.15. Evidence of Debt/Register.
(a) The Debt of the Borrower resulting from the Committed Rate Advances
and Competitive Bid Advances shall be evidenced by the Committed Rate Notes and
the Competitive Bid Notes, respectively, delivered to the Banks pursuant to
Article III, and the remaining principal amount thereof shall be recorded by the
Banks, and, prior to any transfer, endorsed on the grids thereto in accordance
with the terms of the Notes. The Agent shall also maintain in accordance with
its usual practice an account or accounts evidencing the indebtedness of the
Borrower under this Agreement and the amounts of principal and interest payable
and paid to each Bank from time to time under this Agreement.
(b) The Register maintained by the Agent pursuant to Section 8.08(c)
shall include a control account, and a subsidiary account for each Bank, in
which accounts (taken together) shall be recorded: (i) the date and amount of
each Borrowing, the Commitment to which such Borrowing relates, the Type of
Advance comprising such Borrowing and the Interest Period applicable thereto (if
any) from time to time, (ii) the terms of each Assignment and Acceptance
delivered to and accepted by it, (iii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Bank, and
(iv) the amount of any sum received by the Agent from the Borrower hereunder and
each Bank's share thereof.
SECTION 2.16. Use of Proceeds. The proceeds of the Advances shall be
used by the Borrower for Capital Investments (to the extent permitted under this
Agreement), including, without limitation, acquisitions of Facilities and
Related Businesses (to the extent permitted under this Agreement), and other
general corporate purposes.
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SECTION 2.17. Existing Credit Agreement B Advances; Existing
Collateral
(a) Existing Credit Agreement B Advances, Termination of B Commitment
Under Existing Credit Agreement. On the Closing Date: (i) there shall be no
outstanding B Advances (as defined in the Existing Credit Agreement) and (ii)
the B Commitments (as such term is defined in the Existing Credit Agreement)
shall be permanently terminated in full.
(b) Release of Collateral. On the Closing Date, all Liens on the
Collateral (as defined in the Existing Credit Agreement) shall be released and
terminated, and from and after the Closing Date, the Agent shall execute and
deliver, at the Borrower's expense, such termination statements and other
documents as the Borrower may reasonably request to evidence the release and
termination of such Liens.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Any Borrowing. The obligation of
each Bank to make an Advance on the occasion of any Borrowing shall be subject
to the conditions precedent that on the date of such Borrowing (a) the following
statements shall be true and the Agent shall have received a certificate signed
by a duly authorized officer of the Borrower, dated the date of such Borrowing,
stating that such statements are true (and each of the giving of the applicable
Notice of Borrowing and the acceptance by the Borrower of the proceeds of such
Borrowing shall constitute a representation and warranty by the Borrower and
each Loan Party (as to each Loan Document to which it is a party) that on the
date of such Borrowing such statements are true):
(i) the representations and warranties contained in Section
4.01 of this Agreement, in Section 6 of the Guaranty, and in Section 11
of the Intercompany Subordination Agreement, are correct on and as of
the date of such Borrowing, before and after giving effect to such
Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date; and
(ii) no event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both;
and (b) the Competitive Bid Note, duly executed by the Borrower, to the order of
the appropriate Designated Bidder, shall have been received by the Agent, and
(c) the Agent shall have received such other approvals, opinions or documents as
the Agent may reasonably request.
SECTION 3.02. Conditions Precedent to Initial Advances. The obligation
of each Bank to make its initial Advance is subject to the following conditions
precedent:
(i) The Agent shall have received evidence satisfactory to it
that all fees and expenses payable by the Borrower under the Existing
Loan Agreement shall have been paid in full.
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(ii) The Agent shall have received the following
documents, each dated the Closing Date and in form and substance
satisfactory to the Agent and (with respect to the Guaranty and the
Intercompany Subordination Agreement) in sufficient copies for each
Bank:
(a) The Committed Rate Notes, each duly executed by
the Borrower, to the order of the appropriate Banks.
(b) The Guaranty, duly executed by each Guarantor.
(c) The Intercompany Subordination Agreement, duly
executed by each Loan Party.
(d) Certified copies of the (i) resolutions of the
Board of Directors or other governing body of each Loan Party
approving each Loan Document to which it is a party, and of
all documents evidencing other necessary corporate, limited
liability company or partnership action and governmental
approvals, if any, with respect to each such Loan Document,
(ii) all documents evidencing other corporate, limited
liability company or partnership action or governmental
approvals, if any, necessary or, in the reasonable opinion of
the Agent, advisable in connection with the execution,
delivery and performance of each Loan Document; (iii) the
certificate or articles of incorporation, by-laws or other
constituent instruments of the Borrower and of each of its
Subsidiaries other than Immaterial Subsidiaries, as amended
through the Closing Date or, with respect to any of the
Borrower's Subsidiaries other than Immaterial Subsidiaries, a
certification that such Subsidiary's certificate or articles
of incorporation, bylaws or other constituent instruments
delivered to Citibank in connection with the Existing Credit
Agreement are true and correct copies of the certificate or
articles of incorporation, bylaws or other constituent
instruments of such Subsidiary and that such certificate or
articles of incorporation, bylaws or other constituent
instruments have not been amended or otherwise modified since
the date such copies were delivered to Citibank and (iv) good
standing certificates with respect to the Borrower and each of
its Subsidiaries other than Immaterial Subsidiaries from the
Secretary of State (or similar official) of the state in which
the Borrower or such Subsidiary is incorporated or organized.
(e) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names and true
signatures of the officers of such Loan Party authorized to
sign each Loan Document to which it is a party and the other
documents to be delivered hereunder.
(f) A certificate of the Borrower, signed on behalf
of the Borrower by its President or a Vice President,
certifying as to the absence of any event occurring and
continuing, or resulting from this Agreement, that constitutes
an
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Event of Default or would constitute an Event of Default but
for the requirement that notice be given or time elapse or
both.
(g) Favorable opinions of N. Carolyn Forehand,
general counsel of the Borrower, and Waller Lansden Dortch &
Davis, special counsel for the Borrower and the other Loan
Parties, substantially in the forms of Exhibit G.
(h) A favorable opinion of Gibson, Dunn & Crutcher
LLP, counsel for the Agent, satisfactory to the Agent.
(i) Such other agreements, certificates, consents and
other documents that the Agent or any Bank may reasonably
request.
(iii) The Borrower shall have paid all fees payable hereunder
on or before the Closing Date.
(iv) Other than as set forth on Schedule VI, no judgment,
order, decree, injunction or other restraint affecting any Loan Party
shall have been rendered or imposed by any court, governmental agency
or arbitrator, and there shall be no pending or threatened action or
proceeding affecting any Loan Party before any court, governmental
agency or arbitrator, which could reasonably be expected to have a
material adverse effect on the business, prospects or condition
(financial or otherwise) or operations of the Borrower and its
Subsidiaries, taken as a whole, or which purports to affect the
legality, validity or enforceability of this Agreement or any other
Loan Document.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, is duly qualified as a foreign corporation and is in
good standing in each jurisdiction as to which the location of its
assets or the nature of its business makes qualification necessary, and
has all power, corporate or otherwise, to conduct its business and to
own, or hold under lease, its assets, and to execute and deliver, and
to perform all of its obligations under, each of the Loan Documents to
which it is or will be a party. Each of the Borrower's Subsidiaries
other than Immaterial Subsidiaries is a corporation, limited liability
company or partnership duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization,
is duly qualified as a foreign corporation, limited liability company
or partnership and is in good standing in each jurisdiction as to which
the location of its assets or the nature of its business makes
qualification necessary, and has all power (corporate, limited
liability company, partnership or otherwise) to conduct its business
and to own, or hold under lease, its assets, and to execute and
deliver, and to
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perform all of its obligations under, each of the Loan Documents to
which it is or will be a party.
(b) The execution, delivery and performance by each Loan Party
of each Loan Document to which it is or will be a party are within such
Loan Party's corporate, limited liability company or partnership
powers, have been duly authorized by all necessary corporate, limited
liability company or partnership action, and do not contravene (i) such
Loan Party's certificate or articles of incorporation, by-laws or other
constituent instruments, or (ii) any law, rule, regulation (including,
without limitation, Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award binding on or affecting such Loan Party
or any of its properties, or (iii) any contractual restriction binding
on or affecting such Loan Party or any of its properties, and do not
result in or require the creation of any Lien upon or with respect to
any of its properties; and no Loan Party is in default in any material
respect under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination, award or restriction.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by any Loan
Party of any Loan Document to which it is or will be a party except for
those which have been duly obtained or made and are in full force and
effect.
(d) This Agreement is, and each other Loan Document to which
each Loan Party will be a party when executed and delivered hereunder
will be, the legal, valid and binding obligation of such Loan Party
enforceable against such Loan Party in accordance with its terms.
(e) The Consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1996 and March 31, 1997 and the related
Consolidated statements of operations, stockholders' equity and cash
flow of the Borrower and its Subsidiaries for the fiscal year and three
months, respectively, then ended have been furnished to the Agent. Such
financial statements, and all financial statements hereafter delivered
pursuant to Sections 5.04(b) and (c), fairly present, or will fairly
present, the financial condition of the Borrower and its Subsidiaries
as at the dates thereof and the results of the operations of the
Borrower and its Subsidiaries for the periods then ended or ending, all
in accordance with generally accepted accounting principles
consistently applied. Since December 31, 1996, there has been no
material adverse change, in the business, prospects or condition
(financial or otherwise) or in the results of operations of the
Borrower and its Subsidiaries taken as a whole.
(f) Each Loan Party has good title to all of its material
property, free and clear of all Liens, except for Permitted Liens. Each
Lease or other agreement relating to the Real Property described in
Schedule I operated by each Loan Party is a valid and subsisting Lease
or other agreement and is in full force and effect in accordance with
the
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<PAGE> 48
terms thereof; and the Borrower or its Subsidiary is in possession
of all such leaseholds and no material default by the Borrower or any
of its Subsidiaries exists under any such Lease or other agreement and,
to the best of the Borrower's knowledge, no lessor has any accrued
right to terminate any such Lease or other agreement on account of a
default by the Borrower or its Subsidiaries.
(g) Each Service Agreement is a valid and subsisting agreement
and is in full force and effect in accordance with the terms thereof;
and no material default by the Borrower or any of its Subsidiaries
exists under any Service Agreement and, to the best of the Borrower's
knowledge, no party to any of the Service Agreements has any accrued
right to terminate any Service Agreement on account of a default by the
Borrower or any of its Subsidiaries.
(h) Other than as set forth on Schedule VI, no judgment,
order, decree, injunction or other restraint affecting any Loan Party
has been rendered or imposed by any court, governmental agency or
arbitrator, and there is no pending or, to the best knowledge of the
Borrower, threatened action or proceeding affecting any Loan Party
before any court, governmental agency or arbitrator, which could
reasonably be expected to have a material adverse effect on the
business, prospects or condition (financial or otherwise) or operations
of the Borrower and its Subsidiaries, taken as a whole, or which
purports to affect the legality, validity or enforceability of this
Agreement or any other Loan Document.
(i) Set forth on Schedule II is a complete and accurate list
of all of the Subsidiaries of the Borrower other than Immaterial
Subsidiaries as of the date hereof, showing as of such date (as to each
such Subsidiary) the nature of its organization, the jurisdiction of
its organization, the number of shares or the amount of interests of
each class of Securities outstanding on the date hereof, the direct
owner of the outstanding shares or the amount of interests of each such
class owned, and the jurisdictions in which such Subsidiary is
qualified to do business as a foreign entity. There are no outstanding
options, warrants, rights of conversion or purchase, and similar rights
to acquire Securities of any of such Subsidiaries, except as set forth
on Schedule II, and all of the outstanding Securities of all of such
Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Borrower or, in the case of limited liability
companies, the Intercompany Creditor, free and clear of (i) all Liens
and (ii) any restrictions (other than laws, rules or regulations) on
the ability to vote or alienate such Securities.
(j) All information, exhibits and reports furnished in writing
by or on behalf of the Borrower or any of its Subsidiaries other than
Immaterial Subsidiaries and made available to the Agent or any Bank
relating to the condition (financial or otherwise), operations,
business or properties of the Borrower or such Subsidiary, are true,
correct and complete and not misleading in all material respects.
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<PAGE> 49
(k) With respect to all business plans and other forecasts and
projections furnished by or on behalf of the Borrower or any of its
Subsidiaries other than Immaterial Subsidiaries and made available to
the Agent or any Bank relating to the financial condition, operations,
business, properties or prospects of the Borrower or such Subsidiary,
to the best of the Borrower's knowledge: (i) all facts stated as such
therein are true and complete in all material respects, (ii) all facts
upon which the forecasts or projections therein contained are based are
true and complete in all material respects, and (iii) all estimates and
assumptions were made in good faith and believed to be reasonable at
the time made.
(l) Schedule IV sets forth, as of the date hereof, all Debt of
the Borrower and its Subsidiaries other than Debt representing
miscellaneous liabilities not in excess of $5,000,000 in the aggregate.
(m) Neither the business nor the properties of the Borrower or
any of its Subsidiaries are affected by any strike, lockout, fire,
explosion, earthquake, embargo, act of God or of the public enemy or
other casualty which could reasonably be expected to have a material
adverse effect on the business, prospects, condition (financial or
otherwise) or results of operations of the Borrower and its
Subsidiaries taken as a whole.
(n) No ERISA Event has occurred with respect to any Plan or is
reasonably expected to occur with respect to any Plan.
(o) Schedule B (Actuarial Information) to the most recently
completed annual report (Form 5500 Series) for each Plan of the
Borrower or its Subsidiaries, copies of which have been or will be
filed with the Internal Revenue Service, is complete and accurate in
all material respects and fairly presents the funding status of such
Plan, and since the date of such Schedule B there has been no material
adverse change in such funding status.
(p) Neither the Borrower nor any ERISA Affiliate has incurred
or is reasonably expected to incur any material Withdrawal Liability to
any Multiemployer Plan.
(q) Neither the Borrower nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA and no Multiemployer Plan is reasonably expected to
be in reorganization or to be terminated, within the meaning of Title
IV of ERISA.
(r) The Borrower and its Subsidiaries on a Consolidated basis
are, and each Loan Party individually is, and after receipt and
application of the Advances in accordance with the terms of this
Agreement and execution of each Loan Document to which it is or is to
be a party will be, Solvent.
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(s) Neither the Borrower nor any Subsidiary of the Borrower
is, or is required to be, registered under the Investment Company Act
of 1940, as amended.
(t) Each of the Borrower and its Subsidiaries is in compliance
in all material respects with the provisions of all Environmental Laws.
Neither the Borrower nor any of its Subsidiaries nor, to the knowledge
of the Borrower, any other Person, has engaged in any Environmental
Activity, nor, to the knowledge of the Borrower, has any Environmental
Activity otherwise occurred, in material violation of any provision of
any applicable Environmental Laws.
(u) Neither the Borrower nor any of its Subsidiaries has any
liability, absolute or contingent, in connection with any Environmental
Activity the satisfaction of which could reasonably be expected to have
a material adverse effect on the business, prospects, condition
(financial or otherwise) or results of operations of the Borrower and
its Subsidiaries taken as a whole.
(v) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System). No proceeds of any Advance will be used to
purchase or carry any margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing or carrying any
margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System) in violation of applicable
law, including, without limitation, Regulation U issued by the Board of
Governors of the Federal Reserve System.
(w) The Intercompany Creditor (i) is not liable in respect of
any Debt other than Intercompany Debt, (ii) has no other liabilities or
obligations other than contingent obligations that are not material in
amount in respect of operating leases entered into prior to May 1,
1993, and (iii) has not engaged in any operations, and has not received
any notice of a claim or threatened claim in respect of any operations
or the sale thereof, since May 1, 1993.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Note shall remain
unpaid, any amount shall remain due hereunder, or any Bank shall have any
Commitment hereunder, the Borrower will, unless the Majority Banks shall
otherwise consent in writing:
(a) Payment of Taxes, Etc. Pay and discharge, and cause each
Subsidiary to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property, and (ii) all lawful claims
which, if unpaid, might by law become a Lien upon its property;
provided, however, that neither the Borrower nor any Subsidiary shall
be required to pay or
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<PAGE> 51
discharge any such tax, assessment, charge or claim which is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained.
(b) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (i) in such amounts and covering
such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in
which the Borrower or such Subsidiary operates, and (ii) reasonably
satisfactory to the Agent, and naming the Agent as an additional
insured or as loss payee as the respective interests appear.
(c) Preservation of Corporate Existence, Etc. Except as is
otherwise expressly permitted hereby, preserve and maintain, and cause
each Subsidiary to preserve and maintain, its corporate existence,
rights (charter and statutory) and franchises.
(d) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with the requirements
of all applicable laws, rules, regulations and orders, including,
without limitation, all Environmental Laws relating to the Real
Property and the ownership, use, operation and occupancy thereof.
(e) Visitation Rights. At any reasonable time and from time to
time after notice, permit the Agent or any of the Banks or any agents
or representatives thereof, to examine and make copies of and abstracts
from the records and books of account of, and visit the properties of,
the Borrower and/or any of the Subsidiaries of the Borrower, and to
discuss the affairs, finances and accounts of the Borrower and any such
Subsidiary with any of their officers or directors and with their
independent certified public accountants.
(f) Keeping of Books. Keep, and cause each Subsidiary of the
Borrower to keep, proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the
assets and business of the Borrower and each such Subsidiary in
accordance with generally accepted accounting principles consistently
applied.
(g) Maintenance of Properties, Etc. Maintain and preserve, and
cause each Subsidiary of the Borrower to maintain and preserve, all of
its properties which are used or useful in the conduct of its business
in good working order and condition, ordinary wear and tear excepted.
(h) Compliance with Terms of All Leaseholds. Make all payments
and otherwise perform, and cause each of its Subsidiaries to make all
payments and otherwise perform, all of its material obligations in
respect of all material Leases, and use its best efforts, and cause
each of its Subsidiaries to use its best efforts, to keep, and to take
all action to keep, such Leases in full force and effect and not allow
any such Leases to lapse or be terminated or any rights to renew such
Leases to be forfeited or canceled; provided,
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however, that any such Lease may lapse or be terminated or such renewal
rights may be forfeited or canceled if in the reasonable business
judgment of the Borrower or its Subsidiary, as the case may be, it is
in its best economic interests to allow or cause such lapse,
termination, forfeiture or cancellation.
(i) Solvency. Continue, and cause each of its Subsidiaries to
continue, to be Solvent.
(j) Further Assurances.
(A) If and to the extent requested by the Agent from
time to time, execute and deliver such documents and take such
other action, and cause each of its Subsidiaries to execute
and deliver such documents and take such other action, as may
be necessary or reasonably requested by the Agent, in order to
assure and confirm that all obligations under this Agreement,
the Notes or any of the other Loan Documents are at all times
guaranteed on terms satisfactory to the Agent by Guaranties of
each of its present and future Subsidiaries other than
Immaterial Subsidiaries.
(B) Promptly upon the acquisition by the Borrower or
one of its Subsidiaries of the Securities of any Subsidiary
that is not an Immaterial Subsidiary or, in the event any
Subsidiary of the Borrower ceases to be an Immaterial
Subsidiary, within 30 days after such Subsidiary ceases to be
an Immaterial Subsidiary, the Borrower will cause such
Subsidiary to enter into a Guaranty.
(C) Promptly upon the acquisition of the Securities
of any Subsidiary of the Borrower or one of its Subsidiaries
that is not an Immaterial Subsidiary or, in the event any
Subsidiary of the Borrower ceases to be an Immaterial
Subsidiary or is owed by the Borrower more than $100,000 in
Intercompany Debt, within 30 days after such Subsidiary ceases
to be an Immaterial Subsidiary or first is owed such amount of
Intercompany Debt, the Borrower will cause such Subsidiary to
enter into the Intercompany Subordination Agreement.
(D) Use its best efforts, from and after the Closing
Date, to obtain supplements to the Subordination Agreements
outstanding on the Closing Date confirming the continued
subordination of the Debt referred to therein, in form and
substance reasonably satisfactory to the Agent.
(k) Employment of Technology; Disposal of Hazardous Materials,
Etc. (i) Employ, and cause each of its Subsidiaries to employ, in
connection with its use, if any, of the Real Property, appropriate
technology and compliance procedures to maintain compliance with any
applicable Environmental Laws, (ii) obtain and maintain, and cause each
of its Subsidiaries to obtain and maintain, any and all material
permits required by applicable Environmental Laws in connection with
its or its Subsidiaries' operations and (iii) dispose of, and cause
each of its Subsidiaries to dispose of, any and all Hazardous
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Substances only at facilities and with carriers reasonably believed to
possess valid permits under RCRA, if applicable, and any applicable
state and local Environmental Laws. The Borrower shall use its best
efforts, and cause each of its Subsidiaries to use its best efforts, to
obtain all certificates required by law to be obtained by the Borrower
and its Subsidiaries from all contractors employed by the Borrower or
any of its Subsidiaries in connection with the transport or disposal of
any Hazardous Substances.
(l) Environmental Matters. If the Borrower or any of its
Subsidiaries shall:
(i) receive written notice that any material
violation of any Environmental Laws may have been committed or
is about to be committed by the Borrower or any of its
Subsidiaries;
(ii) receive written notice that any administrative
or judicial complaint or order has been filed or is about to
be filed against the Borrower or any of its Subsidiaries
alleging any material violation of any Environmental Laws or
requiring the Borrower or any of its Subsidiaries to take any
action in connection with the release or threatened release of
Hazardous Substances or solid waste into the environment; or
(iii) receive written notice from a federal, state,
foreign or local governmental agency or private party alleging
that the Borrower or any of its Subsidiaries is liable or
responsible for costs associated with the response to cleanup,
stabilization or neutralization of any Environmental Activity;
then it shall provide the Agent with a copy of such notice within five
Business Days of the Borrower's or such Subsidiary's receipt thereof.
Within ten days of the date the Borrower or such Subsidiary shall have
learned of the enactment or promulgation of any Environmental Laws
which may have a material adverse effect on the business, property,
condition (financial or otherwise) or results of operations of the
Borrower and its Subsidiaries, taken as a whole, the Borrower shall
provide the Agent with notice thereof. The Borrower shall monitor
compliance with Environmental Laws by any and all owners or operators
of the Real Property.
(m) Violation of Law, Etc. Prior to the Borrower or any
Subsidiary of the Borrower commencing any acquisition of any margin
stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System), including, without
limitation, commencing a merger or tender offer for shares of another
Person, the Borrower will deliver to the Agent an opinion of the
general counsel of the Borrower satisfactory to the Agent that such
activity (taking into account Section 5.02(a) and the use or proposed
use of the proceeds of any Advances in connection with such activity)
does not violate any law, rule or regulation (including without
limitation Regulation U issued by the Board of Governors of the Federal
Reserve System).
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SECTION 5.02. Negative Covenants. So long as any Note shall remain
unpaid, any amount shall remain due hereunder, or any Bank shall have any
Commitment hereunder, the Borrower will not, without the written consent of the
Majority Banks:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to
exist, any Lien upon or with respect to any of its properties of any
character (including, without limitation, Accounts), whether now owned
or hereafter acquired, or assign any right to receive income, or sign
or file, or permit any of its Subsidiaries to sign or file, under the
Uniform Commercial Code a financing statement that names the Borrower
or any of its Subsidiaries as debtor or the equivalent or sign, or
permit any of its Subsidiaries to sign, any security agreement
authorizing any secured party thereunder to file any such financing
statement or other document, or assign, or permit any of its
Subsidiaries to assign, any Accounts, excluding, however, from the
operation of the foregoing restrictions the Liens created by or
pursuant to the Loan Documents or the $250,000,000 Credit Agreement and
Permitted Liens.
(b) Restrictive Covenants. Enter into, or permit any of its
Subsidiaries to enter into, any agreement or instrument (other than the
Loan Documents) (i) which restricts the ability of the Borrower or any
of its Subsidiaries to create or suffer to exist any Lien upon or with
respect to its Securities, whether now or hereafter issued, or upon or
with respect to any of its properties, whether now owned or leased or
hereafter acquired or leased, except in connection with transactions
contemplated by clause (v) of the definition "Permitted Lien" in which
case any such agreement shall be limited to the property acquired in
connection with such transactions and any Lien granted is limited as
provided in said clause (v) and except for investments of no more than
$10,000,000 in any individual case (or series of individual cases), but
in no event more than $20,000,000 in the aggregate at any time, by the
Borrower and its Subsidiaries in any Person which is not a Subsidiary,
in which the Borrower or its Subsidiaries hold less than 50% of the
equity interest and as to which the Borrower or its Subsidiaries are
prohibited by law to grant a Lien on any such equity interest, or (ii)
which restricts the ability of any Subsidiary of the Borrower to (A)
pay dividends or make other distributions on its Securities or to the
Borrower or any other Subsidiary of the Borrower, (B) make any loan or
advance to the Borrower or any of its Subsidiaries, or (C) create,
incur, assume or suffer to exist, or pay or prepay, any Intercompany
Debt, provided, that any such agreement or instrument mandated by any
federal law, rule or regulation or order governing the business of the
Borrower and its Subsidiaries shall not be a violation of this Section
5.02(b)(ii).
(c) Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt other than:
(i) Debt hereunder;
(ii) Debt under the Loan Documents or under the
$250,000,000 Credit Agreement (and the Loan Documents referred
to and as defined therein);
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(iii) Debt secured by Liens permitted by clause
(v) of the definition of "Permitted Lien";
(iv) the Debt listed on Schedule IV, provided
that such Debt may be renewed, extended or otherwise modified
on terms no less favorable to the Borrower or its Subsidiaries
or the Banks than the existing terms of such Debt;
(v) Debt not otherwise permitted by this Section
5.02(c) incurred by the Borrower and/or its Subsidiaries
(other than the Intercompany Creditor) in connection with the
acquisition of any Facility (or the assets thereof), any
Existing Clinic Acquisition or the acquisition of any Related
Business, so long as such acquisition satisfies all the
conditions precedent set forth in Section 5.02(f)(i) or (ii),
as the case may be;
(vi) convertible Subordinated Debt incurred by
the Borrower or any Subsidiary of the Borrower (other than the
Intercompany Creditor) in connection with the acquisition of a
Facility (or the assets thereof), any Existing Clinic
Acquisition or the acquisition of any Related Business,
provided that the holder of any such Debt shall have executed
and delivered a Subordination Agreement to the Agent;
(vii) Subordinated Debt, whether convertible or
not, in an aggregate principal amount not in excess of
$150,000,000; provided that the Agent and the Majority Banks
shall have approved in writing prior to the issuance thereof
the terms and conditions relating to the issuance of such
Subordinated Debt, including the terms of any indenture
executed in connection therewith;
(viii) any Intercompany Debt or Debt permitted
under the terms of Section 5.02(i) or 5.02(o);
(ix) Contingent Obligations permitted under
Section 5.02(d);
(x) Debt under any interest rate, currency or
other protection, hedge, cap, collar, swap or similar
agreement entered into by the Borrower with any of the Banks
or their respective Affiliates from time to time; and
(xi) unsecured Senior Debt in an aggregate
principal amount not in excess of $50,000,000 incurred by the
Borrower or any of its Subsidiaries (other than the
Intercompany Creditor) to fund any Existing Clinic Acquisition
or the acquisition of any Facility (or the assets thereof) or
any Related Business; provided, however, that such unsecured
Senior Debt contains terms and conditions, including, without
limitation, interest rates, covenants and defaults, no greater
or more restrictive, as the case may be, than those contained
herein; provided, further, that there can be no principal
repayments of such unsecured Senior Debt until one year after
the Revolver Termination Date.
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(d) Contingent Obligations. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, any Contingent Obligations except (i) by reason of
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, (ii)
Contingent Obligations created pursuant to the Loan Documents or under
the $250,000,000 Credit Agreement (and the Loan Documents referred to
and as defined therein), (iii) guaranties by the Borrower of Capital
Leases, Operating Leases or Service Agreements of any Subsidiary of the
Borrower (including consents by the Borrower to the assignment of such
guaranties), provided that such Capital Leases or Operating Leases are
otherwise permitted hereunder, (iv) Contingent Obligations of the type
specified in clauses (ii) and (iii) of the definition of "Contingent
Obligation" created in the ordinary course of business, (v)
miscellaneous Contingent Obligations not to exceed at any time
outstanding $20,000,000, (vi) guaranties by the Subsidiaries of the
Borrower of the Borrower's obligations under a Capital Lease or an
Operating Lease provided that such Capital Lease or Operating Lease is
otherwise permitted hereunder and only to the extent of the portion of
such Capital Lease or Operating Lease that directly benefits such
Subsidiary, (vii) Contingent Obligations not otherwise permitted by
this Section 5.02(d) incurred by the Borrower and/or its Subsidiaries
(other than the Intercompany Creditor) in connection with the
acquisition of any Facility (or the assets thereof), any Existing
Clinic Acquisition or the acquisition of any Related Business, so long
as such acquisition satisfies all the conditions precedent set forth in
Section 5.02(f)(i) or (ii), as the case may be, (viii) Contingent
Obligations permitted pursuant to Section 5.02(c) and Contingent
Obligations listed on Schedule IV and (ix) Contingent Obligations to
make recruitment subsidy advances pursuant to any Service Agreement.
(e) Restricted Payments. Make, or permit any of its
Subsidiaries to make, any Restricted Payment if at the time such
Restricted Payment is made none of the then outstanding Debt of the
Borrower shall be rated Investment Grade, except that:
(i) the Borrower may pay dividends on its Common
Stock, or purchase or otherwise acquire for value any shares
of its Common Stock (each a "Common Stock Payment"), provided
that (A) no Event of Default or event that would constitute an
Event of Default but for the requirement that notice be given
or time elapse or both shall have occurred and be continuing
or would result from such Common Stock Payment, (B) the
aggregate amount of Common Stock Payments made during the
period from January 1, 1997 through the date of such Common
Stock Payment shall not exceed an amount equal to ten percent
of the Consolidated Net Income of the Borrower and its
Subsidiaries for the period from January 1, 1997 through the
last day of the fiscal quarter most recently ended prior to
the date of such Common Stock Payment (treated for such
purposes as a single accounting period), provided that in no
event may the aggregate amount of Common Stock Payments made
to purchase or otherwise acquire for value shares of Common
Stock exceed $20,000,000 in the aggregate for all such
purchases or other acquisitions, and (C) the Borrower shall
have provided the Agent with a certificate of the treasurer or
chief financial officer of the Borrower setting forth
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computations in reasonable detail demonstrating satisfaction
of the foregoing conditions; and
(ii) the Borrower and its Subsidiaries may make
Restricted Payments to terminated employees in an amount not
to exceed $100,000 in any year.
(f) Capital Investments. Make, or permit any of its
Subsidiaries to make, any Capital Investments, provided that:
(i) the Borrower and the Subsidiaries of the
Borrower (other than the Intercompany Creditor) can make
Capital Investments consisting of an acquisition of a Facility
(or the assets thereof) or Related Businesses or Existing
Clinic Acquisitions (whether through the acquisition of assets
or Securities) that satisfy all of the following:
(A) the Total Consideration for each
such acquisition shall be less than $75,000,000;
(B) the aggregate Total Consideration
for all such acquisitions in any twelve-month period
shall not exceed $500,000,000;
(C) the aggregate number of such
acquisitions (other than Existing Clinic
Acquisitions) in any twelve-month period shall not
exceed fifteen;
(D) except in the case of Existing
Clinic Acquisitions, the Agent and the Banks shall
have received at least one day before the scheduled
closing for such acquisition the following financial
and other information:
(1) the Total Consideration to be
paid for such acquisition;
(2) summary financial information
relating to the Facility or Related Business
to be acquired, including operating
forecasts and information as to the numbers
of physicians and physician assistants
involved and any other information
reasonably requested by the Agent; and
(3) a schedule, duly certified by
the chief financial officer of the Borrower,
demonstrating compliance on a pro forma
basis with the financial covenants contained
in Section 5.03 after such acquisition;
provided, however, that in preparing such
pro forma schedule, the Borrower shall
include all Debt to be incurred in
connection with such acquisition and the
EBITDA of the Facility or Related Business
to be acquired (which shall be based
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on audited, if available, historical
numbers, adjusted as contemplated by Section
5.03);
(E) the Agent and the Banks shall have
received at least one day before the scheduled
closing of such acquisition all other information,
financial or otherwise, regarding such acquisition as
the Agent or the Banks may reasonably request;
(F) except in the case of Existing Clinic
Acquisitions, the Agent shall have received, on or
before the date of such acquisition, each of the
following documents:
(1) a Guaranty (dated on or before
the date of such acquisition), duly executed
by the Subsidiary of the Borrower formed to
acquire or resulting from the acquisition of
such Facility (or the assets thereof) or
Related Business, unless immediately after
giving effect to such acquisition such
Subsidiary will be an Immaterial Subsidiary;
(2) an amendment (dated on or before
the date of such acquisition) to the
Intercompany Subordination Agreement, which
amendment shall make the Subsidiary of the
Borrower formed to acquire or resulting from
the acquisition of such Facility (or the
assets thereof) or Related Business a
"Subordinated Creditor" under such
Intercompany Subordination Agreement, unless
immediately after giving effect to the
acquisition such Subsidiary will be an
Immaterial Subsidiary;
(3) certified copies of resolutions
of the Board of Directors or other governing
body of such Subsidiary authorizing the
execution and delivery of such Loan
Documents, together with certificates of
incumbency with respect to the individuals
executing such Loan Documents;
(4) a supplement to Schedule I
hereto to the extent such supplement is
necessary to make the representation and
warranty contained in Section 4.01(f)
correct on and as of the date of such
acquisition; and
(5) such other documents (including
a favorable legal opinion of the general
counsel of the Borrower) as the Agent may
reasonably request.
(ii) the Borrower and the Subsidiaries of the
Borrower (other than the Intercompany Creditor) can make
Capital Investments consisting of an acquisition of a Facility
(or the assets thereof) or Related Businesses for which the
Total
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Consideration (whether through the acquisition of assets or
Securities) equals or exceeds $75,000,000 only with the prior
approval in writing of the terms and conditions of such
acquisition by the Majority Banks in substantially the form of
Exhibit H (it being understood that the Banks shall use
reasonable efforts to notify the Borrower within ten Business
Days after receipt of all of the information regarding a
proposed acquisition described in clause (A) below of their
decision to approve or disapprove the proposed acquisition),
and
(A) the Banks and the Agent shall have
received complete information, financial and
otherwise, regarding the proposed acquisition as may
be necessary or desirable, in the reasonable judgment
of the Banks, to enable the Banks to evaluate the
proposed acquisition for the purpose of approving
such acquisition under this Section 5.02(f)(ii),
including, without limitation, information regarding
the Total Consideration to be paid, a schedule, duly
certified by the chief financial officer of the
Borrower, demonstrating compliance on a pro forma
basis with the financial covenants contained in
Section 5.03 after such acquisition, and any other
information as the Banks may reasonably request;
provided, however, that in preparing such pro forma
schedule, the Borrower shall include all Debt to be
incurred in connection with such acquisition and the
EBITDA of the Facility or Related Business to be
acquired (which shall be based on audited, if
available, historical numbers, adjusted as
contemplated by Section 5.03); and
(B) the Agent shall have received on or
before the day of such acquisition, in form and
substance satisfactory to the Agent, each of the
documents described in subsection 5.02(f)(i)(F).
(iii) the Borrower and its Subsidiaries may make
Capital Expenditures that are not acquisitions of, or other
investments in, Facilities, Related Businesses or other
Persons (or all or substantially all of the assets thereof) in
the ordinary course of business, provided that no Event of
Default or event that would constitute an Event of Default but
for the requirement that notice be given or time elapse or
both shall have occurred and be continuing or would result
therefrom.
(iv) the Borrower and its Subsidiaries may make
capital investments in, and loans and advances to, Subsidiary
joint ventures, general or limited partnerships, limited
liability companies or other types of Persons that are not
wholly-owned by the Borrower and its Subsidiaries in an
aggregate amount of not more than $10,000,000 during any
fiscal year, and in no event in an aggregate amount exceeding
$30,000,000 at any time outstanding.
(v) the Borrower and its Subsidiaries may make
capital investments in, and loans and advances to, joint
ventures, general or limited partnerships, limited
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liability companies or other types of Persons that are not
Subsidiaries in an aggregate amount not exceeding $10,000,000
at any time outstanding.
(vi) without limiting amounts that may be
invested in, or loaned or advanced to other Persons pursuant
to Section 5.02(f)(v), the Borrower's Subsidiary PhyCor of
Hawaii, Inc. ("PhyCor-Hawaii") may make secured loans to
Straub Clinic & Hospital, Inc. ("Straub") to the extent
required by, and in compliance with, Sections 5.8.1, 5.8.2 and
5.8.3 of its Service Agreement with Straub (the "Straub
Service Agreement"); provided that:
(A) at the time of each such loan and after
giving effect thereto, no Event of Default or event
which would constitute an Event of Default but for
the requirement that notice be given or time elapse
or both shall occur and be continuing;
(B) loans pursuant to Section 5.8.1 of the
Straub Service Agreement ("Straub Capital Loans")
shall be secured by a first priority security
interest in all of the assets directly or indirectly
acquired by Straub from the proceeds of any such
loans, free and clear of any other Liens; and the
aggregate principal amount of all Straub Capital
Loans may not exceed $50,000,000 at any time
outstanding;
(C) loans pursuant to Section 5.8.2 of the
Straub Service Agreement ("Straub Working Capital
Loans"; collectively, with the Straub Capital Loans,
the "Straub Loans") shall be made pursuant to a
single credit facility providing loan availability
for no more than one year from the commencement of
the term thereof (which may be renewed on an annual
basis) and shall be secured by a first priority
security interest in all of the accounts receivable,
inventory, supplies and other current assets of
Straub (the "Straub Loan Base"), free and clear of
any other Liens; and the aggregate principal amount
of all Straub Working Capital Loans may not exceed at
any time outstanding the lesser of (1) $40,000,000 or
(2) the aggregate book value (less any reserves
applicable thereto) of (x) the Straub Loan Base as of
such time and (y) any current assets acquired by the
Borrower in its merger with Straub Clinic & Hospital,
Incorporated and held by the Borrower at such time,
all as determined in accordance with generally
accepted accounting principles; and
(D) each Straub Loan shall be evidenced by a
promissory note (1) that shall provide for the
repayment of principal prior to final maturity at the
annual rate of one-sixth of the principal outstanding
at the time loan availability under the applicable
credit facility for Straub ceases and (2) that shall
be subject to the repurchase right of Straub provided
in the Straub Service Agreement.
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(g) Mergers, Etc. Merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of
its assets (whether now owned or hereafter acquired) to, or acquire all
or substantially all of the assets (other than the acquisition of
assets of any Facility or Related Business or an Existing Clinic
Acquisition, whether or not such acquisition is accomplished by merger
or by Securities or asset purchase, so long as such acquisition
satisfies all the conditions precedent set forth in Section 5.02(f)(i)
or (ii) and, if any merger involves the Borrower, the Borrower is the
surviving corporation) of, any Person, or permit any of its
Subsidiaries to do so, except that:
(i) any Subsidiary may consolidate with or merge
into the Borrower (only if the Borrower shall be the
continuing or surviving corporation) or (except for the
Intercompany Creditor) with or into one or more other
Subsidiaries that are Guarantors, provided that (A)
immediately before and after giving effect to such
consolidation or merger, the parties thereto and the survivor
thereof all are Solvent, (B) all Guaranties shall continue in
full force and effect, and (C) the Agent shall have been
furnished with a favorable opinion of counsel reasonably
satisfactory to the Agent covering such matters as the Agent
may reasonably request; and
(ii) the Borrower may consolidate or merge with any
other Person, provided that (A) immediately before and after
giving effect to such consolidation or merger, the parties
thereto and the survivor thereof all are Solvent, (B) the
Borrower shall be the continuing or surviving corporation, (C)
no Change of Control shall occur and (D) all Guaranties shall
continue in full force and effect;
provided, however, that immediately before and after any consolidation
or merger under this Section 5.02(g), no Event of Default, or event
which, with the giving of notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing.
(h) Limitation on Sales of Assets. Except for the sale of
inventory in the ordinary course of business, the sale of worn-out or
obsolete assets and intercompany transfers permitted under Section
5.02(g), sell, lease, transfer or otherwise dispose of its assets, or
permit any Subsidiary to sell, lease, transfer or otherwise dispose of
its assets (including any interest in a Subsidiary), unless (i) the
book value of such assets sold constitutes less than 5% of the value of
the Borrower's Consolidated Tangible Net Assets at the time of sale or
other disposition, provided that the aggregate book value of all such
assets sold in any twelve-month period shall not exceed 15% of the
value of the Borrower's average Consolidated Tangible Net Assets for
the twelve-month period ending with the quarter immediately preceding
the date of determination, as evidenced by a certificate duly executed
by the chief financial officer of the selling entity on the date of
such sale or disposition, and provided further that such assets do not
constitute Securities of the Intercompany Creditor or Intercompany
Debt, or (ii) such sale is required in connection with the termination
of a Service Agreement or a change in control under the
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Amended Securities Purchase Agreement, dated as of January 1, 1995,
with respect to NAMM, and, in each case, the Net Cash Proceeds of such
sale are delivered directly to the Agent to be applied in accordance
with Section 2.09(e).
(i) Transactions with Affiliates. Lend or advance money to,
contract with or engage in any other transactions with, or permit any
Subsidiary of the Borrower to lend or advance money to, contract with
or engage in any other transactions with, Subsidiaries or Affiliates of
the Borrower, except in the ordinary course of their business with
third parties or on terms and for consideration which is no less
favorable to the Borrower and its Subsidiaries than the terms and
consideration which the Borrower or such Subsidiaries would be
obligated to pay in an arms' length transaction, subject, however, to
the limitation that the Borrower and its Subsidiaries shall not loan
more than $100,000 times the number of Facilities operated by the
Borrower and its Subsidiaries to employees at any one time outstanding;
provided, however, that nothing in this Section 5.02(i) shall prohibit
the Borrower and its Subsidiaries from engaging in transactions with
joint ventures in which the Borrower or any of its Subsidiaries is a
joint venture partner to the extent permitted by Section 5.02(f)(iv) or
(v).
(j) Prepayments of Debt. Prepay, redeem, defease (whether
actually or in substance) or purchase in any manner (or deposit or set
aside funds or securities for the purpose of the foregoing), or make
any payment (other than for scheduled payments of principal and
interest due on the date of payment thereof, if such payment is
permitted to be made pursuant to the terms of the documents evidencing
or governing the applicable Debt) in respect of, or establish any
sinking fund, reserve or like set-aside of funds or other property for
the redemption, retirement or repayment of, any Debt, or transfer any
property in payment of or as security for the payment of, or violate
the subordination terms of, any Debt, or amend, modify or change in any
manner less favorable to Borrower or any of its Subsidiaries or the
Banks the terms of any Debt or any instrument, indenture or other
document evidencing, governing or affecting the terms of any Debt, or
cause or permit any of its Subsidiaries to do any of the foregoing;
provided, however, that nothing in this Section 5.02(j) shall prohibit
(i) any payments of the Debt under this Agreement or the $250,000,000
Credit Agreement in accordance with the terms hereof or thereof, (ii)
the conversion of convertible Subordinated Debt of the Borrower into
Securities of the Borrower, (iii) the prepayment in any fiscal year of
the Borrower of up to $30,000,000 in principal amount of Senior Debt of
the Borrower or any of its Subsidiaries if the effective yield payable
in respect of such Senior Debt is greater than the interest payable
hereunder in respect of Base Rate Advances or Eurodollar Rate Advances,
whichever is lower, (iv) the prepayment of the existing operating
capital notes payable to the various physicians listed on Schedule IV
in the aggregate principal amount specified therein, (v) setoff of any
convertible Subordinated Debt against the purchase price to be paid by
the holder of such Debt in connection with the repurchase by such
holder of any Facility pursuant to the Asset Purchase Agreement
relating to such Facility, or (vi) payment of any Deferred Acquisition
Consideration in connection with any acquisition of Facilities (or the
assets thereof), any Existing Clinic Acquisition or any
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acquisition of a Related Business to the extent such acquisition
satisfies the requirements of Section 5.02(f)(i) or (ii), as the case
may be.
(k) Accounting Changes. Change its fiscal year, or make, or
permit any of its Subsidiaries to make, any other significant change in
Consolidated accounting treatment and reporting practices except as
required or permitted by generally accepted accounting principles.
(l) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business
as conducted as of the date hereof.
(m) Securities. Except as is provided in Section 5.02(g),
permit any of its Subsidiaries to issue or sell any of its Securities
or any rights, warrants or options to acquire any of its Securities, or
permit any of its Subsidiaries to sell or otherwise dispose of any
Securities of any of its Subsidiaries, or permit any of its
Subsidiaries to amend its charter, bylaws or other constituent
instruments so as to affect the conversion rights, payments, privileges
or other terms in respect of such Securities or in any respect that
affects any of the foregoing interests of its respective
securityholders.
(n) Welfare Plan Liabilities. Create or suffer to exist, or
permit any of its Subsidiaries to create or suffer to exist, any
liability with respect to Welfare Plans if, immediately after giving
effect to such liability, the aggregate annualized cost (including,
without limitation, the cost of insurance premiums) with respect to
Welfare Plans and other benefit plans and insurance of the type
described in the definition of "Welfare Plans" contained in Section
1.01 for which the Borrower and its Subsidiaries are or may become
liable in any fiscal year of the Borrower could have a material adverse
effect on the business, property, prospects, condition (financial or
otherwise) or results of operations of the Borrower and its
Subsidiaries, taken as a whole.
(o) Intercompany Creditor. Permit the Intercompany Creditor to
engage in any business or operations except the receipt and advancing
of Intercompany Debt and the holding of Intercompany Debt or Securities
of other Subsidiaries of the Borrower.
SECTION 5.03. Financial Covenants. So long as any Note shall remain
unpaid, any amount shall remain due hereunder, or any Banks shall have any
Commitment hereunder, the Borrower will not, without the written consent of the
Majority Banks:
(a) Consolidated Net Worth. Permit at any date of
determination the Consolidated Net Worth of the Borrower and its
Subsidiaries to be less than $415,000,000, plus (i) 80% of the net
proceeds received from the issuance, sale or disposition of the
Borrower's Securities (common, preferred or special), securities
converted into or exchanged for Securities, and any rights, options,
warrants and similar instruments from December 31, 1996 to such date of
determination and (ii) 50% of positive Consolidated Net Income (if any)
earned from December 31, 1996 through such date of determination.
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(b) Fixed Charge Coverage Ratio. Permit, for the four
consecutive fiscal quarters ending June 30, 1997 and for each period of
four consecutive fiscal quarters ending thereafter, the Consolidated
Fixed Charge Coverage Ratio of the Borrower and its Subsidiaries,
calculated at the end of each fiscal quarter of the Borrower, to be
less than 1.25 to 1.00.
(c) Consolidated Debt/Total Capitalization Ratio. Permit, at
any time, the Consolidated Debt/Total Capitalization Ratio of the
Borrower and its Subsidiaries to be greater than 60%.
(d) Consolidated Debt/EBITDA Ratio. Permit, for each period of
four consecutive fiscal quarters ending June 30, 1997 and for each
period of four consecutive fiscal quarters ending thereafter, the
Consolidated Debt/EBITDA Ratio of the Borrower and its Subsidiaries to
be greater than 3.75 to 1.00.
(e) Consolidated Senior Debt/EBITDA Ratio. Permit, for each
period of four consecutive fiscal quarters ending June 30, 1997 and for
each period of four consecutive fiscal quarters ending thereafter, the
Consolidated Senior Debt/EBITDA Ratio of the Borrower and its
Subsidiaries to be greater than 2.50 to 1.00.
For the purposes of subsections (b), (c), (d) and (e) above and the calculation
of any Applicable Eurodollar Rate Margin and the Applicable Facility Fee Rates,
if, as of any date, a determination of EBITDA, EBITDAL, Lease Expense, Capital
Expenditures or any other component of the ratios referred to in such
subsections (the "Ratio Components") is required to be made as to any period
prior to the date of such determination (a "Determination Period"), such
determination shall be made so as to give effect to the following:
(i) if any Person, Facility or Related Business (an "Acquired
Business") shall have been acquired in compliance with this Agreement
since the beginning of such Determination Period and must be
Consolidated with the Borrower and its Subsidiaries in accordance with
GAAP, the Ratio Components of such Acquired Business from the beginning
of the Determination Period to the date of acquisition shall be
included on a pro forma basis with the same effect as if such Acquired
Business had been a Consolidated Subsidiary of the Borrower for such
portion of the Determination Period, subject to the following:
(A) for any date of determination occurring on or
before the completion of one full fiscal quarter after the
date of acquisition of such Acquired Business, pro forma
adjustments may be made to reflect (1) specifically identified
changes in physician compensation, complements of physicians,
malpractice insurance costs and other group purchase
arrangements, all of which shall be consistent with the terms
and conditions of any Service Agreement entered into in
connection with such acquisition and (2) other planned cost
savings which will be realized by such Acquired Business as a
consequence of such acquisition to the
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extent demonstrated by the Borrower to the satisfaction of the Majority
Banks; and
(B) For any date of determination occurring after the
completion of one full fiscal quarter after the date of such
acquisition, the actual Ratio Components for the period
through the end of the then most recently ended fiscal quarter
shall be annualized for the Determination Period; and
(ii) if any Person, Facility or Related Business (a
"Disposed Business") which shall have been Consolidated with the
Borrower and its Subsidiaries shall have been discontinued, lost, sold
or otherwise disposed of as of the date of determination, the Ratio
Components of such Disposed Business shall be excluded for the
Determination Period.
SECTION 5.04. Reporting Requirements. So long as any Note shall remain
unpaid, or amount shall remain due hereunder or any Bank shall have any
Commitment hereunder, the Borrower will furnish to the Agent, for distribution
to the Banks, in sufficient copies for each Bank, the following:
(a) as soon as available and in any event within 30 days after
the end of each month, Consolidated balance sheets of the Borrower and
its Subsidiaries as of the end of such month and Consolidated
statements of operations and cash flow position of the Borrower and its
Subsidiaries for such month and for the period commencing at the end of
the previous fiscal year and ending with the end of such month;
(b) as soon as available and in any event within 45 days after
the end of each fiscal quarter, Consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such fiscal quarter and
Consolidated statements of operations and cash flow of the Borrower and
its Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal quarter, certified
by the chief financial officer of the Borrower, together with (i) a
certificate of said officer stating that no Event of Default has
occurred and is continuing or, if an Event of Default has occurred and
is continuing, a statement as to the nature thereof and the action that
the Borrower has taken or proposes to take with respect thereto, (ii) a
schedule in form satisfactory to the Agent of the computations used by
the Borrower in determining compliance with the covenants contained in
Section 5.03 and in sufficient detail for determining the Applicable
Facility Fee Rates and the Applicable Eurodollar Rate Margins in
accordance with the definitions of such terms set forth in Section
1.01, and (iii) a certificate of said officer or of the general counsel
of the Borrower regarding additions to and deletions from Schedule I
reflecting changes occurring during such fiscal quarter;
(c) as soon as available and in any event within 120 days
after the end of each fiscal year, a copy of the annual audit report
for such year for the Borrower, including therein an audited
Consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such fiscal year and audited Consolidated statements of
operations, stockholders' equity and cash flow of the Borrower and its
Subsidiaries for such fiscal
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year (i) certified by a nationally recognized public accounting firm,
together with a certificate of such accounting firm stating that in the
course of the regular audit of the business of the Borrower, which
audit was conducted in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that an Event
of Default has occurred and is continuing, or, if in the opinion of
such accounting firm, an Event of Default has occurred and is
continuing, a statement as to the nature thereof, and (ii) accompanied
by a copy of the management letter from such accounting firm
accompanying such financial statements;
(d) as soon as possible and in any event within two days after
the occurrence of an Event of Default of which the Borrower or any
Subsidiary has knowledge, a statement of the chief financial officer of
the Borrower setting forth details of such Event of Default and the
action which the Borrower has taken and proposes to take with respect
thereto;
(e) promptly after any change in accounting policies or
reporting practices that could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise),
operations, business, assets or prospects of the Borrower or of any of
its Subsidiaries or on the rights of the Banks under any of the Loan
Documents, notice and a description in reasonable detail of such
change;
(f) promptly and in any event within ten days after the
Borrower or any ERISA Affiliate knows or has reason to know that any
ERISA Event has occurred, a statement of the chief financial officer of
the Borrower describing such ERISA Event and the action, if any, that
the Borrower or such ERISA Affiliate has taken or proposes to take with
respect thereto;
(g) promptly and in any event within two Business Days after
receipt thereof by the Borrower or any ERISA Affiliate (i) copies of
each notice from the PBGC stating its intention to terminate any Plan
or to have a trustee appointed to administer any Plan and (ii) copies
of each material notice received from the United States Department of
Labor in connection with any ERISA requirements;
(h) promptly and in any event within five Business Days after
receipt thereof by the Borrower or any ERISA Affiliate from the sponsor
of a Multiemployer Plan, a copy of each notice received by the Borrower
or any ERISA Affiliate concerning (i) the imposition of Withdrawal
Liability by a Multiemployer Plan, (ii) the determination that a
Multiemployer Plan is, or is expected to be, in reorganization within
the meaning of Title IV of ERISA, (iii) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA or (iv) the
amount of liability incurred, or expected to be incurred, by the
Borrower or any ERISA Affiliate in connection with any event described
in clause (i), (ii) or (iii) above;
(i) promptly and in any event within ten days after the
commencement thereof, notice of all actions, suits and proceedings
before any court or governmental
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department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Borrower or any of its Subsidiaries,
of the type described in Section 4.01(h);
(j) promptly and in any event within ten days after the
sending or filing in final form thereof, copies of all proxy statements
and financial statements that the Borrower or any of its Subsidiaries
sends to its securityholders generally, and copies of all registration
statements (other than those relating to employee stock plans), without
exhibits, all periodic reports on Forms 10-K and 10-Q and reports on
Form 8-K that the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any governmental authority that
may substituted therefor, or any national securities exchange or with
the National Association of Securities Dealers;
(k) promptly after the occurrence thereof, notice of (A) any
event of which Borrower or any Subsidiary is aware which makes any of
the representations obtained in Section 4.01 inaccurate in any respect
or (B) the receipt by the Borrower or any Subsidiary of any notice,
order, directive or other communication from a governmental authority
alleging violations of or noncompliance with any Environmental Law; and
(l) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as any Bank through the Agent may from time to time
reasonably request.
Notwithstanding the foregoing, upon the occurrence and during the continuance of
an Event of or a Default, the Borrower will, and will cause its Subsidiaries to,
provide to the Agent for each Bank additional information and any and all of the
above information more frequently to the extent reasonably requested by the
Agent or any Bank.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events (each
an "Event of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any
Advance or Note when the same becomes due and payable; or the Borrower
shall fail to pay any interest on any Advance, Note, or any fees or
other amounts payable under any Loan Document, in each case within five
days after the same becomes due and payable; or
(b) any representation or warranty made or deemed by any Loan
Party (or any of its officers) in any Loan Document or certificate or
other writing delivered pursuant thereto shall prove to have been
incorrect in any material respect when made or deemed made; or
(c) (i) any Loan Party shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01, Section 5.02 or
Section 5.03; or (ii) any Loan Party
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shall fail to perform or observe any other term, covenant or agreement
contained in this Agreement or in any other Loan Document on its part
to be performed or observed if such failure shall remain unremedied for
ten days after written notice thereof shall have been given to such
Loan Party by the Agent or any Bank; or
(d) any Loan Party or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any Debt which is
outstanding under the $250,000,000 Credit Agreement or in a principal
amount of at least $5,000,000 in the aggregate (but excluding Debt
evidenced by the Notes) of such Loan Party or such Subsidiary (as the
case may be), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment and except as required by Section 2.09 of the $250,000,000
Credit Agreement), redeemed, purchased or defeased, or any offer to
prepay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof; or
(e) any Loan Party or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against any Loan Party or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 30
days, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or for any substantial part of its property) shall occur; or
any Loan Party or any of its Subsidiaries shall take any corporate
action to authorize any of the actions set forth above in this
subsection (e); or
(f) any proceeding shall be instituted against any Loan Party
or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its
debts under any law relating to bankruptcy, insolvency or
reorganization or relief or protection of debtors or seeking the entry
of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part
of its
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property, and either such proceeding shall remain undismissed or
unstayed for a period of 30 days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against it or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
property) shall occur; or
(g) any judgment or order for the payment of money in excess
of $5,000,000 which is not covered by insurance shall be rendered
against any Loan Party or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon
such judgment or order or (ii) there shall be any period of ten
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(h) any non-monetary judgment or order shall be rendered
against the Borrower or any of its Subsidiaries that is materially
adverse to the business, property, prospects, condition (financial or
otherwise) or results of operations of the Borrower and its
Subsidiaries, taken as a whole, and either (i) enforcement proceedings
shall have been commenced by any Person upon such judgment or order or
(ii) there shall be any period of ten consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(i) any Loan Document after delivery thereof pursuant to
Article III hereof or otherwise shall, for any reason cease to be valid
and binding on the respective Loan Party or Loan Parties thereto; or a
Loan Party shall so state in writing or shall contest the validity or
enforceability of any material term or provision of any Loan Document;
or
(j) any one or more Service Agreements shall be terminated
during any period of four consecutive fiscal quarters that represent,
in the aggregate, 5% of the Consolidated EBITDA of the Borrower and its
Subsidiaries for such period, measured as of the end of any fiscal
quarter ending after the date of any such termination, provided that it
shall not be an Event of Default hereunder if the Service Agreement for
the Facility owned by PhyCor of Ruston, Inc. is terminated without
cause; or
(k) any ERISA Event with respect to a Plan shall have occurred
and, 30 days after notice thereof shall have been given to the Borrower
by the Agent, (i) such ERISA Event shall still exist and (ii) the sum
(determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other
Plans with respect to which an ERISA Event shall have occurred and then
exist (or in the case of a Plan with respect to which an ERISA Event
described in clauses (iii) through (vi) of the definition of ERISA
Event shall have occurred and then exist, the liability related
thereto) is equal to or greater than $5,000,000 for any fiscal year; or
(l) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by the Borrower and its ERISA Affiliates as
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Withdrawal Liability (determined as of the date of such notification),
exceeds $5,000,000 for any fiscal year; or
(m) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if as a result of such reorganization or termination
the aggregate annual contributions of the Borrower and its ERISA
Affiliates to all Multiemployer Plans that are then in reorganization
or being terminated have been or will be increased over the amounts
contributed to such Multiemployer Plans for the respective plan year of
each such Multiemployer Plan immediately preceding the plan year in
which the reorganization or termination occurs by an amount exceeding
$5,000,000; or
(n) there shall occur any Change of Control; or
(o) any three of Messrs. Joseph C. Hutts, Thompson S. Dent,
Derril W. Reeves or Richard D. Wright shall, within any six-month
period, cease to be employed full time as officers of the Borrower
other than by reason of the death or incapacity of any such person; or
(p) since December 31, 1996 there has been, in the reasonable
judgment of the Agent or the Majority Banks, any material adverse
change in the Consolidated condition, financial or otherwise,
operations, properties or prospects of the Borrower and its
Subsidiaries taken as a whole;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare the
obligation of each Bank to make Advances to be terminated, whereupon the same
shall forthwith terminate, (ii) shall at the request, or may with the consent,
of the Majority Banks, by notice to the Borrower, declare the Notes, all
interest thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower and (iii) shall at the request, or may with the consent,
of the Majority Banks exercise any other remedies provided hereunder or by law;
provided, however, that in the event of an actual or deemed entry of an order
for relief with respect to the Borrower or any of its Subsidiaries under the
Federal Bankruptcy Code, (A) the obligation of each Bank to make Advances shall
automatically be terminated and (B) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
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ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of the Notes), the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Banks, and such
instructions shall be binding upon all Banks and all holders of Notes; provided,
however, that the Agent shall not be required to take any action which exposes
the Agent to personal liability or which is contrary to any Loan Document or
applicable law. The Agent agrees to give to each Bank prompt notice of each
notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
payee of any Note as the holder thereof until the Agent receives written notice
of the assignment or transfer thereof signed by such payee and including the
agreement of the assignee or transferee to be bound hereby as it would have been
if it had been an original Bank party hereto, in form satisfactory to the Agent;
(ii) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Bank and shall not be responsible to any
Bank for any statements, warranties or representations (whether written or oral)
made in or in connection with any Loan Document; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of any Loan Document on the part of the Borrower or any
Subsidiary of the Borrower or to inspect the property (including the books and
records) of the Borrower or any such Subsidiary; (v) shall not be responsible to
any Bank for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
furnished pursuant thereto; and (vi) shall incur no liability under or in
respect of any Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable
facsimile or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its Commitment,
the Advances made by it and the Notes issued to it, Citibank 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 term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include Citibank in its individual
capacity. Citibank and its Affiliates may accept deposits from, lend money to,
act as
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trustee under indentures of, and generally engage in any kind of business
with, the Borrower, any of its Subsidiaries and any Person who may do business
with or own securities of the Borrower or any such Subsidiary, all as if
Citibank were not the Agent and without any duty to account therefor to the
Banks.
SECTION 7.04. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 4.01(e) and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Bank
also acknowledges that it will, independently and without reliance upon the
Agent or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
SECTION 7.05. Indemnification. The Banks agree to indemnify the Agent
(to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Committed Rate Advances then held by each of
them (or if no Committed Rate Advances are at the time outstanding ratably
according to the respective amounts of their Commitments), from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by the Agent under this Agreement or any
other Loan Document, provided that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
agrees to reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) 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 to the extent that the Agent is not
reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any time by
giving written notice thereof to the Banks and the Borrower and the Agent may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, in the case of the Agent, the Majority Banks shall have
the right, subject to the approval of the Borrower (which shall not be
unreasonably withheld), to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Majority Banks, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent, which
shall be a commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged
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from its duties and obligations under this Agreement and the other Loan
Documents. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and
the other Loan Documents.
SECTION 7.07. Documentation Agent. The Documentation Agent, as such,
shall have no duties or obligations whatsoever with respect to this Agreement,
the Notes or any of the other Loan Documents.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Notes or the Loan Documents, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Majority Banks (or consented to in
writing in the case of the Loan Documents), and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of following: (a) waive
any of the conditions specified in Article III, (b) increase the Commitments of
the Banks or subject the Banks to any additional monetary obligations, (c)
reduce the principal of, or interest on, the Committed Rate Advances or the
Committed Rate Notes or any fees or other amounts payable hereunder, (d)
postpone the date fixed for the scheduled payment of principal of, or interest
on, the Committed Rate Advances or the Committed Rate Notes or any fees or other
amounts payable hereunder or waive any such payment when due, (e) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Committed Rate Advances or the Committed Rate Notes, or the number or percentage
of Banks, which shall be required for the Banks or any of them to take any
action hereunder or (f) amend this Section 8.01; provided, further, that no
amendment, waiver or consent shall, in writing and signed by the Agent in
addition to the Banks required above to take such action, affect the rights or
duties of the Agent under this Agreement or any Note; and provided also that no
amendment, waiver or consent, unless in writing and signed by the Designated
Bidder holding such Note, affect the rights of the holder of a Competitive Bid
Note under such Note.
SECTION 8.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic,
telex or cable communication) and mailed (by certified mail, return receipt
requested), telecopied, telegraphed, telexed, cabled or delivered, if to the
Borrower, at its address at 30 Burton Hills Blvd., Suite 400, Nashville, TN
37215, Attention: Mr. John K. Crawford, telecopier no. (615) 665-7840; if to any
Bank, at its Domestic Lending Office as specified in its Administrative Details
Reply Form; and if to the Agent, at its address at 1 Court Square, 7th Floor,
Zone 1, Long Island City, New York, New York 11120, Attention: Mr. Dennis Agnew,
telecopier no. (718) 248-4844; with a copy, in the cases of notices to the Agent
or the Issuing Bank, to Ms. Margaret A. Brown, 399 Park Avenue, 8th Floor, Zone
11, New York, NY 10043; or, as to each Person, at such other address or
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telecopier number as shall be designated by such party in a written notice to
the other parties. All such notices and communications shall, when mailed (by
certified mail, return receipt requested), telecopied, telegraphed, telexed,
cabled, or faxed be effective when deposited in the mails, telecopied, delivered
to the telegraph company, confirmed by telex answerback, delivered to the cable
company or confirmed received in the case of a telecopy or facsimile,
respectively, except that notices and communications to the Agent pursuant to
Article II or VII shall not be effective until received by the Agent.
SECTION 8.03. No Waiver: Remedies. No failure on the part of any Bank
or the Agent to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 8.04. Costs. Expenses and Taxes.
(a) The Borrower agrees to pay the Agent on demand all reasonable costs
and expenses of the Agent in connection with the preparation, negotiation,
approval, execution, delivery, filing, recording, administration, modification
and amendment of the Loan Documents and the other documents to be delivered
under the Loan Documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of special and local counsel for the Agent with respect
thereto and with respect to advising the Agent as to its rights and
responsibilities under the Loan Documents and the other documents to be
delivered hereunder and thereunder. The Borrower further agrees to pay on demand
(i) all costs and expenses, if any, of the Agent or any Bank in connection with
the enforcement (whether through negotiations or legal proceedings, in
bankruptcy, reorganization or other insolvency proceedings or otherwise) of the
Loan Documents and the other documents to be delivered under the Loan Documents,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 8.04(a), and (ii)
all costs and expenses in connection with appraisals, valuations, audits and
search reports, all insurance and title costs, and all filing and recording fees
required hereby or associated with any enforcement of rights or remedies
specified in clause (i).
(b) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance or LIBOR Advance is made other than on the last day of an Interest
Period relating to such Advance, as a result of a payment (including, without
limitation, any payment pursuant to Section 2.09) or Conversion pursuant to
Section 2.08 or 2.11 or acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, the Borrower shall, upon demand by any
Bank (with a copy of such demand to the Agent), pay to the Agent for the account
of such Bank any amounts required to compensate such Bank for any additional
losses (including loss of anticipated profits), costs or expenses which it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund or
maintain such Advance.
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SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under any Loan Document to such Bank, whether or not such
Bank shall have made any demand under this Agreement or such Note and although
such obligations may be unmatured. Each Bank agrees promptly to notify the
Borrower after any such set-off and application made by such Bank, provided that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Bank under this Section 8.05 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Bank may have.
SECTION 8.06. Indemnification. The Borrower agrees to defend, protect,
indemnify and hold harmless the Agent, each Bank and their respective Affiliates
and the directors, officers, employees, attorneys and agents of the Agent, each
Bank and such Affiliates (each of the foregoing being an "Indemnitee" and all of
the foregoing being collectively the "Indemnitees") from and against any and all
claims, actions, damages, liabilities, costs and expenses (including, without
limitation, all fees and disbursements of counsel and environmental consultants
which may be incurred in the investigation or defense of any matter) imposed
upon, incurred by or asserted against any Indemnitee by any third party, whether
direct, indirect or consequential and whether based on any federal, state or
foreign laws or other statutes or regulations (including, without limitation,
securities laws, commercial laws and Environmental Laws and regulations), under
common law or on equitable cause, or on contract, tort or otherwise, including,
without limitation, those arising:
(a) by reason of, relating to or in connection with the
execution, delivery, performance or enforcement of any Loan Document,
any commitments relating thereto, or any transaction contemplated by
any Loan Document; or
(b) in connection with any investigation, litigation,
proceeding or other action relating to any Loan Document (whether or
not any Indemnitee is a party thereto); or
(c) by reason of, relating to or in connection with any credit
extended or used under the Loan Documents or any act done or omitted by
any Person, or any event occurring, in connection therewith, or the
exercise of any rights or remedies thereunder, including, without
limitation, any Environmental Activity or Environmental Law; or
(d) arising out of, related to or in connection with any
acquisition or proposed acquisition (including, without limitation, by
tender offer, merger or other method) by the Borrower or any of its
Subsidiaries or Affiliates of any Facility (or the assets thereof) or
any Related Businesses or any Existing Clinic Acquisition, whether or
not an Indemnitee is a party thereto;
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provided, however, that, notwithstanding the foregoing, the Borrower shall not
be liable to any Indemnitee for any portion of such claims, damages, liabilities
and expenses resulting from such Indemnitee's or such Indemnitee's Affiliate's,
director's, officer's, employee's, attorney's or agent's gross negligence or
willful misconduct. In the event this indemnity is unenforceable as a matter of
law as to a particular matter or consequence referred to herein, it shall be
enforceable to the full extent permitted by law.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the date of payment
in full of the Advances, including any Environmental Activity or Environmental
Law, regardless of whether the act, omission, event or circumstance constituted
a violation of any Environmental Law at the time of its existence or occurrence.
The indemnification provisions set forth above shall be in addition to any
liability the Borrower may otherwise have. Without prejudice to the survival of
any other obligation of the Borrower hereunder, the indemnities and obligations
of the Borrower contained in this Section 8.06 shall survive the payment in full
of the Advances.
SECTION 8.07. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agent and when the
Agent shall have been notified by each Bank that such Bank has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent and each Bank and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Banks.
SECTION 8.08. Assignments and Participations.
(a) Each Bank may assign, with the prior consent of the Borrower and
the Agent (which, in either case, shall not be unreasonably withheld), to one or
more banks, financial institutions or other entities all or a portion of its
rights and obligations as a Bank under this Agreement and the other Loan
Documents (including, without limitation, all or a portion of its Commitment,
the Advances owing to it and the Notes held by it in respect of the Committed
Rate Advances); provided, however, that (i) each such assignment shall be of a
constant, and not a varying, percentage of all of the assigning Bank's rights
and obligations under the Loan Documents, (ii) the amount of the Commitments, if
any, of the assigning Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $10,000,000, and shall be an integral
multiple of $1,000,000 in excess thereof, or the remaining amount of such Bank's
Commitments, (iii) each such assignment shall be to an Eligible Assignee, and
(iv) the parties to each such assignment shall execute and deliver to the Agent,
for its acceptance and recording in the Register, an Assignment and Acceptance,
together with any Notes subject to such assignment and a processing and
recordation fee of $3,000; provided, further, that each Bank may, without the
consent of the Borrower or the Agent, assign, as collateral or otherwise, any of
its rights under this Agreement and the other Loan Documents (including, without
limitation, the right to payment of principal and interest under the Notes) to
any Federal Reserve Bank, and such assignment of rights to the Federal Reserve
Bank shall not be subject to the conditions and restrictions set forth in items
(i) through (iv) of the immediately foregoing proviso; and provided,
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further, that each Bank may, without the consent of (but with prior written
notice to) the Borrower or the Agent, assign, in whole or in part, any of its
rights and obligations under this Agreement and the other Loan Documents to any
of its Affiliates, and such assignment to Affiliates shall not be subject to the
conditions and restrictions set forth in items (i) through (iv) of the proviso
above. Upon such execution, delivery, acceptance and recording, from and after
the effective date specified in each Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations under the Loan Documents have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder
and thereunder and (y) the Bank assignor thereunder shall, to the extent that
rights and obligations under the Loan Documents have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under the Loan Documents, such Bank shall cease to
be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant hereto or thereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Loan Party or the performance or observance by any Loan Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee confirms that it has
received a copy of each of the Loan Documents, together with copies of the
financial statements referred to in Section 4.01(e) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement or any other Loan Document; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Loan Documents are required to be performed by it as a Bank.
(c) The Agent shall maintain at its address referred to in Section 8.02
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and the
Commitment and principal amount of the Advances owing to, each Bank from time to
time (the "Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
72
<PAGE> 78
Agent and the Banks may treat each Person whose name is recorded in the Register
as a Bank hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Bank at any reasonable time and
from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee,
together with any Notes subject to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form of
Exhibit E, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the Agent
in exchange for the surrendered Committed Rate Notes, new Committed Rate Notes
to the order of such Eligible Assignee in an aggregate principal amount equal to
the principal amount of Committed Rate Advances owed to it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained any principal
amount of Committed Rate Advances hereunder, new Committed Rate Notes to the
order of the assigning Bank in an aggregate principal amount equal to such
principal amount. Such new Committed Rate Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Committed Rate Notes, shall be dated the effective date of such Assignment and
Acceptance, shall consist of Committed Rate Notes payable to the order of such
Eligible Assignee and, if the assigning Bank has retained ownership of any
Committed Rate Advances hereunder, the assigning Bank in the appropriate
principal amounts, and shall otherwise be in substantially the forms required by
this Agreement.
(e) Each Bank may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of its Commitments,
the Notes held by it and reimbursement obligations of the Borrower in respect of
Letters of Credit); provided, however, that (i) such Bank's obligations under
the Loan Documents (including, without limitation, its Commitments to the
Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Bank shall remain the holder of any such Notes for all purposes of
the Loan Documents, and (iv) the Borrower, the Agent and the other Banks shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under the Loan Documents; provided, further, that,
to the extent of any such participation (unless otherwise stated therein and
subject to the preceding proviso), the assignee or purchaser of such
participation shall, to the fullest extent permitted by law, have the same
rights and benefits hereunder as it would have if it were a Bank hereunder; and
provided, further, that each such participation shall be granted pursuant to an
agreement providing that the purchaser thereof shall not have the right to
consent or object to any action by the selling Bank (who shall retain such
right) other than an action which would (i) reduce principal of or interest on
any Advance or fees in which such purchaser has an interest or (ii) postpone any
date fixed for payment of principal of or interest on any such Advance or such
fees.
73
<PAGE> 79
(f) The Borrower agrees that any Bank purchasing a participation from
another Bank pursuant to Section 2.14 or 8.08(e) may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation.
(g) Notwithstanding any other provision of this Section 8.08, each
Designated Bidder may assign to one or more Eligible Assignees any Competitive
Bid Note.
SECTION 8.09. Headings. Article and Section headings in this Agreement
are included for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose.
SECTION 8.10. Confidentiality. Neither the Agent nor any Bank shall
disclose to any third party any Confidential Information disclosed to the Agent
or such Bank pursuant to the Loan Documents, except that (i) the Agent or any
Bank may disclose Confidential Information to a third party to the extent
compelled by law, subpoena, civil investigative demand, interrogatory or similar
legal process or by any rule, regulation or request of any regulatory authority
having jurisdiction over the Agent or such Bank, as the case may be, (ii) the
Agent or any Bank may disclose Confidential Information to a potential
transferee who is an Eligible Assignee, provided that such potential transferee
agrees to be bound by the same confidentiality obligations as the Banks under
this Section and (iii) the Agent or any Bank may disclose Confidential
Information to its affiliates or its legal counsel or other agents provided that
prior to any such disclosure the Agent or such Bank, as the case may be, informs
such affiliates, counsel or agent of the confidential nature of such
Confidential Information. For purposes hereof, "Confidential Information" is
written information disclosed by the Borrower or any of its Subsidiaries to the
Agent or any Bank pursuant hereto that is not information which (x) has become
generally available to the public, other than as a result of disclosure by the
Agent or such Bank, (y) was available on a non-confidential basis prior to its
disclosure to the Agent or such Bank by the Borrower or any of its Subsidiaries,
or (z) becomes available to the Agent or such Bank on a non-confidential basis
from a source other than the Borrower or any of its Subsidiaries. The Agent and
the Banks acknowledge that the Confidential Information may from time to time
include material non-public information relating to the Borrower or its
Subsidiaries.
SECTION 8.11. Severability of Provisions. Each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
or unenforceable in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 8.12. Independence of Provisions. All agreements and covenants
hereunder and under the Loan Documents shall be given independent effect such
that if a particular action or condition is prohibited by the terms of any such
agreement or covenant, the fact that such
74
<PAGE> 80
action or condition would be permitted within the limitations of another
agreement or covenant shall not be construed as allowing such action to be taken
or condition to exist.
SECTION 8.13. Consent to Jurisdiction.
(a) The Borrower hereby irrevocably submits to the jurisdiction of any
New York State or Federal court sitting in New York City in any action or
proceeding arising out of or relating to this Agreement or any Loan Document,
and the Borrower hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State or
Federal court. The Borrower hereby irrevocably waives, to the fullest extent it
may effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding. The Borrower hereby irrevocably appoints CT
Corporation System (the "Process Agent"), with an office on the date hereof at
1633 Broadway, New York, New York 10019, United States, as its agent to receive
on behalf of the Borrower and its property service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding. Such service may be made by mailing or delivering a copy of such
process to the Borrower in care of the Process Agent at the Process Agent's
above address, and the Borrower hereby irrevocably authorizes and directs the
Process Agent to accept such service on his behalf. As an alternative method of
service, the Borrower also irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to the Borrower at its address specified in Section 8.02. The Borrower
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(b) Nothing in this section shall affect the right of any Bank or the
Agent to serve legal process in any other manner permitted by law or affect the
right of any Bank or the Agent to bring any action or proceeding against the
Borrower or its property in the courts of any other jurisdictions.
SECTION 8.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS THAT WOULD RESULT IN THE APPLICATION
OF ANY OTHER LAW.
SECTION 8.15. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT,
THE ISSUING BANK AND THE BANKS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT' OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 8.16. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
75
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER
PHYCOR, INC.
By
-----------------------------------
Name:
Title:
THE AGENT
CITIBANK, N.A.,
as Agent
By
------------------------------------
Name:
Title:
76
<PAGE> 82
THE DOCUMENTATION AGENT
NATIONSBANK, N.A.,
as Documentation Agent
By
-----------------------------------
Name:
Title:
77
<PAGE> 83
Commitment: THE BANKS
Commitment: $12,750,000.00 CITIBANK, N.A.
By
-----------------------------------
Name:
Title:
Commitment: $ 3,750,000.00 AMSOUTH BANK
By
-----------------------------------
Name:
Title:
Commitment: $ 5,625,000.00 BANK OF AMERICA ILLINOIS
By
-----------------------------------
Name:
Title:
Commitment: $10,125,000.00 THE BANK OF NOVA SCOTIA
By
-----------------------------------
Name:
Title:
Commitment: $ 5,625,000.00 BANKERS TRUST COMPANY
By
-----------------------------------
Name:
Title:
78
<PAGE> 84
Commitment: $3,750,000.00 COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND"
By
-----------------------------------
Name:
Title:
Commitment: $7,500,000.00 CORESTATES BANK, N.A.
By
-----------------------------------
Name:
Title:
Commitment: $7,500,000.00 CREDIT LYONNAIS NEW YORK BRANCH
By
-----------------------------------
Name:
Title:
Commitment: $7,500,000.00 DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By
-----------------------------------
Name:
Title:
By
-----------------------------------
Name:
Title:
Commitment: $9,375,000.00 FIRST AMERICAN NATIONAL BANK
By
-----------------------------------
Name:
Title:
79
<PAGE> 85
Commitment: $ 3,750,000.00 THE FIRST NATIONAL BANK OF CHICAGO
By
-----------------------------------
Name:
Title:
Commitment: $10,125,000.00 FIRST UNION NATIONAL BANK
By
-----------------------------------
Name:
Title:
Commitment: $ 3,750,000.00 THE FUJI BANK, LIMITED
By
-----------------------------------
Name:
Title:
Commitment: $ 9,375,000.00 MELLON BANK, N.A.
By
-----------------------------------
Name:
Title:
Commitment: $11,250,000.00 NATIONSBANK, N.A.
By
-----------------------------------
Name:
Title:
Commitment: $ 7,500,000.00 PNC BANK, KENTUCKY, INC.
By
-----------------------------------
Name:
Title:
80
<PAGE> 86
Commitment: $ 7,500,000.00 THE SUMITOMO BANK, LIMITED
By
-----------------------------------
Name:
Title:
Commitment: $ 10,125,000.00 SUNTRUST BANK, NASHVILLE, N.A.
By
-----------------------------------
Name:
Title:
Commitment: $ 9,375,000.00 TORONTO DOMINION (TEXAS), INC.
By
-----------------------------------
Name:
Title:
Commitment: $ 3,750,000.00 UNION BANK OF SWITZERLAND, NEW YORK
BRANCH
By
-----------------------------------
Name:
Title:
Total Commitments: $150,000,000
81
<PAGE> 1
Exhibit 10.7
U.S. $250,000,000
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
DATED AS OF JULY 1, 1997
AMONG
PHYCOR, INC.
AS BORROWER,
THE BANKS NAMED HEREIN,
AS BANKS,
AND
CITIBANK, N.A.,
AS AGENT
Amended and Restated Revolving Credit Agreement
DOCUMENT.02
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
- ------- ----
<S> <C>
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS...............................................1
SECTION 1.01 Certain Defined Terms..............................................1
SECTION 1.02 Computation of Time Periods.......................................24
SECTION 1.03 Accounting Terms..................................................24
ARTICLE II - AMOUNTS AND TERMS OF THE ADVANCES............................................25
SECTION 2.01 The Committed Rate Advances.......................................25
SECTION 2.02 The Competitive Bid Advances......................................26
SECTION 2.03 Fees..............................................................30
SECTION 2.04 Optional Reduction of the Commitments.............................30
SECTION 2.05 Repayment.........................................................31
SECTION 2.06 Interest..........................................................31
SECTION 2.07 Interest Rate Determination and Protection........................32
SECTION 2.08 Voluntary and Automatic Conversion of Committed Rate Advances.....32
SECTION 2.09 Prepayments.......................................................33
SECTION 2.10 Increased Costs...................................................34
SECTION 2.11 Illegality........................................................35
SECTION 2.12 Payments and Computations.........................................35
SECTION 2.13 Taxes.............................................................37
SECTION 2.14 Sharing of Payments, Etc..........................................38
SECTION 2.15 Evidence of Debt/Register.........................................39
SECTION 2.16 Use of Proceeds...................................................39
SECTION 2.17 Outstanding Advances; Existing Collateral.........................39
ARTICLE III - AMOUNT AND TERMS OF LETTERS OF CREDIT AND PARTICIPATIONS THEREIN............40
SECTION 3.01 Letters of Credit.................................................40
SECTION 3.02 Issuing the Letters of Credit.....................................40
SECTION 3.03 Reimbursement Obligations.........................................41
SECTION 3.04 Participations Purchased by the Banks.............................41
SECTION 3.05 Letter of Credit Fees.............................................42
SECTION 3.06 Indemnification Nature of the Issuing Bank's Duties...............43
SECTION 3.07 Increased Costs...................................................44
SECTION 3.08 Uniform Customs and Practice......................................45
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - CONDITIONS OF LENDING........................................................45
SECTION 4.01 Conditions Precedent to Any Borrowing and Letter of Credit.........45
SECTION 4.02 Conditions Precedent to Initial Advances..........................46
ARTICLE V - REPRESENTATIONS AND WARRANTIES................................................47
SECTION 5.01 Representations and Warranties of the Borrower....................47
ARTICLE VI - COVENANTS OF THE BORROWER....................................................51
SECTION 6.01 Affirmative Covenants.............................................51
SECTION 6.02 Negative Covenants................................................55
SECTION 6.03 Financial Covenants...............................................64
SECTION 6.04 Reporting Requirements............................................66
ARTICLE VII - EVENTS OF DEFAULT...........................................................68
SECTION 7.01 Events of Default.................................................68
ARTICLE VIII - THE AGENT..................................................................72
SECTION 8.01 Authorization and Action..........................................72
SECTION 8.02 Agent's Reliance, Etc.............................................72
SECTION 8.03 Citibank and Affiliates...........................................73
SECTION 8.04 Bank Credit Decision..............................................73
SECTION 8.05 Indemnification...................................................73
SECTION 8.06 Successor Agent/Issuing Bank......................................74
SECTION 8.07 Documentation Agent...............................................74
ARTICLE IX - MISCELLANEOUS................................................................75
SECTION 9.01 Amendments, Etc...................................................75
SECTION 9.02 Notices, Etc......................................................75
SECTION 9.03 No Waiver; Remedies...............................................76
SECTION 9.04 Costs, Expenses and Taxes.........................................76
SECTION 9.05 Right of Set-off..................................................76
SECTION 9.06 Indemnification...................................................77
SECTION 9.07 Binding Effect....................................................78
SECTION 9.08 Assignments and Participations....................................78
SECTION 9.09 Headings..........................................................81
SECTION 9.10 Confidentiality...................................................81
SECTION 9.11 Severability of Provisions........................................81
SECTION 9.12 Independent of Provisions.........................................81
SECTION 9.13 Consent to Jurisdiction...........................................82
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9.14 GOVERNING LAW.....................................................82
SECTION 9.15 WAIVER OF JURY TRIAL..............................................82
SECTION 9.16 Execution in Counterparts.........................................82
</TABLE>
iii
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C>
Schedule I - Real Property
Schedule II - Subsidiaries
Schedule III - Service Agreements
Schedule IV - Existing Debt
Schedule V - Existing Liens
Schedule VI - Litigation
</TABLE>
iv
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 - Form of Committed Rate Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit B-1 - Form of Notice of Borrowing
Exhibit B-2 - Form of Competitive Bid Request
Exhibit C - Form of Guaranty
Exhibit D - Form of Intercompany Subordination Agreement
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Subordination Agreement
Exhibit G - Forms of Opinion of Counsel
Exhibit H - Form of Acquisition Approval Letter
</TABLE>
v
<PAGE> 7
Amended and Restated Revolving Credit Agreement, dated as of July 1,
1997 (this "Agreement"), among PHYCOR, INC., a Tennessee corporation (the
"Borrower"), the banks (the "Banks") listed on the signature pages hereof and
from time to time parties hereto, and CITIBANK, N.A. ("Citibank"), as an Issuing
Bank hereunder and as agent (the "Agent") for the Banks and the Issuing Banks.
PRELIMINARY STATEMENT:
The Borrower has requested that a portion of the Fifth Amended and
Restated Revolving Credit Agreement, dated as of July 22, 1996, as amended,
among the Borrower, the banks named therein, NationsBank, N.A., as documentation
agent, and Citibank, as agent (the "Existing Credit Agreement"), be amended and
restated to provide for the making of advances to it and to provide for the
issuance of letters of credit for its account under a revolving credit facility
in the principal amount of up to $250,000,000, on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"$150,000,000 Credit Agreement" means the Credit Agreement,
dated as of July 1, 1997, among the Borrower, the banks named therein,
and Citibank, as agent for such banks, providing for a revolving credit
facility in the principal amount of up to $150,000,000, as amended,
supplemented, restated or otherwise modified from time to time.
"Accounts" means all present and future rights of the Borrower
or any Subsidiary of the Borrower to payment for goods (including
medications) sold or leased or for services rendered pursuant to any
Service Agreement (except those evidenced by instruments or chattel
paper), whether now existing or hereafter arising and wherever arising
and whether or not earned by performance (including, without
limitation, accounts receivable purchased by the Borrower or any of its
Subsidiaries from any physician group which has entered into a Service
Agreement with the Borrower or such Subsidiary).
"Administrative Details Reply Form" means, with respect to
each Bank, an administrative questionnaire in the form prepared by the
Agent, submitted by such Bank to the Agent (with a copy to the
Borrower) and duly completed by such Bank.
<PAGE> 8
"Advance" means a Committed Rate Advance or a Competitive Bid
Advance. In the case of Committed Rate Advances, "Advance" also refers
to a Base Rate Advance or Eurodollar Rate Advance (each of which shall
be a "Type" of Committed Rate Advance). In the case of Competitive Bid
Advances, "Advance" also refers to a Fixed Rate Advance or a LIBOR
Advance (each of which shall be a "Type" of Competitive Bid Advance).
"Affiliate" means, with respect to any Person, any other
entity that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such
Person.
"Applicable Eurodollar Rate Margin" means for the Initial
Effective Period (as defined below) 0.4375% per annum and thereafter
0.5250% per annum; provided, however, that if the Borrower shall have
satisfied the Consolidated Debt/EBITDA Ratio test indicated in the
table below, the Applicable Eurodollar Rate Margin for any Advance, as
applicable, made on or after the fifth Business Day after the delivery
of quarterly certified Consolidated financial statements and a schedule
evidencing financial covenant compliance delivered to the Banks
pursuant to Section 6.04(b) (each a "Quarterly Delivery"), and while
the Borrower is in compliance with Section 6.04(b), shall be the
percentage rate per annum set forth opposite the appropriate test for
the fiscal quarter reported on for such Quarterly Delivery for such
Advance in the table below.
<TABLE>
<CAPTION>
Applicable Eurodollar
Consolidated Rate Margin for
Debt/EBITDA Ratio Advances
------------------------------------------------------------------------------
<S> <C>
Greater than 3.25 to 1.00 0.5250%
Less than or equal to 3.25 to 1.00 but greater 0.4375%
than 2.50 to 1.00
Less than or equal to 2.50 to 1.00 but greater 0.3250%
than 2.00 to 1.00
Less than or equal to 2.00 to 1.00 but greater 0.2875%
than 1.50 to 1.00
Less than or equal to 1.50 to 1.00 0.2500%
</TABLE>
The Applicable Eurodollar Rate Margin shall be determined by
the Agent each quarter on the basis of quarterly certified
Consolidated financial statements and a schedule evidencing
financial covenant compliance delivered to the Banks pursuant
to Section 6.04(b). The "Initial Effective Period" shall be
the period commencing on the Closing Date and ending the fifth
Business Day after the Quarterly Delivery for the fiscal
quarter ended June 30, 1997. Notwithstanding
2
<PAGE> 9
the foregoing, the Applicable Eurodollar Rate Margin shall be
deemed to be 0.5250% per annum in respect of Advances made on
any day as of which the deliveries required to calculate the
Applicable Eurodollar Rate Margin shall not have been made.
"Applicable Facility Fee Rate" means for the Initial
Effective Period 0.1875% per annum and thereafter for each
Effective Period (as defined below) 0.2250% per annum;
provided, however, that if the Borrower shall have satisfied
the Consolidated Debt/EBITDA Ratio test indicated in the table
below, the Applicable Facility Fee Rate for the Effective
Period as to which such test is satisfied shall be the
percentage rate per annum set forth opposite the appropriate
test for the Commitment in the table below.
<TABLE>
<CAPTION>
Consolidated Applicable Facility Fee
Debt/EBITDA Ratio Rate for the Commitment
--------------------------------------------------------------------------------
<S> <C>
Greater than 3.25 to 1.00 0.2250%
Less than or equal to 3.25 to 1.00 but greater 0.1875%
than 2.50 to 1.00
Less than or equal to 2.50 to 1.00 but greater 0.1750%
than 2.00 to 1.00
Less than or equal to 2.00 to 1.00 but greater 0.1500%
than 1.50 to 1.00
Less than or equal to 1.50 to 1.00 0.1250%
</TABLE>
The Applicable Facility Fee Rate shall be determined by the
Agent each quarter on the basis of quarterly certified
Consolidated financial statements and a schedule evidencing
financial covenant compliance delivered to the Banks pursuant
to Section 6.04(b). The "Effective Period" with respect to the
Applicable Facility Fee Rate shall be the period commencing on
the fifth Business Day after the Borrower shall have delivered
to the Agent the quarterly certified Consolidated financial
statements and financial covenant compliance schedule for such
quarter and ending on the date that is five Business Days
after delivery to the Agent of quarterly certified
Consolidated financial statements and financial covenant
compliance certificate for the subsequent quarter.
Notwithstanding the foregoing, the Applicable Facility Fee
Rate shall be deemed to be 0.2250% per annum for each day
during an Effective Period as of which the deliveries required
to calculate the Applicable Facility Fee Rate shall not have
been made.
"Applicable Lending Office" means, with respect to
each Bank, such Bank's Domestic Lending Office in the case of
a Base Rate Advance or a Fixed
3
<PAGE> 10
Rate Advance and such Bank's Eurodollar Lending Office in the
case of a Eurodollar Rate Advance or a LIBOR Advance.
"Asset Purchase Agreement" means any agreement
between the Borrower or any of its Subsidiaries and any Person
relating to the purchase by the Borrower or any of its
Subsidiaries of the assets of any Facility or Related
Business.
"Assignment and Acceptance" means an assignment and
acceptance entered into by an assigning Bank and an Eligible
Assignee, and accepted by the Agent, in accordance with
Section 9.08 and in substantially the form of Exhibit E.
"Banks" means the banks listed on the signature pages
hereof and, after the date hereof, includes each Eligible
Assignee that has entered into an Assignment and Acceptance
which has been accepted by the Agent.
"Base Rate" means, for any period, a fluctuating
interest rate per annum as shall be in effect from time to
time which rate per annum shall at all times be equal to the
highest of:
(a) the rate of interest announced publicly
by Citibank in New York, New York, from time to time,
as Citibank's base rate; or
(b) 1/2 of one percent per annum above the
latest three-week moving average of secondary market
morning offering rates in the United States for
three-month certificates of deposit of major United
States money market banks, such three-week moving
average being determined weekly on each Monday (or,
if any such day is not a Business Day, on the next
succeeding Business Day) for the three-week period
ending on the previous Friday by Citibank on the
basis of such rates reported by certificate of
deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from
three New York certificate of deposit dealers of
recognized standing selected by Citibank in either
case adjusted to the nearest 1/16 of one percent or,
if there is no nearest 1/16 of one percent, to the
next higher 1/16 of one percent; or
(c) the Federal Funds Rate plus 1/2 of one
percent.
"Base Rate Advance" means a Committed Rate Advance
which bears interest as provided in Section 2.06(a)(i).
"Bid Due Date" has the meaning set forth in Section
2.02(c).
"Borrowing" means a Borrowing that is a Committed
Rate Borrowing or a Competitive Bid Borrowing.
4
<PAGE> 11
"Business Day" means a day of the year on which banks
are not required or authorized to close in New York City and,
if the applicable Business Day relates to any Eurodollar Rate
Advances or LIBOR Advances, on which dealings in dollar
deposits are carried on in the London interbank market.
"Capital Expenditures" means, with respect to any
Person for any period, the aggregate of all expenditures paid
or accrued by such Person during such period that, in
accordance with generally accepted accounting principles,
should be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in the
balance sheet of such Person.
"Capital Investments" means (without duplication),
with respect to any Person for any period, the aggregate of
all investments by such Person in (i) Capital Expenditures,
(ii) joint ventures, general or limited partnerships, limited
liability companies or any other type of Person that is not a
Subsidiary, including loans and advances to such Person
(including loans and advances to any physician group or other
third party related to a Facility or Related Business, or any
third party with whom such Person has entered into a Service
Agreement), (iii) capital investments in, and loans and
advances to, a Subsidiary which becomes a Subsidiary as a
result of such investment, (iv) the purchase of the homes of
employees of such Person in connection with the relocation of
such employees, and (v) Existing Clinic Acquisitions.
"Capital Lease" of any Person means any lease of any
property (whether real, personal or mixed) by such Person as
lessee, which lease should, in accordance with generally
accepted accounting principles, be required to be accounted
for as a capital lease on the balance sheet of such Person.
"CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. ss. 9601 et seq.), and any regulations promulgated
thereunder.
"Change of Control" means the occurrence, after the
date of this Agreement, of (i) any Person or two or more
Persons acting in concert acquiring beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
as amended), directly or indirectly, of securities of the
Borrower (or other securities convertible into such
securities) representing 50% or more of the combined voting
power of all securities of the Borrower entitled to vote in
the election of directors; or (ii) during any period of up to
24 consecutive months, commencing before or after the date of
this Agreement, individuals who at the beginning of such
24-month period were directors of the Borrower ceasing for any
reason to constitute a majority of the Board of Directors of
the Borrower unless the Persons replacing such individuals
were nominated by the Board of Directors of the Borrower; or
(iii) any Person or two or more Persons acting in concert
acquiring by contract or
5
<PAGE> 12
otherwise, or entering into a contract or arrangement which
upon consummation will result in its or their acquisition of,
or control over, securities of the Borrower (or other
securities convertible into such securities) representing 50%
or more of the combined voting power of all securities of the
Borrower entitled to vote in the election of directors.
"Closing Date" means the Business Day on which all of
the conditions set forth in Section 4.02 shall have been
fulfilled.
"Committed Rate Advance" means an Advance pursuant to
Section 2.01.
"Committed Rate Borrowing" means a Borrowing pursuant
to Section 2.01.
"Committed Rate Note" means a promissory note of the
Borrower payable to the order of a Bank, in substantially the
form of Exhibit A-1, evidencing the aggregate indebtedness of
the Borrower to such Bank resulting from the Committed Rate
Advances made by such Bank, and "Committed Rate Notes" means
such promissory notes collectively.
"Commitment" means, as to any Bank, the amount of
commitment to make Committed Rate Advances or participate in
Letters of Credit set forth opposite such Bank's name on the
signature pages hereof or, if such Bank has entered into one
or more Assignments and Acceptances, the amount thereof set
forth for such Bank in the Register maintained by the Agent
pursuant to Section 9.08(c), as such amount may be reduced
from time to time pursuant to Section 2.04.
"Commitment Percentage" means, as to any Bank, the
percentage equal to such Bank's Commitment divided by the
aggregate Commitments of all Banks.
"Common Stock" means Securities having ordinary
voting power for the election of directors that are not
entitled to any preference as to dividends or other
distributions or on liquidation.
"Competitive Bid" has the meaning set forth in
Section 2.02(c).
"Competitive Bid Advance" means an Advance made
pursuant to Section 2.02.
"Competitive Bid Borrowing" means a Borrowing
pursuant to Section 2.02.
"Competitive Bid Reduction" has the meaning set forth
in Section 2.01(a).
6
<PAGE> 13
"Competitive Bid Note" means a promissory note of the
Borrower payable to the order of a Designated Bidder, in
substantially the form of Exhibit A-2, evidencing the
indebtedness of the Borrower to such Designated Bidder
resulting from Competitive Bid Advances made by such
Designated Bidder, and "Competitive Bid Notes" means such
promissory notes collectively.
"Competitive Bid Request" has the meaning set forth
in Section 2.02(b).
"Consolidated" and any derivative thereof each means,
with reference to the accounts or financial reports of any
Person, the consolidated accounts or financial reports of such
Person and each Subsidiary of such Person determined in
accordance with generally accepted accounting principles,
including principles of consolidation, consistent with those
applied in the preparation of the Borrower's December 31, 1996
Consolidated financial statements delivered to the Banks prior
to the date hereof.
"Contingent Obligation" of any Person means, without
duplication, (i) any direct or indirect liability, contingent
or otherwise, of such Person with respect to any obligation of
the type specified in clause (ii) or (iii) below or other
obligation of another Person, including, without limitation,
any obligation directly or indirectly guaranteed, endorsed
(other than for collection or deposit in the ordinary course
of business), co-made, discounted or sold with recourse by
such Person, or in respect of which such Person is otherwise
directly or indirectly liable (including, without limitation,
liable through any agreement to purchase, repurchase or
otherwise acquire such obligation or provide or purchase any
security therefor, or to provide funds for the payment or
discharge of such obligation, or to maintaining any financial
condition of the obligor of such obligation, or to make
payment for any products, materials or supplies or for any
transportation, services or lease (regardless of the
non-delivery or non-furnishing thereof), in any such case if
the purpose or intent of such agreement is to provide
assurance that such obligation will be paid or discharged, or
that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against
loss in respect thereof), (ii) obligations of such Person with
respect to undrawn letters of credit or unpaid bankers'
acceptances, bankers' assurances or guarantees or similar
items, and (iii) obligations of such Person with respect to
any interest rate protection, hedge, cap, collar or similar
agreement or any foreign exchange or forward sale agreement,
or any similar agreement.
"Convert", "Conversion" and "Converted" each refers
to a conversion of Advances of one Type into Advances of
another Type pursuant to Section 2.07 or 2.08.
"Current Liabilities" of any Person means, as of any
date of determination, (i) all Debt (excluding any Debt under
Operating Leases) which by its terms is payable on demand or
matures within one year from the date of creation
7
<PAGE> 14
(excluding any Debt renewable or extendible, at the exclusive
option of the debtor, to a date more than one year from such
date or arising under a revolving credit or similar agreement
that unconditionally obligates the lender or lenders to extend
credit in respect thereof during a period of more than one
year from such date), and (ii) all other items (including
taxes accrued as estimated) which in accordance with generally
accepted accounting principles should be included as current
liabilities of such Person, in each case, including all
amounts required to be paid or prepaid with respect to any
Debt of such Person within one year from the date of
determination.
"Debt" of any Person means, without duplication, (i)
all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (but
excluding, in the case of the acquisition of any Facility (or
the assets thereof), any Existing Clinic Acquisition or the
acquisition of a Related Business, any contingent obligation
to make payments (other than deferred purchase price payments)
after the closing of such acquisition), (ii) all obligations
of such Person in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any
Securities of such Person or any warrants, rights or options
to acquire such Securities, now or hereafter outstanding,
(iii) all obligations of such Person evidenced by bonds,
notes, debentures, convertible debentures or other similar
instruments, (iv) all indebtedness created or arising under
any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such
agreement in the event of default, acceleration, or
termination are limited to repossession or sale of such
property), (v) all obligations of such Person under Capital
Leases, (vi) the amount of all Contingent Obligations (other
than guarantees of medical group real property leases at
Facilities to the extent the amount thereof incurred in any
twelve - month period does not exceed $5,000,000 in the
aggregate), (vii) all Debt referred to in clause (i), (ii),
(iii), (iv), (v) or (vi) above secured by (or for which the
holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any lien, security interest or
other charge or encumbrance upon or in property (including,
without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become
liable for the payment of such Debt, (viii) all mandatorily
redeemable preferred stock, valued at the applicable
redemption price, plus accrued and unpaid dividends payable in
respect of such mandatorily redeemable preferred stock, (ix)
if an ERISA Event shall have occurred with respect to any
Plan, the Insufficiency (if any) of such Plan (or, in the case
of a Plan with respect to which an ERISA Event described in
clauses (iii) through (vi) of the definition of ERISA Event
shall have occurred, the liability related thereto), and (x)
net obligations under any interest rate, currency or other
protection, hedge, cap, collar, swap or similar agreement.
"Debt/EBITDA Ratio" of any Person means, at any date
of determination, the ratio that (a) such Person's total Debt
outstanding at such date of determination
8
<PAGE> 15
(including, without limitation, all Subordinated Debt other
than, in the case of the Borrower and its Subsidiaries, the
Excluded Convertible Acquisition Debt), less the amount, if
any, by which such Person's unrestricted cash and cash
equivalents exceeds $15,000,000 at such date of determination,
bears to (b) such Person's EBITDA.
"Debt/Total Capitalization Ratio" of any Person
means, at any date of determination, the ratio that such
Person's Funded Debt at such date of determination bears to
such Person's Total Capitalization.
"Deferred Acquisition Consideration" means, in the
case of the acquisition of any Facility (or the assets
thereof) or any Related Business, all deferred cash and
non-cash consideration to be paid by the Borrower or any of
its Subsidiaries after the closing of such acquisition;
provided that Deferred Acquisition Consideration shall not
include any contingent payments that may be made by the
Borrower or any of its Subsidiaries after such closing.
"Designated Bidder" means each Bank (or its nominee
so long as the beneficial interest in the Competitive Bid
Advances held by such nominee is retained by such Bank) unless
such Bank has elected, by notice in writing to the Agent, the
other Banks and the Borrower, not to be a potential bidder in
respect of Competitive Bid Advances. Any such election may be
terminated, at any time, by notice in writing to the Agent,
the other Banks and the Borrower.
"Documentation Agent" means NationsBank, N.A.
"Domestic Lending Office" means, with respect to any
Bank, the office of such Bank specified as its "Domestic
Lending Office" in its Administrative Details Reply Form or on
the signature page of the Assignment and Acceptance pursuant
to which it became a Bank, or such other office or Affiliate
of such Bank as such Bank may from time to time specify to the
Borrower and the Agent.
"EBITDA" means, with respect to any Person for any
fiscal period, the sum (without duplication) of (i) Net Income
(whether positive or negative), plus (ii) Interest Expense,
plus (iii) income tax expense, plus (iv) depreciation expense,
plus (v) amortization expense, plus (vi) extraordinary losses
(determined in accordance with GAAP), minus (vi) extraordinary
gains (determined in accordance with GAAP).
"EBITDAL" means, with respect to any Person for any
fiscal period, the sum (without duplication) of EBITDA plus
Lease Expense.
"Eligible Assignee" means (i) a commercial bank
organized under the laws of the United States, or any state
thereof, having a combined capital and surplus of at least
$100,000,000; (ii) a savings and loan association or savings
bank organized under the laws of the United States or any
state thereof, and having a
9
<PAGE> 16
combined capital and surplus of at least $100,000,000; (iii) a
commercial bank organized under the laws of any other country
which is a member of 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, agency or Affiliate located in the United
States or managed and controlled by a branch, agency or
affiliate located in the United States; (iv) any Affiliate of
any Bank if such Affiliate has Total Assets in excess of
$100,000,000; (v) any insurance company organized under the
laws of the United States or any state thereof, and having
Total Assets in excess of $100,000,000 and any other
commercial financial entity having Total Assets in excess of
$100,000,000; and (vi) any other Person mutually agreed to in
writing by the Borrower and the Agent.
"Environmental Activity" means any past, present or
future storage, holding, existence, release, threatened
release, emission, discharge, generation, processing,
abatement, disposition, handling or transportation of any
Hazardous Substance (i) from, under, into or on any Facility,
or (ii) relating to any Facility, or the ownership, use,
operation or occupancy thereof, or any threat of such
activity.
"Environmental Laws" means any and all laws,
statutes, ordinances, rules, regulations, judgments, orders,
decrees, permits, licenses, or other governmental restrictions
or requirements relating to the environment, any Hazardous
Substance or any Environmental Activity in effect in any and
all jurisdictions in which the Borrower or any of its
Subsidiaries is or from time to time may be doing business, or
where any of the Facilities are from time to time located,
including, without limitation, CERCLA and RCRA.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person who for purposes
of Title IV of ERISA is a member of the Borrower's controlled
group, or under common control with the Borrower, within the
meaning of Section 414 of the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated
pursuant thereto and the rulings issued thereunder.
"ERISA Event" means (i) the occurrence of a
reportable event, within the meaning of Section 4043 of ERISA,
unless the 30-day notice requirement with respect thereto has
been waived by the PBGC; (ii) the provision by the
administrator of any Plan of a notice of intent to terminate
such Plan, pursuant to Section 4041(a)(2) of ERISA (including
any such notice with respect to a plan amendment referred to
in Section 4041(e) of ERISA); (iii) the cessation of
operations at a facility in the circumstances described in
Section 4062(e) of
10
<PAGE> 17
ERISA; (iv) the withdrawal by the Borrower or an ERISA
Affiliate from a Multiple Employer Plan during a plan year for
which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA; (v) the failure by the Borrower or any
ERISA Affiliate to make a material payment to a Plan required
under Section 302(f)(1) of ERISA; (vi) the adoption of an
amendment to a Plan requiring the provision of initial or
additional security to such Plan, pursuant to Section 307 of
ERISA; or (vii) the institution by the PBGC of proceedings to
terminate a Plan, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned
to that term in Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to
any Bank, the office of such Bank specified as its "Eurodollar
Lending Office" in its Administrative Details Reply Form or on
the signature page of the Assignment and Acceptance pursuant
to which it became a Bank (or, if no such office is specified,
its Domestic Lending Office), or such other office of such
Bank as such Bank may from time to time specify to the
Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for
each Eurodollar Rate Advance or LIBOR Advance comprising part
of the same Borrowing, an interest rate per annum obtained by
dividing (i) the rate of interest determined by the Agent to
be equal to the average (rounded upward to the nearest whole
multiple of 1/16 of one percent per annum, if such average is
not such a multiple) of the rate per annum at which deposits
in United States dollars are offered by the principal office
of Citibank in London to prime banks in the London interbank
market at 11:00 A.M. (London time) two Business Days before
the first day of such Interest Period in an amount
substantially equal to the Advance comprising part of such
Borrowing and for a period equal to such Interest Period by
(ii) a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period. The Eurodollar
Rate for any Interest Period for each Eurodollar Rate Advance
or LIBOR Advance comprising part of the same Borrowing shall
be determined by the Agent on the basis of applicable rates
furnished to and received by the Agent from Citibank two
Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.07.
"Eurodollar Rate Advance" means a Committed Rate
Advance which bears interest as provided in Section
2.06(a)(ii).
"Eurodollar Rate Reserve Percentage" of any Bank for
any Interest Period for any Eurodollar Rate Advance or LIBOR
Advance means the reserve percentage applicable during such
Interest Period (or if more than one such
11
<PAGE> 18
percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during
which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Bank with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Event of Default" has the meaning specified in
Section 7.01.
"Excluded Convertible Acquisition Debt" means the
subordinated convertible notes issued by the Borrower or any
of its Subsidiaries as consideration for the acquisition of
Facilities that, at any date of determination, are convertible
into shares of the Borrower's common stock having a Market
Value, as of such date, equal to 140% of the conversion price
of such notes.
"Existing Clinic Acquisition" means the acquisition
of an additional Facility or single-specialty clinic, or the
assets thereof, by the Borrower or a Subsidiary of the
Borrower which already owns and operates one or more
Facilities, or the addition of physicians to such Facilities,
which acquisition or addition will supplement the operations
of the existing Facilities.
"Facility" means any multi-specialty medical clinic
(including any satellite locations and all real, personal and
mixed property relating to any such clinic) and related
businesses certain of the assets of which are now owned or
leased and operated or hereafter owned or leased and operated
by the Borrower or any existing or future Subsidiary of the
Borrower or, in the case of an acquisition, that such a
Subsidiary intends to acquire.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fixed Charge Coverage Ratio" of any Person means, at
any date of determination for any period, the ratio that such
Person's EBITDAL for such period, minus (i) Consolidated cash
income tax expense and minus (ii) Capital Expenditures other
than Capital Expenditures which are funded by Advances or
other Debt (to the extent such Debt is permitted under this
Agreement) or by Net
12
<PAGE> 19
Cash Proceeds received from the issuance, sale or disposition
of the Borrower's Securities (common, preferred or special),
securities convertible into or exchangeable for Securities,
and any rights, options, warrants and similar instruments,
bears to such Person's Interest Expense for such period plus
(i) Lease Expense, and plus (ii) all scheduled Debt principal
payments (including the principal component of payments in
respect of Capital Leases but excluding payments of any
deferred purchase price in connection with the acquisition of
any Facility (or the assets thereof), any Existing Clinic
Acquisition or the acquisition of any Related Business and any
contingent payments made in connection with such acquisition)
for such period.
"Fixed Rate" has the meaning set forth in Section
2.02(c).
"Fixed Rate Advance" means a Competitive Bid Advance
which bears interest as provided in Section 2.06(b).
"Funded Debt" of any Person means Debt (including,
without limitation, all Subordinated Debt other than, in the
case of the Borrower and its Subsidiaries, the Excluded
Convertible Acquisition Debt) which matures more than one year
from the date of determination or matures within one year from
such date but is renewable or extendible, at the option of
such Person, to a date more than one year from such date or
arises under a revolving credit or similar agreement which
obligates the lender or lenders to extend credit during a
period of more than one year from such date, including,
without limitation, all amounts of Funded Debt required to be
paid or prepaid within one year from the date of
determination.
"Guarantors" means the Subsidiaries listed on
Schedule II hereto and each other Subsidiary that from time to
time may enter into a Guaranty pursuant hereto; provided that
Immaterial Subsidiaries shall not be required to be
Guarantors; provided further that Arnett Health Systems, Inc.
and its Subsidiaries as of the date hereof (the "Arnett
Subsidiaries") shall not be Guarantors so long as less than
3.0% of the EBITDA of the Borrower and its Subsidiaries
(calculated on a rolling four quarter basis) is attributable
to their interests in the Arnett Subsidiaries.
"Guaranty" means a guaranty of payment in favor of
the Agent, in substantially the form of Exhibit C, as amended,
supplemented, restated or otherwise modified from time to
time.
"Hazardous Substance" means (i) any hazardous
substance and toxic substance as such terms are presently
deemed or used in ss. 101(14) of CERCLA (42 U.S.C. ss.
9601(14)), in 33 U.S.C. ss. 1251 et seq. (Clean Water Act), or
15 U.S.C. ss. 2601 et seq. (Toxic Substances Control Act),
(ii) any additional substances or materials which are now or
hereafter hazardous or toxic substances under any applicable
laws, and (iii) as of any date of determination, any
additional substances or materials which are hereafter
incorporated in or added to the
13
<PAGE> 20
definition or use of "hazardous substance" or "toxic
substance" for purposes of CERCLA or any other applicable law.
"Immaterial Subsidiary" means a Subsidiary of the
Borrower that, on a Consolidated basis with its Subsidiaries,
as of the end of each fiscal quarter, does not account for 1%
or more of the Consolidated Total Assets of the Borrower or 1%
or more of the Consolidated total revenues of the Borrower, as
determined in accordance with generally accepted accounting
principles; provided that if as of the end of any fiscal
quarter the Immaterial Subsidiaries shall account, in the
aggregate, for 5% or more of the Consolidated Total Assets of
the Borrower or 5% or more of the Consolidated total revenues
of the Borrower as so determined, the Borrower shall promptly,
by written notice to the Agent, designate one or more of such
Subsidiaries not to be Immaterial Subsidiaries so that the
Immaterial Subsidiaries do not account for 5% or more of such
Consolidated Total Assets or such Consolidated total revenues,
and the subsidiaries so designated shall thereupon cease to be
Immaterial Subsidiaries.
"Indemnitee" or "Indemnitees" has the meaning set
forth in Section 9.06.
"Insufficiency" means, with respect to any Plan, the
amount, if any, of its unfunded benefit liabilities, as
defined in Section 4001(a)(18) of ERISA.
"Intercompany Creditor" means PhyCor of Nashville,
Inc., a Tennessee corporation and wholly owned Subsidiary of
the Borrower.
"Intercompany Debt" means any and all indebtedness
from time to time owed (i) to the Borrower by any of its
Subsidiaries, (ii) to the Intercompany Creditor by any other
Subsidiary of the Borrower, or (iii) to any Subsidiary of the
Borrower by the Borrower, including any investments by the
Borrower in any of its Subsidiaries to the extent such
investments are made in the form of loans or advances by the
Borrower to such Subsidiary. All Intercompany Debt shall be
payable on demand.
"Intercompany Subordination Agreement" means an
intercompany subordination agreement in substantially the form
of Exhibit D among the Borrower and each of its Subsidiaries,
other than, subject to Section 6.01(j), Immaterial
Subsidiaries as the same may be amended, supplemented or
otherwise modified from time to time.
"Interest Expense" of any Person means the aggregate
amount of interest paid, accrued or scheduled to be paid or
accrued in respect of any Debt (including the interest portion
of rentals under Capital Leases, but excluding, in the case of
the Borrower and its Subsidiaries, any interest paid, accrued
or scheduled to be paid or accrued in respect of the Excluded
Convertible Acquisition Debt to the extent, and only to the
extent, that such interest is offset by a corresponding
increase in fees payable to the Borrower or its Subsidiary
pursuant to the Service
14
<PAGE> 21
Agreement relating to such acquisition) and all but the
principal component of payments in respect of conditional
sales, equipment trust or other title retention agreements
paid, accrued or scheduled to be paid or accrued by such
Person, in each case determined in accordance with generally
accepted accounting principles.
"Interest Period" means, for each Eurodollar Rate
Advance or LIBOR Advance, as the case may be, comprising part
of the same Borrowing, the period commencing on the date of
such Advance or, in the case of a Eurodollar Rate Advance, the
date of the Conversion of any Advance into such Type of
Advance and ending on the last day of the period selected by
the Borrower pursuant to the provisions below and, thereafter,
in the case of a Eurodollar Rate Advance, each subsequent
period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three
or six months in the case of a Eurodollar Rate Advance or a
LIBOR Advance; provided, however, that:
(i) the Borrower may not select any Interest Period
which ends after the Revolver Termination Date;
(ii) Interest Periods commencing on the same date for
Advances comprising part of the same Committed Rate Borrowing
shall be of the same duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day; provided, in the case of any
Interest Period for a Eurodollar Rate Advance or LIBOR
Advance, that if such extension would cause the last day of
such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the
next preceding Business Day; and
(iv) the Borrower may not have more than eight
Eurodollar Rate Borrowings outstanding on any given date.
"Investment Grade" means a rating of Debt of at least
BBB by Standard & Poor's Ratings Group or Baa2 by Moody's
Investors Service, Inc.
"Issue" means, with respect to any Letter of Credit,
either to issue, or to extend the expiry of, or to renew, or
to increase the amount of, such Letter of Credit, and the term
"Issued" or "Issuance" shall have corresponding meanings.
"Issuing Bank" means (i) Citibank, N.A. or any
Affiliate of Citibank, N.A. that may from time to time Issue
Letters of Credit for the account of the Borrower
15
<PAGE> 22
and (ii) any other Bank that agrees in writing to act as an
Issuing Bank hereunder with the written consent of the
Borrower, the Majority Banks and the Agent.
"Lease" means any lease, rental contract, occupancy
agreement, license or other arrangement pursuant to which any
Person occupies or has the right to occupy all or any part of
the Real Property.
"Lease Expense" of any Person means all payments made
by such Person under Operating Leases. For the purpose of
calculating the Fixed Charge Coverage Ratio of the Borrower
and its Subsidiaries, Lease Expense shall refer to all
payments made by (i) PhyCor Vero Beach pursuant to that
certain Lease entered into by and between PhyCor Vero Beach
and Healthcare Realty Trust, and (ii) the Borrower or any of
its Subsidiaries in connection with any other Lease entered
into in the future by such Person which is not cancelable upon
termination of the related Service Agreement or for which the
payments thereunder are not fully reimbursable to the Borrower
or such Subsidiary pursuant to the related Service Agreement.
"Letter of Credit" means any standby letter of credit
in form satisfactory to the Issuing Bank therefor, which is at
any time Issued by such Issuing Bank pursuant to Article III,
in each case as amended, supplemented or otherwise modified
from time to time.
"Letter of Credit Liability" means, as of any date of
determination, all then existing liabilities of the Borrower
to the Issuing Banks in respect of the Letters of Credit
Issued for its account, whether such liability is contingent
or fixed, and shall, in each case, consist of the sum of (i)
the aggregate maximum amount then available to be drawn under
such Letters of Credit (the determination of such maximum
amount to assume compliance with all conditions for drawing)
and (ii) the aggregate amount which has then been paid by, and
not been reimbursed to, the Issuing Banks under such Letters
of Credit.
"LIBOR Advance" means a Competitive Bid Advance which
bears interest as provided in Section 2.06(b).
"LIBOR Margin" has the meaning set forth in Section
2.02(c).
"Lien" means any assignment, chattel mortgage, pledge
or other security interest or any mortgage, deed of trust or
other lien, or other charge or encumbrance, upon property or
rights (including after-acquired property or rights), or any
preferential arrangement with respect to property or rights
(including after-acquired property or rights) which has the
practical effect of constituting a security interest or lien.
"Loan Documents" means this Agreement, the Notes, the
Guaranty, the Subordination Agreements, the Intercompany
Subordination Agreement and all
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other documents delivered by the Loan Parties in connection
with this Agreement, in each case as amended, supplemented,
restated or otherwise modified from time to time.
"Loan Party" means, individually, the Borrower and
each Guarantor; and "Loan Parties" means the Borrower and the
Guarantors, collectively.
"Majority Banks" means, at any time, Banks holding at
least 66-2/3% of the then aggregate unpaid principal amount of
the Committed Rate Advances owing to the Banks, or, if no such
principal amount is then outstanding, having at least 66-2/3%
of the Commitments.
"Market Value" means, with respect to any publicly
traded Security at any date of determination, the amount equal
to the average closing price for such Security during the 15
trading days immediately preceding the date of determination.
The closing price of a publicly traded security on each day
shall be the closing price on such day as reported on any
stock exchange, the National Market System of the National
Association of Securities Dealers' Automated Quotation System,
or an established securities quotation service, as the case
may be.
"Merger Agreement" means any agreement between the
Borrower or any of its Subsidiaries and any Person relating to
the purchase by and merger into the Borrower or any of its
Subsidiaries of any Facility (or the assets thereof) or any
Related Business.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which the Borrower
or any ERISA Affiliate is making or accruing an obligation to
make contributions, or has within any of the preceding five
plan years made or accrued an obligation to make
contributions, such plan being maintained pursuant to one or
more collective bargaining agreements.
"Multiple Employer Plan" means a single employer
plan, as defined in Section 4001(a)(15) of ERISA, which (i) is
maintained for employees of the Borrower or an ERlSA Affiliate
and at least one Person other than the Borrower and its ERISA
Affiliates or (ii) was so maintained and in respect of which
the Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been
or were to be terminated.
"NAMM" means North American Medical Management, Inc.,
a Tennessee corporation.
"Net Cash Proceeds" means, as to any sale, lease or
other disposition of any Facility (or the assets thereof) or
any Related Business, or of the assets of the Borrower and its
Subsidiaries, by the Borrower or any Subsidiary of the
Borrower
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to any Person other than the Borrower or any Subsidiary of the
Borrower, or the sale or issuance of any Securities, any
securities convertible into or exchangeable for Securities, or
any warrants, rights or options to acquire Securities of the
Borrower or any of its Subsidiaries to any Person other than
the Borrower or any Subsidiary of the Borrower (other than
such sale or issuance pursuant to the Borrower's employee
stock purchase plans or employee and director stock option
plans and other than the issuance of Securities as
consideration for the acquisition of any Facility (or the
assets thereof), any Existing Clinic Acquisition or the
acquisition of any Related Business to the extent such
acquisition satisfies the applicable requirements of Section
6.02(f)(i) or (ii)), or the issuance of any Subordinated Debt,
whether convertible into or exchangeable for Securities (other
than in the case of the Borrower and its Subsidiaries, the
subordinated convertible notes issued by the Borrower or any
of its Subsidiaries as consideration for the acquisition of
Facilities (or the assets thereof), Existing Clinic
Acquisitions or the acquisition of Related Businesses), an
amount equal to (i) the cash and other consideration paid by
such Person (but not including (i) any Debt of the Borrower or
its Subsidiaries assumed by such Person in connection with
such sale, lease or other disposition or (ii) any Debt of the
Borrower or its Subsidiaries owed to such Person which is
offset against the Total Consideration of such Facility or
Related Business), minus (ii) the sum of (A) in the case of a
Facility, the unpaid principal balance on the date of such
sale or other disposition of any Debt secured by a Lien on
such Facility that may be accelerated as a result of such sale
or secured by Liens not prohibited by the terms of this
Agreement and affecting only such Facility, in each case which
is required to be repaid, and is actually repaid, by the
Borrower or any of its existing or future Subsidiaries on the
date of such sale or other disposition, (B) any tax paid or
payable by the Borrower or any of its existing or future
Subsidiaries in connection with or as a consequence of such
sale or other disposition (excluding any such tax for which
the Borrower or any of its existing or future Subsidiaries
seller is reimbursed by such Person to the extent not
otherwise included in the determination of Net Cash Proceeds),
(C) the amount of any reserve (other than in respect of
inventory) required to be retained in connection with such
sale or other disposition under generally accepted accounting
principles (excluding any reserve in respect of any amounts
not payable within 180 days), provided, however, that the
unused amount of such reserve at the termination of such
reserve in accordance with generally accepted accounting
principles shall be deemed Net Cash Proceeds in the amount of
such unused amount, and (D) reasonable out-of-pocket costs of
such sale or other disposition incurred by the Borrower or any
of its existing or future Subsidiaries to third parties
directly in connection therewith, including, without
limitation, sales commissions, escrow fees, legal fees, title
insurance premiums and similar expenses.
"Net Income" of any Person, for any period, means the
net income of such Person for such period, determined in
accordance with generally accepted accounting principles,
excluding:
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<PAGE> 25
(i) the proceeds of any life insurance policy;
(ii) any earnings (or losses), prior to the date of
acquisition, of any other Person acquired in any manner;
(iii) in the case of a successor to such Person by
consolidation or merger or a transferee of its assets, any
earnings (or losses) of the successor or transferee
corporation prior to the consolidation, merger or transfer of
assets; and
(iv) any deferred credit (or debit) (or amortization
of a deferred credit) arising from the acquisition of any
Person.
"Net Worth" of any Person, as of any date of
determination, means the excess of such Person's Total Assets
over Total Liabilities.
"Note" means a Committed Rate Note or a Competitive
Bid Note, and "Notes" means such promissory notes
collectively.
"Notice of Borrowing" means a written notice, in
substantially the form of Exhibit B-1 hereto, delivered in
accordance with, and within the periods specified in, Section
2.01(b).
"OECD" means the Organization for Economic
Cooperation and Development or any successor.
"Operating Lease" means any lease of real, personal
or mixed property which is not a Capital Lease.
"Other Taxes" has the meaning set forth in Section
2.13(b).
"PBGC" means the Pension Benefit Guaranty Corporation
or any successor.
"Permitted Lien" means:
(i) Any Liens (other than Liens securing Debt,
taxes, assessments or governmental charges or levies,
obligations under ERISA or the Environmental Laws, or other
obligations) affecting any of the Real Property which do not
materially adversely affect the use of such Real Property;
(ii) Liens for taxes, assessments or governmental
charges or levies to the extent not past due or to the extent
contested, in good faith, by appropriate proceedings and for
which adequate reserves have been established;
(iii) Liens imposed by law, such as materialman's,
mechanic's, carrier's, workman's, and repairman's Liens and
other similar Liens arising in the ordinary course of business
which relate to obligations which are not overdue for a period
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<PAGE> 26
of more than 30 days or which are being contested in good
faith, by appropriate proceedings and for which adequate
reserves have been established;
(iv) pledges or deposits in the ordinary course of
business to secure nondelinquent obligations under workman's
compensation or unemployment laws or similar legislation or to
secure the performance of leases or contracts entered into in
the ordinary course of business or of public or nondelinquent
statutory obligations, bids, or appeal bonds;
(v) Liens upon or in any property acquired or held
by the Borrower or any of its Subsidiaries (other than the
Intercompany Creditor) to secure the purchase price or
construction costs (and, to the extent financed, sales and
excise taxes, delivery and installation costs and other
related expenses) of such property or to secure indebtedness
incurred solely for the purpose of financing or refinancing
the acquisition or construction of any such property to be
subject to such Liens, or Liens existing on any such property
at the time of acquisition, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser
amount, provided that such Lien is established within thirty
days of the acquisition of said property or expenditure of
said construction costs, and provided, further, that no such
Lien shall extend to or cover any property other than the
property being acquired and no such extension, renewal or
replacement shall extend to or cover any property not
theretofore subject to the Lien being extended, renewed or
replaced, and provided, further, that the incurrence of any
Debt secured by the Liens permitted by this clause (v) shall
not exceed the amount then allowed under any of the covenants
set forth in Section 6.03;
(vi) zoning restrictions, easements, licenses,
landlord's liens or restrictions on the use of real property
owned or leased by the Borrower or any of its Subsidiaries,
which do not materially impair the use of such property in the
operation of the business of the Borrower or any of its
Subsidiaries or the value of such property for the purpose of
such business;
(vii) Liens on the property or assets of any
Subsidiary in favor of the Borrower or a Subsidiary, provided
that the holder and grantor of such Lien have each entered
into the Intercompany Subordination Agreement;
(viii) Liens listed on Schedule V; and
(ix) Liens not described in subclauses (i) through
(viii) above that relate to liabilities which are not in
excess of $10,000,000 in the aggregate.
"Person" means a individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or
a government or any political subdivision or agency or
instrumentality thereof.
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"Plan" means a Single Employer Plan or a Multiple
Employer Plan.
"Process Agent" has the meaning set forth in Section
9.13(a).
"RCRA" means the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. ss. 6901 et seq.), and any
regulations promulgated thereunder.
"Real Property" means the real property of the
Borrower and its Subsidiaries located in the United States
described in Schedule I hereto, consisting of real property or
any interest in real property, including a leasehold interest
or an option to purchase, and all buildings, structures and
improvements now or hereafter located on all or any portion of
said real property, provided, that, notwithstanding the
foregoing, only leasehold interests of the Borrower and its
Subsidiaries which relate to the main clinic of any Facility
or for which the Borrower or any of its Subsidiaries incurs
Lease Expense equal to or in excess of $100,000 per year shall
be described in Schedule I.
"Register" has the meaning specified in Section
9.08(c).
"Related Business" means (i) a business that
principally operates (A) one or more independent practice
associations (each an "IPA") providing general organizational
structure and management to physician networks and related
management companies providing information and operating
systems, actuarial and financial analysis, medical management
and provider contract services to the IPAs or (B) one or more
management service organizations (each a "MSO") providing IPAs
with practice management services, including billing, staffing
and financial management services, or (ii) a business (other
than a single-specialty clinic, or the assets thereof) related
to the operation of a Facility, IPA or MSO, the acquisition or
operation of which would not result in a material change in
the nature of the Borrower's business as of the date hereof. A
Related Business shall also include all real, personal and
mixed property relating thereto.
"Restricted Payment" of any Person, means any
dividend payment or other distribution of assets, properties,
cash, rights, obligations or securities on account of any
shares of any class of Securities of such Person, or any
purchase, redemption or other acquisition for value of any
shares of any class of Securities of such Person, or any
warrants, rights or options to acquire any such Securities,
now or hereafter outstanding; provided, however, that (i) any
dividend payment or other distribution payable in common stock
of such Person and (ii) any purchase, redemption or other
acquisition of shares of such Person's Securities or warrants,
rights or options to acquire any such Securities with the
proceeds received from the substantially concurrent issue of
new shares of such Person's Securities shall not be considered
a Restricted Payment.
"Revolver Termination Date" means June 30, 2002, or
the earlier date of termination in whole of the Commitments
pursuant to Section 2.04 or 7.01.
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"Securities" means shares of capital stock of a
corporation (or similar property right in the case of
partnerships, limited liability companies and trusts).
"Senior Debt" means all Debt outstanding pursuant to
this Agreement and any other Debt of the Borrower and its
Subsidiaries not expressly subordinated on terms satisfactory
to the Majority Banks to the Debt outstanding under this
Agreement.
"Senior Debt/EBITDA Ratio" of any Person means, at
any date of determination, the ratio that (i) such Person's
total Senior Debt outstanding at such date of determination,
less the amount, if any, by which such Person's unrestricted
cash or cash equivalents exceed $15,000,000 at such date of
determination, bears to (ii) such Person's EBITDA.
"Service Agreement" means any of (i) the Service
Agreements listed on Schedule III and (ii) any similar
agreement entered into by the Borrower or any existing or
future Subsidiary of the Borrower or related professional
association or corporation after the Closing Date, in each
case as any of such agreements may from time to time be
amended, restated, supplemented or otherwise modified.
"Single-Employer Plan" means a single-employer plan,
as defined in Section 4001(a)(15) of ERISA, which (i) is
maintained for employees of the Borrower or an ERISA Affiliate
and no Person other than the Borrower and its ERISA Affiliates
or (ii) was so maintained and in respect of which the Borrower
or an ERISA Affiliate could have liability under Section 4069
of ERISA in the event such plan has been or were to be
terminated.
"Solvent" means, with respect to any Person, that as
of any date of determination, (i) the then fair saleable value
of the assets of such Person is (a) greater than the then
total amount of liabilities (including contingent,
subordinated, matured and unliquidated liabilities) of such
Person and (b) greater than the amount that will be required
to pay such Person's probable liability on such Person's then
existing debts as they become absolute and matured, (ii) such
Person's capital is not unreasonably small in relation to its
business or any contemplated or undertaken transaction, and
(iii) such Person does not intend to incur, or believe or
reasonably should believe that it will incur, debts beyond its
ability to pay such debts as they become due.
"Stock Purchase Agreement" means any agreement
between the Borrower or any of its Subsidiaries and any Person
that operates a Facility or a Related Business relating to the
purchase by the Borrower or any of its Subsidiaries of all of
the Securities of such Person.
"Subordinated Debt" means any Debt of the Borrower
that is subordinated to the Debt of the Borrower under this
Agreement and the Notes on, and that otherwise contains, terms
and conditions satisfactory to the Majority Banks.
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"Subordination Agreement" means a duly executed
subordination agreement in substantially the form of Exhibit
F, as amended, supplemented or otherwise modified from time to
time.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, limited liability company, trust or
other Person of which more than 50% of the outstanding
Securities having ordinary voting power to elect a majority of
the board of directors of such corporation (or similar
governing body or Person with respect to partnerships, limited
liability companies and trusts) (irrespective of whether or
not at the time Securities of any other class or classes of
such Person shall or might have voting power upon the
occurrence of any contingency) is at the time directly or
indirectly owned by such Person, or one or more other
Subsidiaries of such Person, or by one or more other
Subsidiaries of such Person.
"Tangible Net Assets" of any Person, as at any date
of determination, means (without duplication) such Person's
cash, net Accounts, inventory, equipment, fixtures, real
property and the refundable portion of any prepaid expense
which, in accordance with generally accepted accounting
principles, are treated as tangible assets of such Person, in
each case (to the extent applicable), less the sum of (i)
Current Liabilities, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption,
retirement or prepayment of Securities or Debt, and (iii) any
write-up in the book value of such asset resulting from a
revaluation (but not a valuation of an asset in connection
with an acquisition subject to purchase accounting treatment
under generally accepted accounting principles; provided that
such valuation is accomplished in accordance with such
principles).
"Taxes" has the meaning set forth in Section 2.13(a).
"Total Assets" of any Person, as of the date of
determination, means all property, whether real, personal,
tangible, intangible or otherwise, which, in accordance with
generally accepted accounting principles, should be included
in determining total assets as shown on the assets portion of
a balance sheet of such Person.
"Total Capitalization" of any Person, as of the date
of determination, means the sum of such Person's Funded Debt
plus Net Worth.
"Total Consideration" means, with respect to the
acquisition of any Facility (or the assets thereof) or Related
Business, whether or not such acquisition is accomplished by
Securities purchase or asset purchase or by merger, the sum of
(i) all cash and non-cash consideration (including, without
limitation, assumed liabilities and equity consideration) paid
by the Borrower or any of its Subsidiaries at the closing of
such transaction, and (ii) all Deferred Acquisition
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Consideration; provided that Total Consideration shall not
include any contingent payments that may be made by the
Borrower or any of its Subsidiaries after such closing.
"Total Liabilities" of any Person, as of the date of
determination, means all obligations, including, without
limitation, all Debt of such Person, which, in accordance with
generally accepted accounting principles, should be included
in determining total liabilities as shown on the liabilities
portion of a balance sheet of such Person, including all
Subordinated Debt other than, in the case of the Borrower and
its Subsidiaries, the Excluded Convertible Acquisition Debt.
"UCP" has the meaning set forth in Section 3.08.
"Unused Commitment" means, with respect to any Bank
at any time, (a) such Bank's Commitment at such time (as such
Commitment may be reduced pursuant to Section 2.04 or on
account of an Assignment and Acceptance entered into by such
Bank) minus (b) the aggregate principal amount of all
Committed Rate Advances made by such Bank outstanding at such
time.
"Welfare Plan" means a welfare plan, as defined in
Section 3(1) of ERISA, which section covers plans, funds and
programs providing (among other things) medical, surgical, or
hospital care or benefits, or benefits in the event of
sickness, accident, disability, death or unemployment,
together with plans which provide workmen's compensation,
unemployment compensation or disability insurance benefits.
"Withdrawal Liability" has the meaning given such
term under Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated, the word "from" or "commencing" means "from and
including" and the word "to" or "until" means "to but excluding."
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with United States generally
accepted accounting principles consistent with those applied in the preparation
of the Borrower's December 31, 1996 Consolidated financial statements delivered
to the Banks prior to the date hereof.
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ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Committed Rate Advances.
(a) Each Bank severally agrees, on the terms and conditions hereinafter
set forth, to make Committed Rate Advances to the Borrower from time to time on
any Business Day during the period from the Closing Date until the Revolver
Termination Date, in an amount for each such Advance not to exceed such Bank's
Unused Commitment on such Business Day; provided, however, that such Bank shall
not be obligated to make such Committed Rate Advance if, after giving effect to
such Committed Rate Advance and the other Committed Rate Advances to be made by
the other Banks as part of the same Borrowing, the then outstanding aggregate
principal amount of all Committed Rate Advances plus the then existing Letter
of Credit Liability shall exceed the aggregate Commitments of the Banks less
the then outstanding aggregate principal amount of all Competitive Bid
Advances; provided further that, for the purposes of this Section 2.01(a), such
Bank's Unused Commitment shall be deemed to be reduced on such Business Day by
an amount equal to the product of (i) the then outstanding principal amount of
all Competitive Bid Advances and (ii) such Bank's Commitment Percentage (the
"Competitive Bid Reduction"). Each Committed Rate Borrowing shall be in an
aggregate amount of $3,000,000 or an integral multiple of $1,000,000 in excess
thereof, and shall consist of Advances made on the same day by the Banks
ratably according to their respective Commitments. Within the limits of each
Bank's Unused Commitment (as deemed reduced by the Competitive Bid Reduction)
in effect from time to time, the Borrower may borrow under this Section
2.01(a), prepay pursuant to Section 2.09 and reborrow under this Section
2.01(a).
(b) Each Committed Rate Borrowing shall be made on notice, given not later
than 11:00 A.M. (New York City time) (i) on the second Business Day prior to the
date of the proposed Borrowing, in the case of Eurodollar Rate Advances, and
(ii) on the date of the proposed Borrowing, in the case of Base Rate Advances,
by the Borrower to the Agent, which shall give each Bank prompt notice thereof
by telecopier, telex or cable. Each such notice of a Borrowing (a "Notice of
Borrowing") shall be by telecopier, telex or cable, confirmed immediately in
writing, in substantially the form of Exhibit B-1 hereto, specifying therein
(i) the requested date of such Borrowing, (ii) the requested Type of Advances
comprising such Borrowing, (iii) the requested aggregate amount of such
Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate
Advances, the requested initial Interest Period for each such Advance. Each
Bank shall, before 12:00 noon (New York City time) on the date of such
Borrowing, make available for the account of its Applicable Lending Office to
the Agent at its address referred to in Section 9.02, in same day funds, such
Bank's ratable portion of such Borrowing. After the Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
IV, the Agent will make such funds available to the Borrower at the Agent's
aforesaid address. Anything in this subsection (b) above to the contrary
notwithstanding, (A) the Borrower may not select Eurodollar Rate Advances for
any Committed Rate Borrowing if the obligation of the Banks to make Eurodollar
Rate Advances shall then be
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suspended pursuant to Section 2.11 and (B) no more than eight Committed Rate
Borrowings consisting of Eurodollar Rate Advances may be outstanding at any one
time.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Committed Rate Borrowing which the related Notice
of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the
Borrower shall indemnify each Bank against any loss (including loss of
anticipated profits), cost or expense incurred by such Bank as a result of any
failure to fulfill on or before the date specified in such Notice of Borrowing
for such Borrowing the applicable conditions set forth in Article IV,
including, without limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Bank to fund the Advance to be made by such Bank as part of such Borrowing when
such Advance, as a result of such failure, is not made on such date.
(d) Unless the Agent shall have received notice from a Bank prior to the
date of any Committed Rate Borrowing that such Bank will not make available to
the Agent such Bank's ratable portion of such Borrowing, the Agent may assume
that such Bank has made such portion available to the Agent on the date of such
Borrowing in accordance with subsection (b) above and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such ratable portion available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Advances comprising such Borrowing and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's
Advance as part of such Borrowing for purposes of this Agreement. To the
extent that any Bank makes a payment of principal or interest to the Agent
pursuant to this subsection (d), the Borrower shall not be obligated to make
such payment.
(e) The failure of any Bank to make the Advance to be made by it as part
of any Committed Rate Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its Advance on the date of such
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the Advance to be made by such other Bank on the date of any Committed
Rate Borrowing.
SECTION 2.02. The Competitive Bid Advances.
(a) Each Designated Bidder severally agrees, on the terms and conditions
hereinafter set forth, that the Borrower may avail itself of Competitive Bid
Advances from time to time on any Business Day during the period from the
Closing Date until 30 days prior to the Revolver Termination Date, in the
manner set forth in this Section 2.02; provided that the aggregate principal
amount of Competitive Bid Advances made on any Business Day may not exceed the
aggregate Unused Commitments of the Banks on such Business Day less the then
existing Letter of Credit Liability and the then outstanding principal amount
of any other Competitive Bid Advances.
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(b) The Borrower may request a Competitive Bid Borrowing by delivering to
the Agent, by telecopier, telex or cable, confirmed immediately in writing, a
request, in substantially the form of Exhibit B-2 (a "Competitive Bid
Request"), specifying therein (i) whether Fixed Rate Advances or LIBOR Advances
are being requested, (ii) the date (which shall be a Business Day) and
aggregate amount of the proposed Competitive Bid Borrowing, (iii) the maturity
date for repayment of the Competitive Bid Advances to be made as part of such
Borrowing (which maturity date shall be a date occurring (A) not less than
seven days after the date of such Borrowing in the case of a request for Fixed
Rate Advances or 30 days after the date of such Borrowing in the case of a
request for LIBOR Advances, but (B) not later than the Revolver Termination
Date), (iv) the interest payment date or dates relating thereto, in the case of
a request for Fixed Rate Advances, and the applicable Interest Period, in the
case of a request for LIBOR Advances, and (v) any other terms to be applicable
to such Borrowing, not later than 11:00 A.M. (New York City time) at least (A)
one Business Day, in the case of a request for Fixed Rate Advances, or (B) four
Business Days, in the case of a request for LIBOR Advances, prior to the date
of the proposed Competitive Bid Borrowing. The Agent shall in turn promptly
notify each Designated Bidder of each request for such Competitive Bid
Borrowing received by it by sending such Designated Bidder a copy of the
related Competitive Bid Request.
(c) Each Designated Bidder may, if, in its sole discretion, it elects to
do so, irrevocably offer to make one or more Competitive Bid Advances to the
Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates
of interest specified by such Designated Bidder in its sole discretion. Any
such offer (a "Competitive Bid") may be made by notifying the Agent (i) before
10:00 A.M. (New York City time) on the date of such proposed Competitive Bid
Borrowing, in the case of a request for Fixed Rate Advances, and (ii) before
10:00 A.M. (New York City time) on the third Business Day before the date of
such proposed Competitive Bid Borrowing, in the case of a request for LIBOR
Advances (the "Bid Due Date"), specifying the following:
(A) the amount of each Competitive Bid Borrowing which such
Designated Bidder would be willing to make as part of such proposed
Competitive Bid Borrowing (which amount may, subject to the proviso to
the first sentence of subsection (a) above, exceed a Bank's Commitment
but may not exceed the principal amount of the Competitive Bid Advances
of the Type and maturity requested by the Borrower);
(B) in the case of a request for a LIBOR Advance, the margin above
or below the applicable Eurodollar Rate (the "LIBOR Margin") offered for
such Competitive Bid Advance, expressed as a percentage (rounded upwards,
if necessary, to the nearest 1/16 of one percent) to be added to or
subtracted from the applicable Eurodollar Rate;
(C) in the case of a request for a Fixed Rate Advance, the rate of
interest per annum (rounded upwards, if necessary, to the nearest 1/16 of
one percent) (the "Fixed Rate") offered for such Competitive Bid Advance;
and
(D) the identity of the Designated Bidder submitting the Competitive
Bid;
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provided that if the Agent in its capacity as a Designated Bidder shall, in its
sole discretion, elect to make any such Competitive Bid, it shall notify the
Borrower of such Competitive Bid before 9:30 A.M. (New York City time)
on the Bid Due Date. If any Designated Bidder shall elect not to make such a
Competitive Bid, such Designated Bidder shall so notify the Agent, before 10:00
A.M. (New York City time) on the Bid Due Date, and such Designated Bidder shall
not be obligated to, and shall not, make any Advance as part of such
Competitive Bid Borrowing; provided that the failure by any Designated Bidder
to give such notice shall not cause such Designated Bidder to be obligated to
make any Advance as part of such proposed Competitive Bid Borrowing. Unless
otherwise agreed by the Borrower and the Agent, no Competitive Bid shall
contain qualifying, conditional or similar language or propose terms other than
or in addition to those set forth in the Competitive Bid Request and, in
particular, no Competitive Bid may be conditioned upon acceptance by the
Borrower of all (or some specified minimum) of the principal amount of the
Competitive Bid Advances offered.
(d) The Agent shall, as promptly as practicable after the Competitive Bid
is submitted (but in any event not later than 10:15 A.M. (New York City time)
on the Bid Due Date), notify the Borrower of the terms (A) of any Competitive
Bid submitted that is in accordance with subsection (c) above and (B) of any
Competitive Bid that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid with respect to the same Competitive Bid Request. Any
such subsequent Competitive Bid may be submitted solely to correct a manifest
error in such former Competitive Bid. The Agent's notice to the Borrower shall
specify (1) the aggregate principal amount of the Competitive Bid Borrowing for
which Competitive Bids have been received and (2) the respective principal
amounts and the Fixed Rates and LIBOR Margins, as the case may be, so offered
by each Designated Bidder (identifying the Designated Bidder that made each
Competitive Bid).
(e) The Borrower shall, in turn, before 11:00 A.M. (New York City time)
(i) on the day of the proposed Competitive Bid Borrowing, in the case of
requests for Fixed Rate Advances, or (ii) on the third Business Day prior to
the date of the proposed Competitive Bid Advances, in the case of a request for
LIBOR Advances, (or, in any such case, such other time and date as the Borrower
and the Agent, with the consent of the Majority Banks, may agree), either:
(i) cancel such Competitive Bid Borrowing by giving the Agent notice
to that effect, or
(ii) accept one or more of the Competitive Bids, in its sole
discretion, by giving notice to the Agent of the amount of each
Competitive Bid Advance to be made by each Designated Bidder as part of
such Competitive Bid Borrowing, and reject any remaining Competitive Bids
by giving the Agent notice to that effect; provided that (A) the Borrower
may only accept Competitive Bids in the order of the lowest to the
highest Fixed Rates or LIBOR Margins, as the case may be, offered, (B)
the Borrower may not accept Competitive Bids in excess of the amount
requested pursuant to subsection (b) above, or the amount offered
pursuant to subsection (c) above, for any maturity date or Interest
Period, and (C) if two or more Designated Bidders make
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Competitive Bids at the same Fixed Rates or LIBOR Margins, as the case
may be, for the same maturity date or Interest Period, the Borrower may
only accept such Competitive Bids in proportion (as nearly as possible) to
the amounts which such Designated Bidders offered at such rate for such
maturity or Interest Period (in amounts of not less than $1,000,000 or an
integral multiple of $100,000 in excess thereof).
(f) If the Borrower notifies the Agent that such Competitive Bid Borrowing
is canceled pursuant to subsection (d)(i) above, the Agent shall give prompt
notice thereof to the Designated Bidders, and such Competitive Bid Borrowing
shall not be made.
(g) If the Borrower accepts one or more of the Competitive Bids made by
any Designated Bidder or Designated Bidders pursuant to subsection (d)(ii)
above, the Agent shall in turn promptly notify (A) each Designated Bidder that
has made a Competitive Bid as described in subsection (c) above, of the date
and aggregate amount of such Competitive Bid Borrowing and whether or not any
Competitive Bid or Bids made by such Designated Bidder pursuant to subsection
(c) above have been accepted by the Borrower, (B) each Designated Bidder that
is to make an Advance as part of such Competitive Bid Borrowing, of the amount
of each Advance to be made by such Bank as part of such Borrowing, and (C) each
Designated Bidder that is to make an Advance as part of such Competitive Bid
Borrowing, as to whether such Competitive Bid Borrowing conforms of the
requirements of Section 2.02. Each Designated Bidder that is to make an
Advance as part of such Competitive Bid Borrowing shall, before 11:30 A.M. (New
York City time) on the date of such Competitive Bid Borrowing specified in the
notice received from the Agent pursuant to clause (A) of the preceding sentence
(provided such Designated Bidder shall have received a Competitive Bid Note and
a favorable notice from the Agent pursuant to clause (C) of the preceding
sentence), make available to the Agent at its address referred to in Section
9.02, in same day funds, such Designated Bidder's portion of such Competitive
Bid Borrowing. Upon fulfillment of the applicable conditions set forth in
Article IV and after receipt by the Agent of such funds, the Agent will make
such funds available to the Borrower at the Agent's aforesaid address.
Promptly after each Competitive Bid Borrowing, the Agent shall notify each Bank
of the amount of the Competitive Bid Borrowing, the consequent Competitive Bid
Reduction and the dates upon which such Competitive Bid Reduction commenced and
will terminate.
(h) Each Competitive Bid Borrowing shall be in an aggregate amount not less
than $3,000,000 or an integral multiple of $1,000,000 in excess thereof and,
following the making of such Competitive Bid Borrowing, the Borrower shall be in
compliance with the limitations set forth in the proviso to the first sentence
of subsection (a) above.
(i) Each acceptance by Borrower pursuant to subsection (g) above shall be
irrevocable and binding on the Borrower. In the case of any acceptance of a
Competitive Bid for LIBOR Advances, the Borrower shall indemnify each
Designated Bidder against any loss (including loss of anticipated profits),
cost or expense incurred by such Designated Bidder as a result of any failure
to fulfill on or before the date specified pursuant to subsection (g) above for
such Competitive Bid Borrowing the applicable conditions set forth in Article
IV, including, without limitation, any loss, cost or expense incurred by reason
of the liquidation or
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reemployment of deposits or other funds acquired by such Designated Bidder to
fund the LIBOR Advance to be made by such Bank as part of such Borrowing when
such Advance, as a result of such failure, is not made on such date.
(j) The failure of any Designated Bidder to make the Advance to be made by
it as part of any Competitive Bid Borrowing shall not relieve any other
Designated Bidder of its obligation, if any, hereunder to make its Advance on
the date of such Borrowing, but no Designated Bidder shall be responsible for
the failure of any other Designated Bidder to make the Advance to be made by
such other Designated Bidder on the date of any Competitive Bid Borrowing.
(k) Within the limits and on the conditions set forth in this Section
2.02, the Borrower may from time to time borrow under this Section 2.02, repay
pursuant to Section 2.05 and reborrow under this Section 2.02; provided that
not more than ten Competitive Bid Borrowings may be outstanding at any time
(for which purpose Competitive Bid Advances made on the same date, but having
different maturities or representing Borrowings under different Commitments,
shall be deemed to be separate Competitive Bid Borrowings).
SECTION 2.03. Fees.
(a) Facility Fees. The Borrower agrees to pay to the Agent, for the
account of each of the Banks, a facility fee on the average daily Commitment of
such Bank from the Closing Date until the Revolver Termination Date at the
Applicable Facility Fee Rate from time to time in effect, payable quarterly in
arrears on the last day of each March, June, September and December, commencing
September 30, 1997, and on the Revolver Termination Date.
(b) Agency, Auction and Arrangement Fees. The Borrower agrees to pay to
the Agent, for its own account, the agency fees and the auction fees and to an
Affiliate of the Agent, the arrangement fee, in such amounts and on such dates
as are specified in the letter agreement dated as of June 2, 1997, between the
Borrower and the Agent.
SECTION 2.04. Optional Reduction of the Commitments. The Borrower shall
have the right, upon at least three Business Days' notice to the Agent,
permanently to terminate in whole or reduce ratably in part the Unused
Commitments; provided that (a) each partial reduction shall be in the aggregate
amount of $3,000,000 or an integral $1,000,000 multiple in excess thereof, (b)
each reduction shall be made ratably among the Banks in accordance with their
Unused Commitments, (c) no reduction may reduce the aggregate Commitments of
the Banks below the aggregate amount of the then outstanding Letter of Credit
Liability and the then outstanding principal amount of the Competitive Bid
Advances, and (d) no reduction may reduce the aggregate Commitments of the
Banks while any commitments to lend are in effect under the $150,000,000 Credit
Agreement.
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SECTION 2.05. Repayment.
(a) The Borrower shall repay on the Revolver Termination Date the
aggregate principal amount of the Committed Rate Advances of each Bank
outstanding on the Revolver Termination Date, together with accrued interest
thereon.
(b) The Borrower shall repay the aggregate principal amount of the
Competitive Bid Advances of each Designated Bidder, together with accrued
interest thereon, in such amounts and on such dates as specified pursuant to
Section 2.02(b).
SECTION 2.06. Interest.
(a) The Borrower shall pay interest on the unpaid principal amount of each
Committed Rate Advance made by each Bank from the date of such Advance until
such principal amount shall be paid in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a Base
Rate Advance, a rate per annum equal at all times to the sum of the Base
Rate in effect from time to time, payable quarterly in arrears on the last
day of each March, June, September and December during such periods and on
the date such Base Rate Advance shall be Converted or paid in full.
Notwithstanding the foregoing, during the continuance of an Event of
Default, the principal amount of each Base Rate Advance shall bear
interest, to the fullest extent permitted by law, from the date on which
such amount is due until such amount is paid in full, payable on demand,
at a fluctuating rate per annum equal at all times to 2% per annum above
the Base Rate in effect from time to time.
(ii) Eurodollar Rate Advances. During such periods as such Advance
is a Eurodollar Rate Advance, a rate per annum equal at all times during
the Interest Period for such Advance to the sum of the Eurodollar Rate
for such Interest Period plus the Applicable Eurodollar Rate Margin,
payable on the last day of such Interest Period and, if such Interest
Period has a duration of six months, on the day that occurs during such
Interest Period three months from the first day of such Interest Period;
provided, however, that in the event that the Applicable Eurodollar Rate
Margin for any fiscal quarter of the Borrower has not yet been determined
in accordance with the provisions of the definition of Applicable
Eurodollar Rate Margin in Section 1.01 as of the time when interest on a
Eurodollar Rate Advance becomes due, the Borrower shall pay such interest
on the date when due based on the then existing Applicable Eurodollar
Rate Margin and any necessary subsequent adjustments in the amount of
interest payable hereunder (due to any subsequent change in the
Applicable Eurodollar Rate Margin) shall be made on the first date on
which any interest on any Committed Rate Advance is payable after the
date of determination of the Applicable Eurodollar Rate Margin.
Notwithstanding the foregoing, during the continuance of an Event of
Default, the principal amount of each Eurodollar Rate Advance shall bear
interest, to the fullest extent permitted by law, from the date on which
such amount is due until such amount is paid in full, payable on demand,
at a rate per annum equal at all times to 2% per annum above the
Eurodollar
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Rate plus the Applicable Eurodollar Rate Margin until the end
of the Interest Period applicable to such Eurodollar Rate Advance, at
which time the rate per annum shall become 2% per annum above the Base
Rate, in each case as in effect from time to time.
(b) The Borrower shall pay interest on the unpaid principal amount of each
Competitive Bid Advance from the date of such Advance until such principal
amount shall be paid in full, at the rate of interest for such Advance specified
by the Designated Bidder making such Advance in its Competitive Bid with respect
thereto delivered pursuant to Section 2.02(c), payable on the interest payment
date or dates specified by the Borrower for such Advance in the related
Competitive Bid Request delivered pursuant to Section 2.02(b) and on the
maturity date of such Competitive Bid Advance. Notwithstanding the foregoing,
during the continuance of an Event of Default, the principal amount of each
Competitive Bid Advance shall bear interest, to the fullest extent permitted by
law, from the date on which such amount is due until such amount is paid in
full, payable on demand, at a rate equal to 2% per annum above the interest rate
specified by the Designated Bidder that made such Advance in its Competitive Bid
with respect thereto delivered pursuant to Section 2.02(c).
SECTION 2.07. Interest Rate Determination and Protection.
(a) The Agent shall give prompt notice to the Borrower and the Banks of
the applicable interest rate under Section 2.06(a)(i) or (ii).
(b) If, with respect to any Eurodollar Rate Advance, the Majority Banks
notify the Agent that the Eurodollar Rate for any Interest Period for such
Advance will not adequately reflect the cost to such Majority Banks of making,
funding or maintaining their respective Eurodollar Rate Advance for such
Interest Period, the Agent shall forthwith so notify the Borrower and the
Banks, whereupon:
(i) each Eurodollar Rate Advance will automatically, on the last day
of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and
(ii) the obligation of the Banks to make, or to Convert Advances
into, Eurodollar Rate Advances shall be suspended until the Agent shall
notify the Borrower and the Banks that the circumstances causing such
suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advance in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent
will forthwith so notify the Borrower and the Banks and such Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.
SECTION 2.08. Voluntary and Automatic Conversion of Committed Rate
Advances.
(a) The Borrower may on any Business Day, upon notice given to the Agent
not later than 11:00 A.M. (New York City time) on the second Business Day prior
to the date of the proposed Conversion and subject to the provisions of
Sections 2.07 and 2.11, Convert all
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Committed Rate Advances of one Type comprising the same Borrowing into Committed
Rate Advances of another Type; provided, however, that any Conversion of any
Eurodollar Rate Advances into Base Rate Advances shall be made on, and only on,
the last day of an Interest Period for such Eurodollar Rate Advances. Each such
notice of Conversion shall, within the restrictions specified above, specify (i)
the date of such Conversion, (ii) the Advances to be Converted, and (iii) if
such Conversion is into Eurodollar Rate Advances, the duration of the Interest
Period for each such Advance.
(b) On the date on which the unpaid aggregate principal amount of
Eurodollar Rate Advances comprising any Committed Rate Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $3,000,000, the
Eurodollar Rate Advances comprising such Borrowing shall automatically Convert
into Base Rate Advances, and on and after such date the Borrower may not
convert such Base Rate Advances to Eurodollar Rate Advances until such time as
the aggregate principal amount of Base Rate Advances equals or exceeds
$3,000,000.
SECTION 2.09. Prepayments.
(a) Voluntary Prepayments. The Borrower may, upon at least (i) in the
case of Eurodollar Rate Advances, two Business Days' and (ii) in the case of
Base Rate Advances, the same Business Day's notice to the Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given, the Borrower shall, prepay the outstanding principal amounts
of the Advances comprising part of the same Committed Rate Borrowing in whole
or ratably in part, together with accrued interest to the date of such
prepayment on the principal amount prepaid and, in the case of Eurodollar Rate
Advances, any amounts payable under Section 9.04(b); provided, however, that
(i) each partial prepayment shall be in an aggregate principal amount not less
than $3,000,000 or any integral multiple of $1,000,000 in excess thereof and
(ii) Advances may not be prepaid if any Committed Rate Advances (as defined in
the $150,000,000 Credit Agreement) are outstanding under the $150,000,000
Credit Agreement. The Borrower may not prepay any Competitive Bid Advances.
(b) Asset Sales Mandatory Prepayments. Subject to Section 2.09(f), upon
the sale, lease or other disposition by the Borrower or any Subsidiary of the
Borrower of assets of the Borrower and its Subsidiaries constituting more than
5% of the Consolidated Total Assets of the Borrower and its Subsidiaries at the
time of sale, lease or other disposition, then (x) the Net Cash Proceeds of
such sale, lease or other disposition shall be delivered as soon as practicable
to the Agent and (y) any deferred cash proceeds of such sale, lease, or other
disposition shall be delivered to the Agent as soon as practicable after their
receipt (at which time the same shall become Net Cash Proceeds). Any such Net
Cash Proceeds shall be applied in accordance with Section 2.09(e).
(c) Subordinated Debt Issuance Mandatory Prepayments. Subject to Section
2.09(f), upon the issuance, if permitted in writing by the Majority Banks, by
the Borrower or any of its Subsidiaries of any Subordinated Debt, whether or
not convertible into or exchangeable for Securities (other than the
subordinated convertible notes issued by the Borrower or any of its
Subsidiaries as consideration for the acquisition of Facilities (or the assets
thereof), any Existing
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Clinic Acquisitions or the acquisition of Related Businesses), then (x) 75% of
the Net Cash Proceeds of such issuance shall be delivered as soon as practicable
to the Agent and (y) 75% of any deferred cash proceeds of such issuance shall be
delivered to the Agent as soon as practicable after their receipt (at which time
the same shall become Net Cash Proceeds). Any such Net Cash Proceeds shall be
applied in accordance with Section 2.09(e).
(d) Securities Issuance Mandatory Prepayment. Subject to Section 2.09(f),
upon the sale or issuance by the Borrower or any of its Subsidiaries of any
Securities, any securities convertible into or exchangeable for Securities
(other than Subordinated Debt subject to Section 2.09(c)), or any warrants,
rights or options to acquire Securities to any Person other than the Borrower
or any of its Subsidiaries other than such sale or issuance pursuant to the
Borrower's employee stock purchase plans or employee and director stock option
plans or similar plan available to physicians practicing at a Facility or
Related Business and other than the issuance of Securities as consideration
for, or the proceeds of which are within 180 days after receipt used for, or
the issuance of subordinated convertible notes as consideration for, the
acquisition of any Facility (or the assets thereof) or any Existing Clinic
Acquisitions or the acquisition of any Related Businesses to the extent such
acquisition satisfies all the requirements of Section 6.02(f)(i) or (ii), as
the case may be), then (x) 50% of the Net Cash Proceeds of such sale or
issuance shall be delivered as soon as practicable to the Agent and (y) 50% of
any deferred cash proceeds of such sale or issuance shall be delivered to the
Agent as soon as practicable after their receipt (at which time the same shall
become Net Cash Proceeds). Any such Net Cash Proceeds shall be applied in
accordance with Section 2.09(e).
(e) Application of Prepayments. Mandatory prepayments pursuant to Section
2.09(b), (c) or (d) shall be: first, applied to the payment of any amount
required to be prepaid or pledged under the $150,000,000 Credit Agreement;
second, applied to the ratable payment of outstanding Committed Rate Advances,
together with accrued interest to the date of such payment on the principal
amount repaid and any amounts payable pursuant to Section 9.04(b)
in respect thereof; and third, delivered to the Agent to be held as pledged
collateral to be applied to the ratable payment when due of outstanding
Competitive Bid Advances, together with accrued interest to the date of such
payment on the principal amount repaid, to the aggregate amount of such
principal and interest.
(f) Effect of Investment Grade Rating. Notwithstanding Sections 2.09(b),
(c), (d) or (e), no prepayment shall be required by any of such sections if at
the time of the sale, lease or other disposition, issuance or sale referred to
therein any of the then outstanding Debt of the Borrower shall then be rated
Investment Grade.
SECTION 2.10. Increased Costs.
(a) If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements, in the
case of Eurodollar Rate Advances or LIBOR Advances, included in the Eurodollar
Rate Reserve Percentage) in or in the interpretation of any law or regulation
or (ii) the compliance with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law), there
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<PAGE> 41
shall be any increase in the cost to any Bank of agreeing to make or making,
funding or maintaining Eurodollar Rate Advances or LIBOR Advances, then the
Borrower shall from time to time, upon demand by such Bank (with a copy of such
demand to the Agent), pay to the Agent for the account of such Bank additional
amounts sufficient to compensate such Bank for such increased cost. A
certificate as to the amount of such increased cost, submitted to the Borrower
and the Agent by such Bank, shall be conclusive and binding for all purposes,
absent manifest error.
(b) If any Bank determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital (or the rate of return on capital) required or expected to be
maintained by such Bank or any corporation controlling such Bank and that the
amount of such capital is increased (or such rate of return is reduced) by or
based upon the existence of such Bank's commitment, or offer or agreement, to
lend hereunder and other commitments, or offers or agreements, of this type,
then, upon notice by such Bank (with a copy of such notice to the Agent), the
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital (or
reduction in rate of return) to be allocable to the existence of such Bank's
commitment, or offer or agreement, to lend hereunder. Such notice as to such
amounts submitted and delivered to the Borrower and the Agent by such Bank
shall set forth in summary fashion the basis of such allocation and shall be
conclusive and binding for all purposes, absent manifest error.
SECTION 2.11. Illegality. Notwithstanding any other provision of this
Agreement, if any Bank shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is
unlawful, for any Bank or its Eurodollar Lending Office to perform its
obligations or agreements hereunder to make Eurodollar Rate Advances or LIBOR
Advances or to fund or maintain Eurodollar Rate Advances or LIBOR Advances
hereunder: (a) in the case of Eurodollar Rate Advances, (i) the obligation of
the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall
be suspended until the Agent shall notify the Borrower and the Banks that the
circumstances causing such suspension no longer exist and (ii) the Borrower
shall forthwith prepay in full all Eurodollar Rate Advances of all Banks then
outstanding, together with interest accrued thereon and any costs payable
pursuant to Section 9.04(b), unless the Borrower, within five Business Days of
notice from the Agent, Converts all Eurodollar Rate Advances of all Banks then
outstanding into Base Rate Advances in accordance with Section 2.08, and (b) in
the case of LIBOR Advances, such Bank shall no longer be obligated to fund any
LIBOR Advance it has agreed to fund thereafter.
SECTION 2.12. Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the Notes not
later than 11:00 A.M. (New York City time) on the day when due free and clear
of any taxes, offset or other charge in United States dollars to the Agent at
its address referred to in Section 9.02 in
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same day funds. The Agent will promptly thereafter cause to be distributed like
funds relating to the payment of principal or interest or facility fees (i)
ratably (other than amounts payable pursuant to Section 2.10, 2.13 or 9.04) to
the Banks for the account of their respective Applicable Lending Offices, in the
case of Committed Rate Advances, and to the applicable Designated Bidder (for
the account of its Applicable Lending Office), in the case of Competitive Bid
Advances, and like funds relating to the payment of any other amount payable to
any Bank to such Bank for the account of its Applicable Lending Office, in each
case to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 9.08(d), from and after
the effective date specified in such Assignment and Acceptance, the Agent shall
make all payments hereunder in respect of the interest assigned thereby to the
Bank assignee thereunder, and the parties to such Assignment and Acceptance
shall make all appropriate adjustments in such payments for periods prior to
such effective date directly between themselves.
(b) The Borrower hereby authorizes each Bank, if and to the extent payment
owed to such Bank is not made when due hereunder or under the Note held by such
Bank, to charge from time to time against any or all of the Borrower's accounts
with such Bank any amount so due.
(c) All computations of interest (other than interest on Base Rate
Advances) and of fees shall be made on the basis of a year of 360 days, and all
computations of interest on Base Rate Advances shall be made on the basis of a
year of 365 or 366 days (as the case may be), in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or fees are payable. Each determination
by the Agent of an interest rate or fee hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, if such extension would cause payment of interest on
or principal of Eurodollar Rate Advances or LIBOR Advances to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Agent shall have received notice from the Borrower prior to
the date on which any payment is due to the Banks hereunder in respect of
Committed Rate Advances that the Borrower will not make such payment in full,
the Agent may assume that the Borrower has made such payment in full to the
Agent on such date and the Agent may, in reliance upon such assumption, cause
to be distributed to each Bank on such due date an amount equal to the amount
then due such Bank. If and to the extent the Borrower shall not have so made
such payment in full to the Agent, each Bank shall repay to the Agent forthwith
on demand such amount distributed to such Bank together with interest thereon,
for each day from the date such amount is distributed to such Bank until the
date such Bank repays such amount to the Agent, at the Federal Funds Rate.
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(f) Notwithstanding any provision in this Agreement or any other Loan
Document to the contrary, all payments received by the Agent under the other
Loan Documents, the application of which are not provided for in such Loan
Documents, may be then or at any time thereafter be applied in whole or
in part by the Agent for the ratable benefit of the Banks (except in the case
of Competitive Bid Advances), against all or part of the Advances or other
obligations of the Borrower hereunder or under the other Loan Documents, in
such order and manner as the Agent shall elect.
SECTION 2.13. Taxes.
(a) Any and all payments by the Borrower hereunder or under the Notes
shall be made, in accordance with Section 2.12, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding,
in the case of each Bank and the Agent, taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the laws of which such
Bank or the Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.13) such Bank or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Notes or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Bank and the Agent for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section
2.13) paid by such Bank or the Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date such Bank or the Agent (as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Agent, at its address referred to in Section 9.02, the
original or a certified copy of a receipt evidencing payment thereof.
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(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.13 shall survive the payment in full of principal and interest
hereunder and under the Notes.
(f) Prior to the date of the first Borrowing under this Agreement in the
case of each Bank party hereto on the date hereof, on the date of the
effectiveness of the Assignment and Acceptance pursuant to which it became a
Bank in the case of each other Bank, and within 30 days following the first day
of each calendar year or if otherwise requested from time to time by the
Borrower or the Agent, each Bank organized under the laws of a jurisdiction
outside the United States shall provide the Agent and the Borrower with two
counterparts of each of the forms prescribed by the Internal Revenue Service
(Form 1001 or 4224, or successor form(s), as the case may be, or another
appropriate form) of the United States certifying as to such Bank's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to such Bank under any Loan Document.
Unless the Borrower and the Agent have received such forms or other documents
satisfactory to them indicating that payments under any Loan Document are not
subject to United States withholding tax, the Borrower or the Agent (if not
withheld by the Borrower) shall withhold taxes from such payments at the
applicable statutory rate, without any obligation to "gross-up" or make such
Bank or the Agent whole under Section 2.13(a); provided, however, that the
Borrower shall have the obligation to make such Bank or the Agent whole and to
"gross-up" under Section 2.13(a), if the failure to so deliver such forms or
make such statements (other than the forms and statements required to be
delivered on or made prior to the date of the initial Borrowing, on the date of
the Assignment and Acceptance pursuant to which an Eligible Assignee became a
Bank) is the result of the occurrence of an event (including, without
limitation, any change in treaty, law or regulation) which (alone or in
conjunction with other events) renders such forms inapplicable, that would
prevent such Bank or the Agent from making the statements contemplated by such
forms or which removes or reduces an exemption (whether partial or complete)
from withholding tax previously available to such Bank or the Agent. Each Bank
(and the Agent, if applicable) will promptly notify the Borrower of the
occurrence (when known to it) of an event contemplated by the foregoing
proviso.
SECTION 2.14. Sharing of Payments. Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of any Committed Rate Advances made by it
(other than pursuant to Section 2.10, 2.13 or 9.04) in excess of its ratable
share of payments on account of such Committed Rate Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in such Committed Rate Advances made by them as shall be
necessary to cause such purchasing Bank to share the excess payment ratably with
each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase from
each Bank shall be rescinded and such Bank shall repay to the purchasing Bank
the purchase price to the extent of such recovery together with an amount equal
to such Bank's ratable share (according to the proportion of (i) the amount of
such Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another Bank
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pursuant to this Section 2.14 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were the direct creditor
of the Borrower in the amount of such participation.
SECTION 2.15. Evidence of Debt/Register.
(a) The Debt of the Borrower resulting from the Committed Rate Advances
and Competitive Bid Advances shall be evidenced by the Committed Rate Notes and
the Competitive Bid Notes, respectively, delivered to the Banks pursuant to
Article IV, and the remaining principal amount thereof shall be recorded by the
Banks, and, prior to any transfer, endorsed on the grids thereto in accordance
with the terms of the Notes. The Agent shall also maintain in accordance with
its usual practice an account or accounts evidencing the indebtedness of the
Borrower under this Agreement and the amounts of principal and interest payable
and paid to each Bank from time to time under this Agreement.
(b) The Register maintained by the Agent pursuant to Section 9.08(c) shall
include a control account, and a subsidiary account for each Bank, in which
accounts (taken together) shall be recorded: (i) the date and amount of each
Borrowing, the Commitment to which such Borrowing relates, the Type of Advance
comprising such Borrowing and the Interest Period applicable thereto (if any)
from time to time, (ii) the terms of each Assignment and Acceptance delivered
to and accepted by it, (iii) the amount of any principal or interest due
and payable or to become due and payable from the Borrower to each Bank, and
(iv) the amount of any sum received by the Agent from the Borrower hereunder
and each Bank's share thereof.
SECTION 2.16. Use of Proceeds. The proceeds of the Advances shall be
used by the Borrower for Capital Investments (to the extent permitted under
this Agreement), including, without limitation, acquisitions of Facilities and
Related Businesses (to the extent permitted under this Agreement), and other
general corporate purposes.
SECTION 2.17. Outstanding Advances; Existing Collateral
(a) Conversion to Advances; Termination of Commitment under Existing
Credit Agreement. On the Closing Date: (i) all outstanding Base Rate Advances
(as defined in the Existing Credit Agreement) shall automatically become Base
Rate Advances under the Commitments as if borrowed on the Closing Date and
shall thereafter bear interest as provided herein and payable at such times and
otherwise on such terms as are provided herein for Base Rate Advances under the
Commitments, (ii) there shall be no outstanding Eurodollar Rate Advances,
Competitive Bid Advances, or B Advances (as such terms are defined in the
Existing Credit Agreement) and (iii) the A Commitments (as such term is defined
in the Existing Credit Agreement) shall be permanently terminated in full.
(b) Adjustment Assignments and Payments Among Banks. Notwithstanding the
requirements set forth in Section 9.08 or any other provision to the contrary
contained herein, on the Closing Date, through the Agent, the Banks shall enter
into such assignments and make such payments (including any accrued interest or
fees) in immediately available funds among themselves as shall be necessary for
each Bank to have funded its ratable share, in accordance
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with its Commitment hereunder, of all Existing Base Rate Advances as if such
Advances were borrowed on the Closing Date hereunder and to participate, in
accordance with its Commitment hereunder, in all Letters of Credit outstanding
on the Closing Date.
(c) Release of Collateral. On the Closing Date, all Liens on the
Collateral (as defined in the Existing Credit Agreement) shall be released and
terminated, and from and after the Closing Date, the Agent shall execute and
deliver, at the Borrower's expense, such termination statements and other
documents as the Borrower may reasonably request to evidence the release and
termination of such liens.
ARTICLE III
AMOUNT AND TERMS OF LETTERS OF
CREDIT AND PARTICIPATIONS THEREIN
SECTION 3.01. Letters of Credit. Each Issuing Bank agrees, on the terms
and conditions hereinafter set forth, to Issue for the account of the Borrower,
one or more Letters of Credit from time to time during the period from the
Closing Date until the date which occurs 30 days before the Revolver
Termination Date in an aggregate undrawn amount not to exceed at any time
$20,000,000, each such Letter of Credit upon its Issuance to expire on or
before the earlier of (x) the date which occurs one year from the date of its
Issuance or (y) the Revolver Termination Date; provided, however, that any
letter of credit issued under the Existing Credit Agreement which continues to
be undrawn in whole or in part on the Closing Date shall be deemed to be a
Letter of Credit Issued hereunder from and after the Closing Date; provided,
further, no Issuing Bank shall be obligated or permitted to Issue any Letter of
Credit if:
(i) after giving effect to the Issuance of such Letter of Credit,
the then outstanding aggregate amount of the Letter of Credit Liability
and all Advances (including any Advances required to be made but not
funded) shall exceed the aggregate amount of the Commitments of the
Banks; or
(ii) the Agent or the Majority Banks shall have notified such
Issuing Bank and the Borrower, that no further Letters of Credit are to
be Issued by such Issuing Bank due to failure to meet any of the
applicable conditions set forth in Article IV, and such notice has not
expired or been withdrawn by the Majority Banks.
Within the limits of the obligations of each Issuing Bank set forth above, the
Borrower may request an Issuing Bank to Issue one or more Letters of Credit,
reimburse such Issuing Bank for payments made thereunder pursuant to Section
3.03(a), and request any Issuing Bank to Issue one or more additional Letters
of Credit under this Section 3.01.
SECTION 3.02. Issuing the Letters of Credit. Each Letter of Credit shall
be Issued on at least five Business Days' notice from the Borrower to the
Issuing Bank specifying the date, amount, expiry, and beneficiary thereof,
accompanied by such application and agreement for letter of credit and other
documents as the Issuing Bank may specify to the Borrower, each in form and
substance satisfactory to the Issuing Bank. On the date specified by the
Borrower in
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such notice and upon fulfillment of the applicable conditions set forth in
Section 3.01 and Article IV, the Issuing Bank shall Issue such Letter of Credit
in the form specified in such notice and such application and agreement for
letter of credit and shall promptly notify the Agent thereof.
SECTION 3.03. Reimbursement Obligations.
(a) Notwithstanding any provisions to the contrary in any application and
agreement for letter of credit applicable to any Letter of Credit, the Borrower
shall:
(i) pay to the Issuing Bank an amount equal to, and in reimbursement
for, each amount which such Issuing Bank pays under any Letter of Credit
on or before the earlier of (A) the time specified therefor in the
application and agreement for letter of credit applicable to such Letter
of Credit or (B) the date which occurs one Business Day after payment of
such amount by such Issuing Bank under such Letter of Credit; and
(ii) pay to the Issuing Bank interest on any amount remaining unpaid
under clause (i) above from the date on which such Issuing Bank pays such
amount under any Letter of Credit until such amount is reimbursed in full
to such Issuing Bank pursuant to clause (i) above, payable on demand, at
a fluctuating rate per annum equal to the sum of the Base Rate in effect
from time to time, provided that any such amount which is not reimbursed
to such Issuing Bank within one Business Day after notice thereof by the
Issuing Bank shall thereafter bear interest, until such amount is
reimbursed in full to such Issuing Bank pursuant to clause (i) above,
payable on demand, at the Base Rate in effect from time to time plus
2-1/2% per annum.
(b) All amounts to be reimbursed to the Issuing Bank in accordance with
subsection (a) above may, subject to the limitations set forth in Section 2.01
(exclusive of the minimum borrowing limitations), be paid from the proceeds of
Committed Rate Advances. The Borrower hereby authorizes the Banks to make
pursuant to Section 2.01 Committed Rate Advances which are in the amounts of
the reimbursement obligations of the Borrower set forth in subsection (a)
above, and further authorizes the Agent (i) to give the Banks, pursuant to
Section 2.01(b), a Notice of Borrowing with respect to the Borrowing comprised
of such Advances (which shall be Base Rate Advances) and (ii) to distribute the
proceeds of such Advances to the Issuing Bank to pay such amounts. The Borrower
agrees that all such Advances so made shall be deemed to have been requested by
it, and directs that all proceeds thereof shall be used to pay such
reimbursement obligations under subsection (a) above.
SECTION 3.04. Participations Purchased by the Banks.
(a) On the date of Issuance of each Letter of Credit, the Issuing Bank
shall be deemed irrevocably and unconditionally to have sold and transferred to
each Bank without recourse or warranty, and each Bank shall be deemed to have
irrevocably and unconditionally purchased and received from such Issuing Bank,
an undivided interest and participation, to the extent of such Bank's
Commitment Percentage, in effect from time to time, in such Letter of Credit
and all Letter of Credit Liability relating to such Letter of Credit and all
Loan Documents securing,
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guaranteeing, supporting, or otherwise benefiting the payment of such Letter of
Credit Liability. As to each Letter of Credit Issued or to be Issued by the
Issuing Bank, the Agent will promptly (after it receives notification from the
Issuing Bank pursuant to Section 3.02) notify each Bank of such Letter of
Credit and its date of Issue, amount, expiry, and reference number.
(b) In the event that any reimbursement obligation under Section 3.03(a)
is not paid when due to the Issuing Bank with respect to any Letter of Credit,
the Issuing Bank shall promptly notify the Agent to that effect, and the Agent
shall promptly notify the Banks of the amount of such reimbursement obligation
and each Bank shall immediately pay to the Issuing Bank, in lawful money of the
United States and in same day funds, an amount equal to such Bank's Commitment
Percentage then in effect of the amount of such unpaid reimbursement obligation
with interest at the Federal Funds Rate for each day after such notification
until such amount is paid to the Agent.
(c) Promptly after the Issuing Bank receives a payment on account of a
reimbursement obligation with respect to any Letter of Credit, the Issuing Bank
shall promptly pay to the Agent, and the Agent shall promptly pay to each Bank
which funded its participation therein, in lawful money of the United States
and in the kind of funds so received, an amount equal to such Bank's ratable
share thereof.
(d) Upon the request of any Bank, the Agent shall furnish to such Bank
copies of any Letter of Credit and any application and agreement for letter of
credit and other documents related thereto as may be reasonably requested by
such Bank.
(e) The obligation of each Bank to make payments under Section 3.04(b)
above shall be unconditional and irrevocable and shall be made under all
circumstances, including, without limitation, any of the circumstances referred
to in Section 3.06(b).
(f) If any payment received on account of any reimbursement obligation
with respect to a Letter of Credit and distributed to a Bank as a participant
under Section 3.04(c) is thereafter recovered from the Issuing Bank in
connection with any bankruptcy or insolvency proceeding relating to the
Borrower, each Bank which received such distribution shall, upon demand by the
Agent, repay to the Issuing Bank such Bank's ratable share of the amount so
recovered together with an amount equal to such Bank's ratable share (according
to the proportion of (i) the amount of such Bank's required repayment to (ii)
the total amount so recovered) of any interest or other amount paid or payable
by such Issuing Bank in respect of the total amount so recovered.
SECTION 3.05. Letter of Credit Fees.
(a) The Borrower hereby agrees to pay nonrefundable letter of credit fees
with respect to each Letter of Credit on the maximum amount available to be
drawn under such Letter of Credit from time to time after giving effect to
scheduled reductions thereof (the determination of such maximum amount to
assume compliance with all conditions for drawing) from the date of Issuance of
such Letter of Credit until the expiry date of such Letter of Credit, (i) to
each Bank (in accordance with its Commitment Percentage) at a rate equal to (A)
the Applicable Eurodollar Rate Margin in effect on the date of Issuance thereof
less (B) 1/8 of one percent per annum and
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(ii) to the Issuing Bank at a rate equal to 1/8 of one percent per annum, for
the number of months or any fraction thereof that such Letter of Credit is
outstanding, payable in advance on the date of Issuance of each Letter of
Credit and on the last day of each March, June, September and December
thereafter prior to the expiry date of such Letter of Credit for the number of
months or fraction thereof until the earlier of (A) the expiry date of such
Letter of Credit and (B) the date three months after such date.
(b) The Borrower shall pay to the Issuing Bank, for its own account and on
demand, sums equal to standard fees (other than its letter of credit fee),
charges and expenses that such Issuing Bank may impose, pay or incur in
connection with the Issuance, amendment, administration, transfer or
cancellation of any or all Letters of Credit or in connection with any payment
by such Issuing Bank thereunder.
SECTION 3.06. Indemnification: Nature of the Issuing Bank's Duties.
(a) The Borrower agrees to indemnify and save harmless the Agent, each
Issuing Bank and each Bank from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) which the Agent, such Issuing Bank or such Bank may incur or
be subject to as a consequence, direct or indirect, of (i) the Issuance of any
Letter of Credit or (ii) any action or proceeding relating to a court order,
injunction, or other process or decree restraining or seeking to restrain such
Issuing Bank from paying any amount under any Letter of Credit.
(b) The obligations of the Borrower hereunder with respect to Letters of
Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms hereof under all circumstances, including, without
limitation, any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit
or Loan Document or any agreement or instrument relating thereto;
(ii) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time against the beneficiary, or any
transferee, of any Letter of Credit, or any Issuing Bank, any Bank, or
any other Person;
(iii) any draft, certificate, or other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) any lack of validity, effectiveness, or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part;
(v) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit
or of the proceeds thereof;
(vi) the release or non-perfection of any collateral;
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(vii) any failure of the beneficiary of a Letter of Credit to
strictly comply with the conditions required in order to draw upon any
Letter of Credit;
(viii) any misapplication by the beneficiary of any Letter of Credit
of the proceeds of any drawing under such Letter of Credit; or
(ix) any other circumstance or happening whatsoever, whether or not
similar to the foregoing;
provided, that, notwithstanding the foregoing, neither an Issuing Bank nor the
Agent shall be relieved of any liability it may otherwise have as a result of
its gross negligence or willful misconduct.
SECTION 3.07. Increased Costs.
(a) Change in Law. If any change in any law or regulation or in the
interpretation thereof by any court or administrative or governmental authority
charged with the administration thereof shall either (i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against letters
of credit issued by an Issuing Bank or (ii) impose on such Issuing Bank or any
Bank any other condition regarding letters of credit or, in the case of such
Bank, its participation hereunder in Letters of Credit, and the result of any
event referred to in the preceding clause (i) or (ii) shall be to increase the
cost to such Issuing Bank of Issuing or maintaining or, in the case of such
Bank, having a participation in Letters of Credit, then, upon demand by such
Issuing Bank or such Bank (with a copy to the Agent), the Borrower shall
immediately pay to such Issuing Bank or such Bank from time to time as
specified by such or such Bank (with a copy to the Agent) additional amounts
which shall be to compensate such Issuing Bank or such Bank for such increased
cost. Each certificate as to such increased cost, and amount thereof, incurred
by any Issuing Bank or any Bank as a result of any event mentioned in clause
(i) or (ii) above, submitted by such Issuing Bank or such Bank to the Borrower
and the Agent, shall set out in reasonable detail the calculation of such
amounts and shall be conclusive and binding for all purposes, absent manifest
error.
(b) Capital. If any Issuing Bank or any Bank determines that compliance
with any law or regulation or with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
has or would have the effect of reducing the rate of return on the capital of
any Issuing Bank or such Bank or any corporation controlling such Issuing Bank
or such Bank as a consequence of, or with reference to, such Issuing Bank's
commitment to issue, issuance of, or, with respect to such Bank's commitment,
to participate in, any Letter of Credit hereunder below the rate that such
Issuing Bank, such Bank or such other corporation could have achieved but for
compliance (taking into account the policies of such Issuing Bank, such Bank or
corporation with capital), then the Borrower, shall from time to time, upon
demand by such Issuing Bank or such Bank (with a copy of such demand to the
Agent), immediately pay to such Issuing Bank or such Bank additional amounts
sufficient to compensate such Issuing Bank or other corporation for such
reduction. A certificate as to such amounts, to the Borrower and the Agent by
such Issuing Bank or such Bank, shall be conclusive and binding
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for all purposes, absent manifest error. Each Issuing Bank and each Bank agree
promptly to notify the Borrower and the Agent of any circumstances that would
Borrower to pay additional amounts pursuant to this subsection (b), provided
that the failure to give such notice shall not affect the Borrower's
obligation to pay such additional amounts hereunder.
(c) Survival of Obligations. Without prejudice to the survival of any
other obligation of the Borrower hereunder, the agreements and obligations of
the Borrower contained in this Section 3.07 shall survive the payment in full
of the Advances (after the Revolver Termination Date).
SECTION 3.08. Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as most recently published by the
International Chamber of Commerce ("UCP") shall in all respects be deemed a
part of this Article III as if incorporated herein and shall apply to the
Letters of Credit.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.01. Conditions Precedent to Any Borrowing and Letter of Credit.
The obligation of each Bank to make an Advance on the occasion of any
Borrowing, and the obligation of each Issuing Bank to Issue any Letter of
Credit, shall be subject to the conditions precedent that on the date of such
Borrowing or Issuance (a) the following statements shall be true and the Agent
shall have received a certificate signed by a duly authorized officer of the
Borrower, dated the date of such Borrowing or Issuance, stating that such
statements are true (and each of the giving of the applicable Notice of
Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing
or the issuance of such Letter of Credit shall constitute a representation and
warranty by the Borrower and each Loan Party (as to each Loan Document to which
it is a party) that on the date of such Borrowing or such Issuance such
statements are true):
(i) the representations and warranties contained in Section 5.01 of
this Agreement, in Section 6 of the Guaranty, and in Section 11 of the
Intercompany Subordination Agreement, are correct on and as of the date
of such Borrowing or Issuance, before and after giving effect to such
Borrowing or Issuance and to the application of the proceeds therefrom,
as though made on and as of such date; and
(ii) no event has occurred and is continuing, or would result from
such Borrowing or such Issuance or from the application of the proceeds
therefrom, which constitutes an Event of Default or would constitute an
Event of Default but for the requirement that notice be given or time
elapse or both;
and (b) the Competitive Bid Note, duly executed by the Borrower, to the order
of the appropriate Designated Bidder, shall have been received by the Agent,
and (c) the Agent shall have received such other approvals, opinions or
documents as the Agent may reasonably request.
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SECTION 4.02. Conditions Precedent to Initial Advances. The obligations
of each Bank to make its initial Advance and each Issuing Bank to Issue its
initial Letter of Credit on or after the Closing Date are subject to the
following conditions precedent:
(i) The Agent shall have received evidence satisfactory to it that
all fees and expenses payable by the Borrower under the Existing Loan
Agreement shall have been paid in full.
(ii) The Agent shall have received the following documents, each
dated the Closing Date and in form and substance satisfactory to the
Agent and (with respect to the Guaranty and the Intercompany
Subordination Agreement) in sufficient copies for each Bank:
(a) The Committed Rate Notes, each duly executed by the
Borrower, to the order of the appropriate Banks.
(b) The Guaranty, duly executed by each Guarantor.
(c) The Intercompany Subordination Agreement, duly executed
by each Loan Party.
(d) Certified copies of the (i) resolutions of the Board of
Directors or other governing body of each Loan Party approving each
Loan Document to which it is a party, and of all documents
evidencing other necessary corporate, limited liability company or
partnership action and governmental approvals, if any, with respect
to each such Loan Document, (ii) all documents evidencing other
corporate, limited liability company or partnership action or
governmental approvals, if any, necessary or, in the reasonable
opinion of the Agent, advisable in connection with the execution,
delivery and performance of each Loan Document; (iii) the
certificate or articles of incorporation, by-laws or other
constituent instruments of the Borrower and of each of its
Subsidiaries other than Immaterial Subsidiaries, as amended through
the Closing Date or, with respect to any of the Borrower's
Subsidiaries other than Immaterial Subsidiaries, a certification
that such Subsidiary's certificate or articles of incorporation,
bylaws or other constituent instruments delivered to Citibank in
connection with the Existing Credit Agreement are true and correct
copies of the certificate or articles of incorporation, bylaws or
other constituent instruments of such Subsidiary and that such
certificate or articles of incorporation, bylaws or other
constituent instruments have not been amended or otherwise modified
since the date such copies were delivered to Citibank and (iv) good
standing certificates with respect to the Borrower and each of its
Subsidiaries other than Immaterial Subsidiaries from the Secretary
of State (or similar official) of the state in which the Borrower
or such Subsidiary is incorporated or organized.
(e) A certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of such Loan
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Party authorized to sign each Loan Document to which it is a party
and the other documents to be delivered hereunder.
(f) A certificate of the Borrower, signed on behalf of the
Borrower by its President or a Vice President, certifying as to the
absence of any event occurring and continuing, or resulting from
this Agreement, that constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice
be given or time elapse or both.
(g) Favorable opinions of N. Carolyn Forehand, general counsel
of the Borrower, and Waller Lansden Dortch & Davis, special counsel
for the Borrower and the other Loan Parties, substantially in the
forms of Exhibit G.
(h) A favorable opinion of Gibson, Dunn & Crutcher LLP,
counsel for the Agent, satisfactory to the Agent.
(i) Such other agreements, certificates, consents and other
documents that the Agent or any Bank may reasonably request.
(iii) The Borrower shall have paid all fees payable hereunder on or
before the Closing Date.
(iv) Other than as set forth on Schedule VI, no judgment, order,
decree, injunction or other restraint affecting any Loan Party shall have
been rendered or imposed by any court, governmental agency or arbitrator,
and there shall be no pending or threatened action or proceeding
affecting any Loan Party before any court, governmental agency or
arbitrator, which could reasonably be expected to have a material adverse
effect on the business, prospects or condition (financial or otherwise)
or operations of the Borrower and its Subsidiaries, taken as a whole, or
which purports to affect the legality, validity or enforceability of this
Agreement or any other Loan Document.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, is duly qualified as a foreign corporation and is in good
standing in each jurisdiction as to which the location of its assets or
the nature of its business makes qualification necessary, and has all
power, corporate or otherwise, to conduct its business and to own, or
hold under lease, its assets, and to execute and deliver, and to perform
all of its obligations under, each of the Loan Documents to which it is
or will be a party. Each of the Borrower's Subsidiaries other than
Immaterial Subsidiaries is a corporation, limited liability company or
partnership
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duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of organization, is duly
qualified as a foreign corporation, limited liability company or
partnership and is in good standing in each jurisdiction as to which the
location of its assets or the nature of its business makes qualification
necessary, and has all power (corporate, limited liability company,
partnership or otherwise) to conduct its business and to own, or hold
under lease, its assets, and to execute and deliver, and to perform all
of its obligations under, each of the Loan Documents to which it is or
will be a party.
(b) The execution, delivery and performance by each Loan Party of
each Loan Document to which it is or will be a party are within such Loan
Party's corporate, limited liability company or partnership powers, have
been duly authorized by all necessary corporate, limited liability
company or partnership action, and do not contravene (i) such Loan
Party's certificate or articles of incorporation, by-laws or other
constituent instruments, or (ii) any law, rule, regulation (including,
without limitation, Regulation G, T, U or X of the Board of Governors of
the Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award binding on or affecting such Loan Party or any of
its properties, or (iii) any contractual restriction binding on or
affecting such Loan Party or any of its properties, and do not result in
or require the creation of any Lien upon or with respect to any of its
properties; and no Loan Party is in default in any material respect under
any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination, award or restriction.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by any Loan
Party of any Loan Document to which it is or will be a party except for
those which have been duly obtained or made and are in full force and
effect.
(d) This Agreement is, and each other Loan Document to which each
Loan Party will be a party when executed and delivered hereunder will be,
the legal, valid and binding obligation of such Loan Party enforceable
against such Loan Party in accordance with its terms.
(e) The Consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1996 and March 31, 1997 and the related
Consolidated statements of operations, stockholders' equity and cash flow
of the Borrower and its Subsidiaries for the fiscal year and three
months, respectively, then ended have been furnished to the Agent. Such
financial statements, and all financial statements hereafter delivered
pursuant to Sections 6.04(b) and (c), fairly present, or will fairly
present, the financial condition of the Borrower and its Subsidiaries as
at the dates thereof and the results of the operations of the Borrower
and its Subsidiaries for the periods then ended or ending, all in
accordance with generally accepted accounting principles consistently
applied. Since December 31, 1996, there has been no material adverse
change, in the business, prospects
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or condition (financial or otherwise) or in the results of operations of
the Borrower and its Subsidiaries taken as a whole.
(f) Each Loan Party has good title to all of its material property,
free and clear of all Liens, except for Permitted Liens. Each Lease or
other agreement relating to the Real Property described in Schedule I
operated by each Loan Party is a valid and subsisting Lease or other
agreement and is in full force and effect in accordance with the terms
thereof; and the Borrower or its Subsidiary is in possession of all such
leaseholds and no material default by the Borrower or any of its
Subsidiaries exists under any such Lease or other agreement and, to the
best of the Borrower's knowledge, no lessor has any accrued right to
terminate any such Lease or other agreement on account of a default by
the Borrower or its Subsidiaries.
(g) Each Service Agreement is a valid and subsisting agreement and
is in full force and effect in accordance with the terms thereof; and no
material default by the Borrower or any of its Subsidiaries exists under
any Service Agreement and, to the best of the Borrower's knowledge, no
party to any of the Service Agreements has any accrued right to terminate
any Service Agreement on account of a default by the Borrower or any of
its Subsidiaries.
(h) Other than as set forth on Schedule VI, no judgment, order,
decree, injunction or other restraint affecting any Loan Party has been
rendered or imposed by any court, governmental agency or arbitrator, and
there is no pending or, to the best knowledge of the Borrower, threatened
action or proceeding affecting any Loan Party before any court,
governmental agency or arbitrator, which could reasonably be expected to
have a material adverse effect on the business, prospects or condition
(financial or otherwise) or operations of the Borrower and its
Subsidiaries, taken as a whole, or which purports to affect the legality,
validity or enforceability of this Agreement or any other Loan Document.
(i) Set forth on Schedule II is a complete and accurate list of all
of the Subsidiaries of the Borrower, other than Immaterial Subsidiaries,
as of the date hereof, showing as of such date (as to each such
Subsidiary) the nature of its organization, the jurisdiction of its
organization, the number of shares or the amount of interests of each
class of Securities outstanding on the date hereof, the direct owner of
the outstanding shares or the amount of interests of each such class
owned, and the jurisdictions in which such Subsidiary is qualified to do
business as a foreign entity. There are no outstanding options,
warrants, rights of conversion or purchase, and similar rights to acquire
Securities of any of such Subsidiaries, except as set forth on Schedule
II, and all of the outstanding Securities of all of such Subsidiaries
have been validly issued, are fully paid and nonassessable and are owned
by the Borrower or, in the case of limited liability companies, the
Intercompany Creditor, free and clear of (i) all Liens and (ii) any
restrictions (other than laws, rules or regulations) on the ability to
vote or alienate such Securities.
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(j) All information, exhibits and reports furnished in writing by or
on behalf of the Borrower or any of its Subsidiaries other than
Immaterial Subsidiaries and made available to the Agent or any Bank
relating to the condition (financial or otherwise), operations, business
or properties of the Borrower or such Subsidiary, are true, correct and
complete and not misleading in all material respects.
(k) With respect to all business plans and other forecasts and
projections furnished by or on behalf of the Borrower or any of its
Subsidiaries other than Immaterial Subsidiaries and made available to the
Agent or any Bank relating to the financial condition, operations,
business, properties or prospects of the Borrower or such Subsidiary, to
the best of the Borrower's knowledge: (i) all facts stated as such
therein are true and complete in all material respects, (ii) all facts
upon which the forecasts or projections therein contained are based are
true and complete in all material respects, and (iii) all estimates and
assumptions were made in good faith and believed to be reasonable at the
time made.
(l) Schedule IV sets forth, as of the date hereof, all Debt of the
Borrower and its Subsidiaries other than Debt representing miscellaneous
liabilities not in excess of $5,000,000 in the aggregate.
(m) Neither the business nor the properties of the Borrower or any
of its Subsidiaries are affected by any strike, lockout, fire, explosion,
earthquake, embargo, act of God or of the public enemy or other casualty
which could reasonably be expected to have a material adverse effect on
the business, prospects, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries taken as a whole.
(n) No ERISA Event has occurred with respect to any Plan or is
reasonably expected to occur with respect to any Plan.
(o) Schedule B (Actuarial Information) to the most recently
completed annual report (Form 5500 Series) for each Plan of the Borrower
or its Subsidiaries, copies of which have been or will be filed with the
Internal Revenue Service, is complete and accurate in all material
respects and fairly presents the funding status of such Plan, and since
the date of such Schedule B there has been no material adverse change in
such funding status.
(p) Neither the Borrower nor any ERISA Affiliate has incurred or is
reasonably expected to incur any material Withdrawal Liability to any
Multiemployer Plan.
(q) Neither the Borrower nor any ERISA Affiliate has been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA and no Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title IV of
ERISA.
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(r) The Borrower and its Subsidiaries on a Consolidated basis are,
and each Loan Party individually is, and after receipt and application of
the Advances in accordance with the terms of this Agreement and execution
of each Loan Document to which it is or is to be a party will be,
Solvent.
(s) Neither the Borrower nor any Subsidiary of the Borrower is, or
is required to be, registered under the Investment Company Act of 1940,
as amended.
(t) Each of the Borrower and its Subsidiaries is in compliance in
all material respects with the provisions of all Environmental Laws.
Neither the Borrower nor any of its Subsidiaries nor, to the knowledge of
the Borrower, any other Person, has engaged in any Environmental
Activity, nor, to the knowledge of the Borrower, has any Environmental
Activity otherwise occurred, in material violation of any provision of
any applicable Environmental Laws.
(u) Neither the Borrower nor any of its Subsidiaries has any
liability, absolute or contingent, in connection with any Environmental
Activity the satisfaction of which could reasonably be expected to have a
material adverse effect on the business, prospects, condition (financial
or otherwise) or results of operations of the Borrower and its
Subsidiaries taken as a whole.
(v) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System). No proceeds of any Advance will be used to purchase or
carry any margin stock (within the meaning of Regulation U issued by the
Board of Governors of the Federal Reserve System) or to extend credit to
others for the purpose of purchasing or carrying any margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System) in violation of applicable law, including,
without limitation, Regulation U issued by the Board of Governors of the
Federal Reserve System.
(w) The Intercompany Creditor (i) is not liable in respect of any
Debt other than Intercompany Debt, (ii) has no other liabilities or
obligations other than contingent obligations that are not material in
amount in respect of operating leases entered into prior to May 1, 1993,
and (iii) has not engaged in any operations, and has not received any
notice of a claim or threatened claim in respect of any operations or the
sale thereof, since May 1, 1993.
ARTICLE VI
COVENANTS OF THE BORROWER
SECTION 6.01. Affirmative Covenants. So long as any Note shall remain
unpaid, any Letter of Credit shall remain outstanding, any amount shall remain
due hereunder, or any Bank shall have any Commitment hereunder, the Borrower
will, unless the Majority Banks shall otherwise consent in writing:
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(a) Payment of Taxes, Etc. Pay and discharge, and cause each
Subsidiary to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed
upon it or upon its property, and (ii) all lawful claims which, if
unpaid, might by law become a Lien upon its property; provided, however,
that neither the Borrower nor any Subsidiary shall be required to pay or
discharge any such tax, assessment, charge or claim which is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained.
(b) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (i) in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the
Borrower or such Subsidiary operates, and (ii) reasonably satisfactory to
the Agent, and naming the Agent as an additional insured or as loss payee
as the respective interests appear.
(c) Preservation of Corporate Existence, Etc. Except as is
otherwise expressly permitted hereby, preserve and maintain, and cause
each Subsidiary to preserve and maintain, its corporate existence, rights
(charter and statutory) and franchises.
(d) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with the requirements
of all applicable laws, rules, regulations and orders, including, without
limitation, all Environmental Laws relating to the Real Property and the
ownership, use, operation and occupancy thereof.
(e) Visitation Rights. At any reasonable time and from time to time
after notice, permit the Agent or any of the Banks or any agents or
representatives thereof, to examine and make copies of and abstracts from
the records and books of account of, and visit the properties of, the
Borrower and/or any of the Subsidiaries of the Borrower, and to discuss
the affairs, finances and accounts of the Borrower and any such
Subsidiary with any of their officers or directors and with their
independent certified public accountants.
(f) Keeping of Books. Keep, and cause each Subsidiary of the
Borrower to keep, proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the
assets and business of the Borrower and each such Subsidiary in
accordance with generally accepted accounting principles consistently
applied.
(g) Maintenance of Properties, Etc. Maintain and preserve, and
cause each Subsidiary of the Borrower to maintain and preserve, all of
its properties which are used or useful in the conduct of its business
in good working order and condition, ordinary wear and tear excepted.
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(h) Compliance with Terms of All Leaseholds. Make all payments and
otherwise perform, and cause each of its Subsidiaries to make all
payments and otherwise perform, all of its material obligations in
respect of all material Leases, and use its best efforts, and cause each
of its Subsidiaries to use its best efforts, to keep, and to take all
action to keep, such Leases in full force and effect and not allow any
such Leases to lapse or be terminated or any rights to renew such Leases
to be forfeited or canceled; provided, however, that any such Lease may
lapse or be terminated or such renewal rights may be forfeited or
canceled if in the reasonable business judgment of the Borrower or its
Subsidiary, as the case may be, it is in its best economic interests to
allow or cause such lapse, termination, forfeiture or cancellation.
(i) Solvency. Continue, and cause each of its Subsidiaries to
continue, to be Solvent.
(j) Further Assurances.
(A) If and to the extent requested by the Agent from time to
time, execute and deliver such documents and take such other
action, and cause each of its Subsidiaries to execute and deliver
such documents and take such other action, as may be necessary or
reasonably requested by the Agent, in order to assure and confirm
that all obligations under this Agreement (including reimbursement
obligations in respect of outstanding Letters of Credit), the Notes
or any of the other Loan Documents are at all times guaranteed on
terms satisfactory to the Agent by Guaranties of each of its
present and future Subsidiaries other than Immaterial Subsidiaries.
(B) Promptly upon the acquisition by the Borrower or one of
its Subsidiaries of the Securities of any Subsidiary that is not an
Immaterial Subsidiary or, in the event any Subsidiary of the
Borrower ceases to be an Immaterial Subsidiary, within 30 days
after such Subsidiary ceases to be an Immaterial Subsidiary, the
Borrower will cause such Subsidiary to enter into a Guaranty.
(C) Promptly upon the acquisition of the Securities of any
Subsidiary of the Borrower or one of its Subsidiaries that is not
an Immaterial Subsidiary or, in the event any Subsidiary of the
Borrower ceases to be an Immaterial Subsidiary or is owed by the
Borrower more than $100,000 in Intercompany Debt, within 30 days
after such Subsidiary ceases to be an Immaterial Subsidiary or
first is owed such amount of Intercompany Debt, the Borrower will
cause such Subsidiary to enter into the Intercompany Subordination
Agreement.
(D) Use its best efforts, from and after the Closing Date, to
obtain supplements to the Subordination Agreements outstanding on
the Closing Date confirming the continued subordination of the Debt
referred to therein, in form and substance reasonably satisfactory
to the Agent.
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(k) Employment of Technology; Disposal of Hazardous Materials, Etc.
(i) Employ, and cause each of its Subsidiaries to employ, in connection
with its use, if any, of the Real Property, appropriate technology and
compliance procedures to maintain compliance with any applicable
Environmental Laws, (ii) obtain and maintain, and cause each of its
Subsidiaries to obtain and maintain, any and all material permits
required by applicable Environmental Laws in connection with its or its
Subsidiaries' operations and (iii) dispose of, and cause each of its
Subsidiaries to dispose of, any and all Hazardous Substances only at
facilities and with carriers reasonably believed to possess valid permits
under RCRA, if applicable, and any applicable state and local
Environmental Laws. The Borrower shall use its best efforts, and cause
each of its Subsidiaries to use its best efforts, to obtain all
certificates required by law to be obtained by the Borrower and its
Subsidiaries from all contractors employed by the Borrower or any of its
Subsidiaries in connection with the transport or disposal of any
Hazardous Substances.
(l) Environmental Matters. If the Borrower or any of its
Subsidiaries shall:
(i) receive written notice that any material violation of any
Environmental Laws may have been committed or is about to be
committed by the Borrower or any of its Subsidiaries;
(ii) receive written notice that any administrative or
judicial complaint or order has been filed or is about to be filed
against the Borrower or any of its Subsidiaries alleging any
material violation of any Environmental Laws or requiring the
Borrower or any of its Subsidiaries to take any action in
connection with the release or threatened release of Hazardous
Substances or solid waste into the environment; or
(iii) receive written notice from a federal, state, foreign or
local governmental agency or private party alleging that the
Borrower or any of its Subsidiaries is liable or responsible for
costs associated with the response to cleanup, stabilization or
neutralization of any Environmental Activity;
then it shall provide the Agent with a copy of such notice within five
Business Days of the Borrower's or such Subsidiary's receipt thereof.
Within ten days of the date the Borrower or such Subsidiary shall have
learned of the enactment or promulgation of any Environmental Laws which
may have a material adverse effect on the business, property, condition
(financial or otherwise) or results of operations of the Borrower and its
Subsidiaries, taken as a whole, the Borrower shall provide the Agent with
notice thereof. The Borrower shall monitor compliance with Environmental
Laws by any and all owners or operators of the Real Property.
(m) Violation of Law, Etc. Prior to the Borrower or any Subsidiary
of the Borrower commencing any acquisition of any margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), including, without limitation, commencing a
merger or tender offer for shares of another
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Person, the Borrower will deliver to the Agent an opinion of the general
counsel of the Borrower satisfactory to the Agent that such activity
(taking into account Section 6.02(a) and the use or proposed use of the
proceeds of any Advances in connection with such activity) does not
violate any law, rule or regulation (including without limitation
Regulation U issued by the Board of Governors of the Federal Reserve
System).
SECTION 6.02. Negative Covenants. So long as any Note shall remain
unpaid, any Letter of Credit shall remain outstanding, any amount shall remain
due hereunder, or any Bank shall have any Commitment hereunder, the Borrower
will not, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any Lien upon
or with respect to any of its properties of any character (including, without
limitation, Accounts), whether now owned or hereafter acquired, or assign any
right to receive income, or sign or file, or permit any of its Subsidiaries to
sign or file, under the Uniform Commercial Code a financing statement that
names the Borrower or any of its Subsidiaries as debtor or the equivalent or
sign, or permit any of its Subsidiaries to sign, any security agreement
authorizing any secured party thereunder to file any such financing statement
or other document, or assign, or permit any of its Subsidiaries to assign, any
Accounts, excluding, however, from the operation of the foregoing restrictions
the Liens created by or pursuant to the Loan Documents or the $150,000,000
Credit Agreement and Permitted Liens.
(b) Restrictive Covenants. Enter into, or permit any of its
Subsidiaries to enter into, any agreement or instrument (other than the Loan
Documents) (i) which restricts the ability of the Borrower or any of its
Subsidiaries to create or suffer to exist any Lien upon or with respect to its
Securities, whether now or hereafter issued, or upon or with respect to any of
its properties, whether now owned or leased or hereafter acquired or leased,
except in connection with transactions contemplated by clause (v) of the
definition "Permitted Lien" in which case any such agreement shall be limited
to the property acquired in connection with such transactions and any Lien
granted is limited as provided in said clause (v) and except for investments of
no more than $10,000,000 in any individual case (or series of individual
cases), but in no event more than $20,000,000 in the aggregate at any time, by
the Borrower and its Subsidiaries in any Person which is not a Subsidiary, in
which the Borrower or its Subsidiaries hold less than 50% of the equity
interest and as to which the Borrower or its Subsidiaries are prohibited by law
to grant a Lien on any such equity interest, or (ii) which restricts the
ability of any Subsidiary of the Borrower to (A) pay dividends or make other
distributions on its Securities or to the Borrower or any other Subsidiary of
the Borrower, (B) make any loan or advance to the Borrower or any of its
Subsidiaries, or (C) create, incur, assume or suffer to exist, or pay or
prepay, any Intercompany Debt, provided, that any such agreement or instrument
mandated by any federal law, rule or regulation or order governing the business
of the Borrower and its Subsidiaries shall not be a violation of this Section
6.02(b)(ii).
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(c) Debt. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Debt other
than:
(i) Debt hereunder;
(ii) Debt under the Loan Documents or under the $150,000,000
Credit Agreement (and the Loan Documents referred to and as defined
therein);
(iii) Debt secured by Liens permitted by clause (v) of the
definition of "Permitted Lien";
(iv) the Debt listed on Schedule IV, provided that such Debt
may be renewed, extended or otherwise modified on terms no less
favorable to the Borrower or its Subsidiaries or the Banks than the
existing terms of such Debt;
(v) Debt not otherwise permitted by this Section 6.02(c)
incurred by the Borrower and/or its Subsidiaries (other than the
Intercompany Creditor) in connection with the acquisition of any
Facility (or the assets thereof), any Existing Clinic Acquisition
or the acquisition of any Related Business, so long as such
acquisition satisfies all the conditions precedent set forth in
Section 6.02(f)(i) or (ii), as the case may be;
(vi) convertible Subordinated Debt incurred by the Borrower
or any Subsidiary of the Borrower (other than the Intercompany
Creditor) in connection with the acquisition of a Facility (or the
assets thereof), any Existing Clinic Acquisition or the acquisition
of any Related Business, provided that the holder of any such Debt
shall have executed and delivered a Subordination Agreement to the
Agent;
(vii) Subordinated Debt, whether convertible or not, in an
aggregate principal amount not in excess of $150,000,000; provided
that the Agent and the Majority Banks shall have approved in
writing prior to the issuance thereof the terms and conditions
relating to the issuance of such Subordinated Debt, including the
terms of any indenture executed in connection therewith;
(viii) any Intercompany Debt or Debt permitted under the terms
of Section 6.02(i) or 6.02(o);
(ix) Contingent Obligations permitted under Section 6.02(d);
(x) Debt under any interest rate, currency or other
protection, hedge, cap, collar, swap or similar agreement entered
into by the Borrower with any of the Banks or their respective
Affiliates from time to time; and
(xi) unsecured Senior Debt in an aggregate principal amount
not in excess of $50,000,000 incurred by the Borrower or any of its
Subsidiaries (other
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than the Intercompany Creditor) to fund any Existing Clinic
Acquisition or the acquisition of any Facility (or the assets
thereof) or any Related Business; provided, however, that such
unsecured Senior Debt contains terms and conditions, including,
without limitation, interest rates, covenants and defaults, no
greater or more restrictive, as the case may be, than those
contained herein; provided, further, that there can be no principal
repayments of such unsecured Senior Debt until one year after the
Revolver Termination Date.
(d) Contingent Obligations. Create, incur, assume or suffer to
exist, or permit any of its Subsidiaries to create, incur, assume or
suffer to exist, any Contingent Obligations except (i) by reason of
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, (ii) Contingent
Obligations created pursuant to the Loan Documents or under the
$150,000,000 Credit Agreement (and the Loan Documents referred to and as
defined therein), (iii) guaranties by the Borrower of Capital Leases,
Operating Leases or Service Agreements of any Subsidiary of the Borrower
(including consents by the Borrower to the assignment of such
guaranties), provided that such Capital Leases or Operating Leases are
otherwise permitted hereunder, (iv) Contingent Obligations of the type
specified in clauses (ii) and (iii) of the definition of "Contingent
Obligation" created in the ordinary course of business, (v) miscellaneous
Contingent Obligations not to exceed at any time outstanding $20,000,000,
(vi) guaranties by the Subsidiaries of the Borrower of the Borrower's
obligations under a Capital Lease or an Operating Lease provided that
such Capital Lease or Operating Lease is otherwise permitted hereunder
and only to the extent of the portion of such Capital Lease or Operating
Lease that directly benefits such Subsidiary, (vii) Contingent
Obligations not otherwise permitted by this Section 6.02(d) incurred by
the Borrower and/or its Subsidiaries (other than the Intercompany
Creditor) in connection with the acquisition of any Facility (or the
assets thereof), any Existing Clinic Acquisition or the acquisition of
any Related Business, so long as such acquisition satisfies all the
conditions precedent set forth in Section 6.02(f)(i) or (ii), as the case
may be, (viii) Contingent Obligations permitted pursuant to Section
6.02(c) and Contingent Obligations listed on Schedule IV and (ix)
Contingent Obligations to make recruitment subsidy advances pursuant to
any Service Agreement.
(e) Restricted Payments. Make, or permit any of its Subsidiaries to
make, any Restricted Payment if at the time such Restricted Payment is
made none of the then outstanding Debt of the Borrower shall be rated
Investment Grade, except that:
(i) the Borrower may pay dividends on its Common Stock, or
purchase or otherwise acquire for value any shares of its Common
Stock (each a "Common Stock Payment"), provided that (A) no Event of
Default or event that would constitute an Event of Default but for
the requirement that notice be given or time elapse or both shall
have occurred and be continuing or would result from such Common
Stock Payment, (B) the aggregate amount of Common Stock Payments made
during the period from January 1, 1997 through the date of such
Common Stock Payment shall not exceed an amount equal to ten percent
of the
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Consolidated Net Income of the Borrower and its Subsidiaries for the
period from January 1, 1997 through the last day of the fiscal
quarter most recently ended prior to the date of such Common Stock
Payment (treated for such purposes as a single accounting period),
provided that in no event may the aggregate amount of Common Stock
Payments made to purchase or otherwise acquire for value shares of
Common Stock exceed $20,000,000 in the aggregate for all such
purchases or other acquisitions, and (C) the Borrower shall have
provided the Agent with a certificate of the treasurer or chief
financial officer of the Borrower setting forth computations in
reasonable detail demonstrating satisfaction of the foregoing
conditions; and
(ii) the Borrower and its Subsidiaries may make Restricted
Payments to terminated employees in an amount not to exceed
$100,000 in any year.
(f) Capital Investments. Make, or permit any of its Subsidiaries to
make, any Capital Investments, provided that:
(i) the Borrower and the Subsidiaries of the Borrower (other
than the Intercompany Creditor) can make Capital Investments
consisting of an acquisition of a Facility (or the assets thereof)
or Related Businesses or Existing Clinic Acquisitions (whether
through the acquisition of assets or Securities) that satisfy all
of the following:
(A) the Total Consideration for each such acquisition
shall be less than $75,000,000;
(B) the aggregate Total Consideration for all such
acquisitions in any twelve-month period shall not exceed
$500,000,000;
(C) the aggregate number of such acquisitions (other
than Existing Clinic Acquisitions) in any twelve-month period
shall not exceed fifteen;
(D) except in the case of Existing Clinic Acquisitions,
the Agent and the Banks shall have received at least one day
before the scheduled closing for such acquisition the
following financial and other information:
(1) the Total Consideration to be paid for such
acquisition;
(2) summary financial information relating to the
Facility or Related Business to be acquired, including
operating forecasts and information as to the numbers
of physicians and physician assistants involved and any
other information reasonably requested by the Agent;
and
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(3) a schedule, duly certified by the chief
financial officer of the Borrower, demonstrating
compliance on a pro forma basis with the financial
covenants contained in Section 6.03 after such
acquisition; provided, however, that in preparing such
pro forma schedule, the Borrower shall include all Debt
to be incurred in connection with such acquisition and
the EBITDA of the Facility or Related Business to be
acquired (which shall be based on audited, if
available, historical numbers, adjusted as contemplated
by Section 6.03);
(E) the Agent and the Banks shall have received at least
one day before the scheduled closing of such acquisition all
other information, financial or otherwise, regarding such
acquisition as the Agent or the Banks may reasonably request;
(F) except in the case of Existing Clinic Acquisitions,
the Agent shall have received, on or before the date of such
acquisition, each of the following documents:
(1) a Guaranty (dated on or before the date of such
acquisition), duly executed by the Subsidiary of the
Borrower formed to acquire or resulting from the
acquisition of such Facility (or the assets thereof) or
Related Business, unless immediately after giving effect
to such acquisition such Subsidiary will be an
Immaterial Subsidiary;
(2) an amendment (dated on or before the date of
such acquisition) to the Intercompany Subordination
Agreement, which amendment shall make the Subsidiary of
the Borrower formed to acquire or resulting from the
acquisition of such Facility (or the assets thereof) or
Related Business a "Subordinated Creditor" under such
Intercompany Subordination Agreement, unless
immediately after giving effect to the acquisition such
Subsidiary will be an Immaterial Subsidiary;
(3) certified copies of resolutions of the Board
of Directors or other governing body of such Subsidiary
authorizing the execution and delivery of such Loan
Documents, together with certificates of incumbency
with respect to the individuals executing such Loan
Documents;
(4) a supplement to Schedule I hereto to the
extent such supplement is necessary to make the
representation and warranty contained in Section
5.01(f) correct on and as of the date of such
acquisition; and
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(5) such other documents (including a favorable
legal opinion of the general counsel of the Borrower)
as the Agent may reasonably request.
(ii) the Borrower and the Subsidiaries of the Borrower (other
than the Intercompany Creditor) can make Capital Investments
consisting of an acquisition of a Facility (or the assets thereof)
or Related Businesses for which the Total Consideration (whether
through the acquisition of assets or Securities) equals or exceeds
$75,000,000 only with the prior approval in writing of the terms and
conditions of such acquisition by the Majority Banks in
substantially the form of Exhibit H (it being understood that the
Banks shall use reasonable efforts to notify the Borrower within ten
Business Days after receipt of all of the information regarding a
proposed acquisition described in clause (A) below of their decision
to approve or disapprove the proposed acquisition), and
(A) the Banks and the Agent shall have received complete
information, financial and otherwise, regarding the proposed
acquisition as may be necessary or desirable, in the
reasonable judgment of the Banks, to enable the Banks to
evaluate the proposed acquisition for the purpose of
approving such acquisition under this Section 6.02(f)(ii),
including, without limitation, information regarding the
Total Consideration to be paid, a schedule, duly certified by
the chief financial officer of the Borrower, demonstrating
compliance on a pro forma basis with the financial covenants
contained in Section 6.03 after such acquisition, and any
other information as the Banks may reasonably request;
provided, however, that in preparing such pro forma schedule,
the Borrower shall include all Debt to be incurred in
connection with such acquisition and the EBITDA of the
Facility or Related Business to be acquired (which shall be
based on audited, if available, historical numbers, adjusted
as contemplated by Section 6.03); and
(B) the Agent shall have received on or before the day
of such acquisition, in form and substance satisfactory to
the Agent, each of the documents described in subsection
6.02(f)(i)(F).
(iii) the Borrower and its Subsidiaries may make Capital
Expenditures that are not acquisitions of, or other investments in,
Facilities, Related Businesses or other Persons (or all or
substantially all of the assets thereof) in the ordinary course of
business, provided that no Event of Default or event that would
constitute an Event of Default but for the requirement that notice
be given or time elapse or both shall have occurred and be
continuing or would result therefrom.
(iv) the Borrower and its Subsidiaries may make capital
investments in, and loans and advances to, Subsidiary joint
ventures, general or limited partnerships, limited liability
companies or other types of Persons that are not
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wholly-owned by the Borrower and its Subsidiaries in an aggregate
amount of not more than $10,000,000 during any fiscal year, and in
no event in an aggregate amount exceeding $30,000,000 at any time
outstanding.
(v) the Borrower and its Subsidiaries may make capital
investments in, and loans and advances to, joint ventures, general
or limited partnerships, limited liability companies or other types
of Persons that are not Subsidiaries in an aggregate amount not
exceeding $10,000,000 at any time outstanding.
(vi) without limiting amounts that may be invested in, or
loaned or advanced to other Persons pursuant to Section 6.02(f)(v),
the Borrower's Subsidiary PhyCor of Hawaii, Inc. ("PhyCor-Hawaii")
may make secured loans to Straub Clinic & Hospital, Inc. ("Straub")
to the extent required by, and in compliance with, Sections 5.8.1,
5.8.2 and 5.8.3 of its Service Agreement with Straub (the "Straub
Service Agreement"); provided that:
(A) at the time of each such loan and after giving
effect thereto, no Event of Default or event which would
constitute an Event of Default but for the requirement that
notice be given or time elapse or both shall occur and be
continuing;
(B) loans pursuant to Section 5.8.1 of the Straub
Service Agreement ("Straub Capital Loans") shall be secured
by a first priority security interest in all of the assets
directly or indirectly acquired by Straub from the proceeds
of any such loans, free and clear of any other Liens; and the
aggregate principal amount of all Straub Capital Loans may
not exceed $50,000,000 at any time outstanding;
(C) loans pursuant to Section 5.8.2 of the Straub
Service Agreement ("Straub Working Capital Loans";
collectively, with the Straub Capital Loans, the "Straub
Loans") shall be made pursuant to a single credit facility
providing loan availability for no more than one year from
the commencement of the term thereof (which may be renewed on
an annual basis, but not provide availability later than the
stated Revolver Termination Date) and shall be secured by a
first priority security interest in all of the accounts
receivable, inventory, supplies and other current assets of
Straub (the "Straub Loan Base"), free and clear of any other
Liens; and the aggregate principal amount of all Straub
Working Capital Loans may not exceed at any time
outstanding the lesser of (1) $40,000,000 or (2) the
aggregate book value (less any reserves applicable thereto)
of (x) the Straub Loan Base as of such time and (y) any
current assets acquired by the Borrower in its merger with
Straub Clinic & Hospital, Incorporated and held by the
Borrower at such time, all as determined in accordance with
generally accepted accounting principles; and
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(D) each Straub Loan shall be evidenced by a promissory
note (1) that shall have a final maturity not later than the
stated Revolver Termination Date and provide for the
repayment of principal prior to final maturity at the annual
rate of one-sixth of the principal outstanding at the time
loan availability under the applicable credit facility for
Straub ceases and (2) that shall be subject to the repurchase
right of Straub provided in the Straub Service Agreement.
(g) Mergers, Etc. Merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to, or acquire all or substantially all
of the assets (other than the acquisition of assets of any Facility or
Related Business or an Existing Clinic Acquisition, whether or not such
acquisition is accomplished by merger or by Securities or asset purchase,
so long as such acquisition satisfies all the conditions precedent set
forth in Section 6.02(f)(i) or (ii) and, if any merger involves the
Borrower, the Borrower is the surviving corporation) of, any Person, or
permit any of its Subsidiaries to do so, except that:
(i) any Subsidiary may consolidate with or merge into the
Borrower (only if the Borrower shall be the continuing or surviving
corporation) or (except for the Intercompany Creditor) with or into
one or more other Subsidiaries that are Guarantors, provided that
(A) immediately before and after giving effect to such
consolidation or merger, the parties thereto and the survivor
thereof all are Solvent, (B) all Guaranties shall continue in full
force and effect, and (C) the Agent shall have been furnished with
a favorable opinion of counsel reasonably satisfactory to the Agent
covering such matters as the Agent may reasonably request; and
(ii) the Borrower may consolidate or merge with any other
Person, provided that (A) immediately before and after giving
effect to such consolidation or merger, the parties thereto and the
survivor thereof all are Solvent, (B) the Borrower shall be the
continuing or surviving corporation, (C) no Change of Control shall
occur and (D) all Guaranties shall continue in full force and
effect;
provided, however, that immediately before and after any consolidation or
merger under this Section 6.02(g), no Event of Default, or event which,
with the giving of notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing.
(h) Limitation on Sales of Assets. Except for the sale of inventory
in the ordinary course of business, the sale of worn-out or obsolete
assets and intercompany transfers permitted under Section 6.02(g), sell,
lease, transfer or otherwise dispose of its assets, or permit any
Subsidiary to sell, lease, transfer or otherwise dispose of its assets
(including any interest in a Subsidiary), unless (i) the book value of
such assets sold constitutes less than 5% of the value of the Borrower's
Consolidated Tangible Net Assets
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at the time of sale or other disposition, provided that the aggregate book
value of all such assets sold in any twelve-month period shall not exceed
15% of the value of the Borrower's average Consolidated Tangible Net
Assets for the twelve-month period ending with the quarter immediately
preceding the date of determination, as evidenced by a certificate duly
executed by the chief financial officer of the selling entity on the date
of such sale or disposition, and provided further that such assets do not
constitute Securities of the Intercompany Creditor or Intercompany Debt,
or (ii) such sale is required in connection with the termination of a
Service Agreement or a change in control under the Amended Securities
Purchase Agreement, dated as of January 1, 1995, with respect to NAMM,
and, in each case, the Net Cash Proceeds of such sale are delivered
directly to the Agent to be applied in accordance with Section 2.09(e).
(i) Transactions with Affiliates. Lend or advance money to,
contract with or engage in any other transactions with, or permit any
Subsidiary of the Borrower to lend or advance money to, contract with or
engage in any other transactions with, Subsidiaries or Affiliates of the
Borrower, except in the ordinary course of their business with third
parties or on terms and for consideration which is no less favorable to
the Borrower and its Subsidiaries than the terms and consideration which
the Borrower or such Subsidiaries would be obligated to pay in an arms'
length transaction, subject, however, to the limitation that the Borrower
and its Subsidiaries shall not loan more than $100,000 times the number
of Facilities operated by the Borrower and its Subsidiaries to employees
at any one time outstanding; provided, however, that nothing in this
Section 6.02(i) shall prohibit the Borrower and its Subsidiaries from
engaging in transactions with joint ventures in which the Borrower or any
of its Subsidiaries is a joint venture partner to the extent permitted by
Section 6.02(f)(iv) or (v).
(j) Prepayments of Debt. Prepay, redeem, defease (whether actually
or in substance) or purchase in any manner (or deposit or set aside funds
or securities for the purpose of the foregoing), or make any payment
(other than for scheduled payments of principal and interest due on the
date of payment thereof, if such payment is permitted to be made pursuant
to the terms of the documents evidencing or governing the applicable
Debt) in respect of, or establish any sinking fund, reserve or like
set-aside of funds or other property for the redemption, retirement or
repayment of, any Debt, or transfer any property in payment of or as
security for the payment of, or violate the subordination terms of, any
Debt, or amend, modify or change in any manner less favorable to Borrower
or any of its Subsidiaries or the Banks the terms of any Debt or any
instrument, indenture or other document evidencing, governing or
affecting the terms of any Debt, or cause or permit any of its
Subsidiaries to do any of the foregoing; provided, however, that nothing
in this Section 6.02(j) shall prohibit (i) any payments of the Debt under
this Agreement or the $150,000,000 Credit Agreement in accordance with
the terms hereof or thereof, (ii) the conversion of convertible
Subordinated Debt of the Borrower into Securities of the Borrower, (iii)
the prepayment in any fiscal year of the Borrower of up to $30,000,000 in
principal amount of Senior Debt of the Borrower or any of its
Subsidiaries if the effective yield payable in respect of such Senior
Debt is greater than the interest payable hereunder in respect of Base
Rate Advances or Eurodollar Rate
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Advances, whichever is lower, (iv) the prepayment of the existing
operating capital notes payable to the various physicians listed on
Schedule IV in the aggregate principal amount specified therein, (v)
setoff of any convertible Subordinated Debt against the purchase price to
be paid by the holder of such Debt in connection with the repurchase by
such holder of any Facility pursuant to the Asset Purchase Agreement
relating to such Facility, or (vi) payment of any Deferred Acquisition
Consideration in connection with any acquisition of Facilities (or the
assets thereof), any Existing Clinic Acquisition or any acquisition of a
Related Business to the extent such acquisition satisfies the requirements
of Section 6.02(f)(i) or (ii), as the case may be.
(k) Accounting Changes. Change its fiscal year, or make, or permit
any of its Subsidiaries to make, any other significant change in
Consolidated accounting treatment and reporting practices except as
required or permitted by generally accepted accounting principles.
(l) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business
as conducted as of the date hereof.
(m) Securities. Except as is provided in Section 6.02(g), permit
any of its Subsidiaries to issue or sell any of its Securities or any
rights, warrants or options to acquire any of its Securities, or permit
any of its Subsidiaries to sell or otherwise dispose of any Securities of
any of its Subsidiaries, or permit any of its Subsidiaries to amend its
charter, bylaws or other constituent instruments so as to affect the
conversion rights, payments, privileges or other terms in respect of such
Securities or in any respect that affects any of the foregoing interests
of its respective securityholders.
(n) Welfare Plan Liabilities. Create or suffer to exist, or permit
any of its Subsidiaries to create or suffer to exist, any liability with
respect to Welfare Plans if, immediately after giving effect to such
liability, the aggregate annualized cost (including, without limitation,
the cost of insurance premiums) with respect to Welfare Plans and other
benefit plans and insurance of the type described in the definition of
"Welfare Plans" contained in Section 1.01 for which the Borrower and its
Subsidiaries are or may become liable in any fiscal year of the Borrower
could have a material adverse effect on the business, property,
prospects, condition (financial or otherwise) or results of operations of
the Borrower and its Subsidiaries, taken as a whole.
(o) Intercompany Creditor. Permit the Intercompany Creditor to
engage in any business or operations except the receipt and advancing of
Intercompany Debt and the holding of Intercompany Debt or Securities of
other Subsidiaries of the Borrower.
SECTION 6.03. Financial Covenants. So long as any Note shall remain
unpaid, any Letter of Credit shall remain outstanding, any amount shall remain
due hereunder, or any Banks shall have any Commitment hereunder, the Borrower
will not, without the written consent of the Majority Banks:
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(a) Consolidated Net Worth. Permit at any date of determination the
Consolidated Net Worth of the Borrower and its Subsidiaries to be less
than $415,000,000, plus (i) 80% of the net proceeds received from the
issuance, sale or disposition of the Borrower's Securities (common,
preferred or special), securities converted into or exchanged for
Securities, and any rights, options, warrants and similar instruments
from December 31, 1996 to such date of determination and (ii) 50% of
positive Consolidated Net Income (if any) earned from December 31, 1996
through such date of determination.
(b) Fixed Charge Coverage Ratio. Permit, for the four consecutive
fiscal quarters ending June 30, 1997 and for each period of four
consecutive fiscal quarters ending thereafter, the Consolidated Fixed
Charge Coverage Ratio of the Borrower and its Subsidiaries, calculated at
the end of each fiscal quarter of the Borrower, to be less than 1.25 to
1.00.
(c) Consolidated Debt/Total Capitalization Ratio. Permit, at any
time, the Consolidated Debt/Total Capitalization Ratio of the Borrower
and its Subsidiaries to be greater than 60%.
(d) Consolidated Debt/EBITDA Ratio. Permit, for each period of four
consecutive fiscal quarters ending June 30, 1997 and for each period of
four consecutive fiscal quarters ending thereafter, the Consolidated
Debt/EBITDA Ratio of the Borrower and its Subsidiaries to be greater than
3.75 to 1.00.
(e) Consolidated Senior Debt/EBITDA Ratio. Permit, for each period
of four consecutive fiscal quarters ending June 30, 1997 and for each
period of four consecutive fiscal quarters ending thereafter, the
Consolidated Senior Debt/EBITDA Ratio of the Borrower and its
Subsidiaries to be greater than 2.50 to 1.00.
For the purposes of subsections (b), (c), (d) and (e) above and the calculation
of any Applicable Eurodollar Rate Margin and the Applicable Facility Fee Rates,
if, as of any date, a determination of EBITDA, EBITDAL, Lease Expense, Capital
Expenditures or any other component of the ratios referred to in such
subsections (the "Ratio Components") is required to be made as to any period
prior to the date of such determination (a "Determination Period"), such
determination shall be made so as to give effect to the following:
(i) if any Person, Facility or Related Business (an "Acquired
Business") shall have been acquired in compliance with this Agreement
since the beginning of such Determination Period and must be Consolidated
with the Borrower and its Subsidiaries in accordance with GAAP, the Ratio
Components of such Acquired Business from the beginning of the
Determination Period to the date of acquisition shall be included on a
pro forma basis with the same effect as if such Acquired Business had
been a Consolidated Subsidiary of the Borrower for such portion of the
Determination Period, subject to the following:
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(A) for any date of determination occurring on or before the
completion of one full fiscal quarter after the date of acquisition
of such Acquired Business, pro forma adjustments may be made to
reflect (1) specifically identified changes in physician
compensation, complements of physicians, malpractice insurance costs
and other group purchase arrangements, all of which shall be
consistent with the terms and conditions of any Service Agreement
entered into in connection with such acquisition and (2) other
planned cost savings which will be realized by such Acquired
Business as a consequence of such acquisition to the extent
demonstrated by the Borrower to the satisfaction of the Majority
Banks; and
(B) For any date of determination occurring after the
completion of one full fiscal quarter after the date of such
acquisition, the actual Ratio Components for the period through the
end of the then most recently ended fiscal quarter shall be
annualized for the Determination Period; and
(ii) if any Person, Facility or Related Business (a "Disposed
Business") which shall have been Consolidated with the Borrower and its
Subsidiaries shall have been discontinued, lost, sold or otherwise
disposed of as of the date of determination, the Ratio Components of such
Disposed Business shall be excluded for the Determination Period.
SECTION 6.04. Reporting Requirements. So long as any Note shall remain
unpaid, any Letter of Credit shall remain outstanding, or amount shall remain
due hereunder or any Bank shall have any Commitment hereunder, the Borrower
will furnish to the Agent, for distribution to the Banks, in sufficient copies
for each Bank, the following:
(a) as soon as available and in any event within 30 days after the
end of each month, Consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such month and Consolidated statements of
operations and cash flow position of the Borrower and its Subsidiaries
for such month and for the period commencing at the end of the previous
fiscal year and ending with the end of such month;
(b) as soon as available and in any event within 45 days after the
end of each fiscal quarter, Consolidated balance sheets of the Borrower
and its Subsidiaries as of the end of such fiscal quarter and Consolidated
statements of operations and cash flow of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal
year and ending with the end of such fiscal quarter, certified by the
chief financial officer of the Borrower, together with (i) a certificate
of said officer stating that no Event of Default has occurred and is
continuing or, if an Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action that the Borrower has
taken or proposes to take with respect thereto, (ii) a schedule in form
satisfactory to the Agent of the computations used by the Borrower in
determining compliance with the covenants contained in Section 6.03 and in
sufficient detail for determining the Applicable Facility Fee Rates and
the Applicable Eurodollar Rate Margins in accordance with the definitions
of such terms set forth in Section 1.01, and (iii) a certificate of said
officer or of the
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general counsel of the Borrower regarding additions to and deletions
from Schedule I reflecting changes occurring during such fiscal quarter;
(c) as soon as available and in any event within 120 days after the
end of each fiscal year, a copy of the annual audit report for such year
for the Borrower, including therein an audited Consolidated balance sheet
of the Borrower and its Subsidiaries as of the end of such fiscal year
and audited Consolidated statements of operations, stockholders' equity
and cash flow of the Borrower and its Subsidiaries for such fiscal year
(i) certified by a nationally recognized public accounting firm, together
with a certificate of such accounting firm stating that in the course of
the regular audit of the business of the Borrower, which audit was
conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge that an Event of Default has
occurred and is continuing, or, if in the opinion of such accounting
firm, an Event of Default has occurred and is continuing, a statement as
to the nature thereof, and (ii) accompanied by a copy of the management
letter from such accounting firm accompanying such financial statements;
(d) as soon as possible and in any event within two days after the
occurrence of an Event of Default of which the Borrower or any Subsidiary
has knowledge, a statement of the chief financial officer of the Borrower
setting forth details of such Event of Default and the action which the
Borrower has taken and proposes to take with respect thereto;
(e) promptly after any change in accounting policies or reporting
practices that could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), operations, business,
assets or prospects of the Borrower or of any of its Subsidiaries or on
the rights of the Banks under any of the Loan Documents, notice and a
description in reasonable detail of such change;
(f) promptly and in any event within ten days after the Borrower or
any ERISA Affiliate knows or has reason to know that any ERISA Event has
occurred, a statement of the chief financial officer of the Borrower
describing such ERISA Event and the action, if any, that the Borrower or
such ERISA Affiliate has taken or proposes to take with respect thereto;
(g) promptly and in any event within two Business Days after receipt
thereof by the Borrower or any ERISA Affiliate (i) copies of each notice
from the PBGC stating its intention to terminate any Plan or to have a
trustee appointed to administer any Plan and (ii) copies of each material
notice received from the United States Department of Labor in connection
with any ERISA requirements;
(h) promptly and in any event within five Business Days after
receipt thereof by the Borrower or any ERISA Affiliate from the sponsor
of a Multiemployer Plan, a copy of each notice received by the Borrower
or any ERISA Affiliate concerning (i) the imposition of Withdrawal
Liability by a Multiemployer Plan, (ii) the determination that a
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Multiemployer Plan is, or is expected to be, in reorganization within the
meaning of Title IV of ERISA, (iii) the termination of a Multiemployer
Plan within the meaning of Title IV of ERISA or (iv) the amount of
liability incurred, or expected to be incurred, by the Borrower or any
ERISA Affiliate in connection with any event described in clause (i),
(ii) or (iii) above;
(i) promptly and in any event within ten days after the commencement
thereof, notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any of
its Subsidiaries, of the type described in Section 5.01(h);
(j) promptly and in any event within ten days after the sending or
filing in final form thereof, copies of all proxy statements and
financial statements that the Borrower or any of its Subsidiaries sends
to its securityholders generally, and copies of all registration
statements (other than those relating to employee stock plans), without
exhibits, all periodic reports on Forms 10-K and 10-Q and reports on Form
8-K that the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any governmental authority that
may substituted therefor, or any national securities exchange or with
the National Association of Securities Dealers;
(k) promptly after the occurrence thereof, notice of (A) any event
of which Borrower or any Subsidiary is aware which makes any of the
representations obtained in Section 5.01 inaccurate in any respect or (B)
the receipt by the Borrower or any Subsidiary of any notice, order,
directive or other communication from a governmental authority alleging
violations of or noncompliance with any Environmental Law; and
(l) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its Subsidiaries as any
Bank through the Agent may from time to time reasonably request.
Notwithstanding the foregoing, upon the occurrence and during the continuance
of an Event of or a Default, the Borrower will, and will cause its Subsidiaries
to, provide to the Agent for each Bank additional information and any and all
of the above information more frequently to the extent reasonably requested by
the Agent or any Bank.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If any of the following events (each an
"Event of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Advance or
Note or any reimbursement obligation under any Letter of Credit, in each
case when the same becomes due and payable; or the Borrower shall fail to
pay any interest on any Advance, Note or reimbursement obligation under
any Letter of Credit, or any fees or other
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amounts payable under any Loan Document, in each case within five days
after the same becomes due and payable; or
(b) any representation or warranty made or deemed by any Loan Party
(or any of its officers) in any Loan Document or certificate or other
writing delivered pursuant thereto shall prove to have been incorrect in
any material respect when made or deemed made; or
(c) (i) any Loan Party shall fail to perform or observe any term,
covenant or agreement contained in Section 6.01, Section 6.02 or Section
6.03; or (ii) any Loan Party shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement or in any other
Loan Document on its part to be performed or observed if such failure
shall remain unremedied for ten days after written notice thereof shall
have been given to such Loan Party by the Agent or any Bank; or
(d) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on any Debt which is outstanding
under the $150,000,000 Credit Agreement or in a principal amount of at
least $5,000,000 in the aggregate (but excluding Debt evidenced by the
Notes or under Letters of Credit) of such Loan Party or such Subsidiary
(as the case may be), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Debt; or any such
Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment and except as
required by Section 2.09 of the $150,000,000 Credit Agreement), redeemed,
purchased or defeased, or any offer to prepay, redeem, purchase or
defease such Debt shall be required to be made, in each case prior to the
stated maturity thereof; or
(e) any Loan Party or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by or
against any Loan Party or any of its Subsidiaries seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, custodian
or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 30 days, or any of the actions
sought in such proceeding (including, without limitation, the entry of an
order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any
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substantial part of its property) shall occur; or any Loan Party or any
of its Subsidiaries shall take any corporate action to authorize any of
the actions set forth above in this subsection (e); or
(f) any proceeding shall be instituted against any Loan Party or any
of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or
protection of debtors or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property, and either such
proceeding shall remain undismissed or unstayed for a period of 30 days
or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against it or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property) shall occur; or
(g) any judgment or order for the payment of money in excess of
$5,000,000 which is not covered by insurance shall be rendered against
any Loan Party or any of its Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment
or order or (ii) there shall be any period of ten consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(h) any non-monetary judgment or order shall be rendered against the
Borrower or any of its Subsidiaries that is materially adverse to the
business, property, prospects, condition (financial or otherwise) or
results of operations of the Borrower and its Subsidiaries, taken as a
whole, and either (i) enforcement proceedings shall have been commenced
by any Person upon such judgment or order or (ii) there shall be any
period of ten consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; or
(i) any Loan Document after delivery thereof pursuant to Article IV
hereof or otherwise shall, for any reason cease to be valid and binding
on the respective Loan Party or Loan Parties thereto; or a Loan Party
shall so state in writing or shall contest the validity or enforceability
of any material term or provision of any Loan Document; or
(j) any one or more Service Agreements shall be terminated during
any period of four consecutive fiscal quarters that represent, in the
aggregate, 5% of the Consolidated EBITDA of the Borrower and its
Subsidiaries for such period, measured as of the end of any fiscal
quarter ending after the date of any such termination, provided that it
shall not be an Event of Default hereunder if the Service Agreement for
the Facility owned by PhyCor of Ruston, Inc. is terminated without cause;
or
(k) any ERISA Event with respect to a Plan shall have occurred and,
30 days after notice thereof shall have been given to the Borrower by the
Agent, (i) such ERISA Event shall still exist and (ii) the sum
(determined as of the date of occurrence of such
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ERISA Event) of the Insufficiency of such Plan and the Insufficiency of
any and all other Plans with respect to which an ERISA Event shall have
occurred and then exist (or in the case of a Plan with respect to which an
ERISA Event described in clauses (iii) through (vi) of the definition of
ERISA Event shall have occurred and then exist, the liability related
thereto) is equal to or greater than $5,000,000 for any fiscal year; or
(l) the Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal
Liability to such Multiemployer Plan in an amount that, when aggregated
with all other amounts required to be paid to Multiemployer Plans by the
Borrower and its ERISA Affiliates as Withdrawal Liability (determined as
of the date of such notification), exceeds $5,000,000 for any fiscal
year; or
(m) the Borrower or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of
ERISA, if as a result of such reorganization or termination the aggregate
annual contributions of the Borrower and its ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated
have been or will be increased over the amounts contributed to such
Multiemployer Plans for the respective plan year of each such
Multiemployer Plan immediately preceding the plan year in which the
reorganization or termination occurs by an amount exceeding $5,000,000;
or
(n) there shall occur any Change of Control; or
(o) any three of Messrs. Joseph C. Hutts, Thompson S. Dent, Derril
W. Reeves or Richard D. Wright shall, within any six-month period, cease
to be employed full time as officers of the Borrower other than by reason
of the death or incapacity of any such person; or
(p) since December 31, 1996 there has been, in the reasonable
judgment of the Agent or the Majority Banks, any material adverse change
in the Consolidated condition, financial or otherwise, operations,
properties or prospects of the Borrower and its Subsidiaries taken as a
whole;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the Majority Banks, by notice to the Borrower, declare the
obligation of each Bank to make Advances and the obligations of the Issuing
Bank to Issue Letters of Credit to be terminated, whereupon the same shall
forthwith terminate, (ii) shall at the request, or may with the consent, of the
Majority Banks, by notice to the Borrower, declare the Notes, all interest
thereon and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by the
Borrower, (iii) shall at the request, or may with the consent, of the Majority
Banks demand that the Borrower, and if such demand is made the Borrower shall,
pay
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to the Agent for the benefit of the Issuing Banks, an amount in immediately
available funds equal to the then outstanding Letter of Credit Liability which
shall be held by the Agent (or the Issuing Banks) as cash collateral in a cash
collateral account under the exclusive control and dominion of the Agent (or
Issuing Banks) and applied to the reduction of such Letter of Credit Liability
as drawings are made on outstanding Letters of Credit and (iv) shall at the
request, or may with the consent, of the Majority Banks exercise any other
remedies provided hereunder or by law; provided, however, that in the event of
an actual or deemed entry of an order for relief with respect to the Borrower
or any of its Subsidiaries under the Federal Bankruptcy Code, (A) the
obligation of each Bank to make Advances and of the Issuing Banks to Issue
Letters of Credit shall automatically be terminated and (B) the Notes, all such
interest and all such amounts (including the amounts referred to in clause
(iii) above) shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Bank and each Issuing Bank
hereby appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Majority Banks, and such instructions shall be binding upon all Banks and
all holders of Notes; provided, however, that the Agent shall not be required to
take any action which exposes the Agent to personal liability or which is
contrary to any Loan Document or applicable law. The Agent agrees to give to
each Bank prompt notice of each notice given to it by the Borrower pursuant to
the terms of this Agreement.
SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (i) may
treat the payee of any Note as the holder thereof, and treat the Bank that
purchased or funded a participation with respect to a Letter of Credit as the
holder or owner of the Debt resulting therefrom, until the Agent receives
written notice of the assignment or transfer thereof signed by such payee and
including the agreement of the assignee or transferee to be bound hereby as it
would have been if it had been an original Bank party hereto, in form
satisfactory to the Agent; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made in or in
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connection with any Loan Document; (iv) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of any Loan Document on the part of the Borrower or any Subsidiary of
the Borrower or to inspect the property (including the books and records) of the
Borrower or any such Subsidiary; (v) shall not be responsible to any Bank for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of any Loan Document or any other instrument or document furnished
pursuant thereto; and (vi) shall incur no liability under or in respect of any
Loan Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram, cable facsimile or
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
SECTION 8.03. Citibank and Affiliates. With respect to its Commitment,
the Advances made by it, the Notes issued to it and the participations in
Letters of Credit purchased by it, Citibank 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 term "Bank" or "Banks" shall, unless
otherwise expressly indicated, include Citibank in its individual capacity.
Citibank and its Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any kind of business with,
the Borrower, any of its Subsidiaries and any Person who may do business with
or own securities of the Borrower or any such Subsidiary, all as if Citibank
were not the Agent and without any duty to account therefor to the Banks.
SECTION 8.04. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent, the Issuing Bank or any
other Bank and based on the financial statements referred to in Section 5.01(e)
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement and the other
Loan Documents. Each Bank also acknowledges that it will, independently and
without reliance upon the Agent, any Issuing Bank or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents.
SECTION 8.05. Indemnification. The Banks agree to indemnify the Agent
and each Issuing Bank (in each case, to the extent not reimbursed by the
Borrower), ratably according to the respective principal amounts of the
Committed Rate Advances then held by each of them (or if no Committed Rate
Advances are at the time outstanding ratably according to the respective
amounts of their Commitments), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent or any Issuing Bank, as the case
may be, in any way relating to or arising out of this Agreement or any other
Loan Document or any Letter of Credit or any action taken or omitted by the
Agent or such Issuing Bank, as the case may be, under this Agreement or any
other Loan Document or any Letter of Credit, provided that no Bank shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's or any Issuing Bank's, as the case may be, gross
negligence or willful misconduct. Without limitation of the foregoing, each
Bank agrees to
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reimburse the Agent and each Issuing Bank promptly upon demand for its ratable
share of any out-of-pocket expenses (including counsel fees) incurred by the
Agent or such Issuing Bank, as the case may be, 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
or any Letter of Credit, to the extent that the Agent or such Issuing Bank, as
the case may be, is not reimbursed for such expenses by the Borrower.
SECTION 8.06. Successor Agent/Issuing Bank. The Agent may resign at any
time by giving written notice thereof to the Banks and the Borrower and the
Agent and/or any Issuing Bank may be removed at any time with or without cause
by the Majority Banks. Upon any such resignation or removal, in the case of
the Agent, or removal, in the case of any Issuing Bank, the Majority Banks
shall have the right, subject to the approval of the Borrower (which shall not
be unreasonably withheld), to appoint a successor Agent or a successor Issuing
Bank, as the case may be. If no successor Agent or successor Issuing Bank, as
the case may be, shall have been so appointed by the Majority Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent's
giving of notice of resignation or the Majority Banks' removal of the retiring
Agent or the retiring Issuing Bank, then the retiring Agent or the retiring
Issuing Bank, as the case may be, may, on behalf of the Banks, appoint a
successor Agent or a successor Issuing Bank, as the case may be, which shall be
a commercial bank organized under the laws of the United States of America or
of any State thereof and having a combined capital and surplus of at least
$100,000,000. Upon the acceptance of any appointment as Agent or as an Issuing
Bank hereunder by a successor Agent or a successor Issuing Bank, respectively,
such successor Agent or Issuing Bank shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
or the retiring Issuing Bank, as the case may be, and the retiring Agent or the
retiring Issuing Bank, as the case may be, shall be discharged from its duties
and obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation or removal hereunder as Agent, or any retiring
Issuing Bank's removal hereunder as an Issuing Bank, the provisions of this
Article VIII shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent or an Issuing Bank, as the case may be, under
this Agreement and the other Loan Documents. Notwithstanding the foregoing, no
Issuing Bank may be removed unless prior to or contemporaneously with such
removal it shall have received an amount, in immediately available funds, equal
to all outstanding Letter of Credit Liability then outstanding and then owing
to such Issuing Bank and shall have been indemnified by the Borrower, the Banks
and such successor Issuing Bank, to the Issuing Bank's satisfaction, against
all such Letter of Credit Liability. The fees referred to in Section 3.05(b)
shall continue to inure to such Issuing Bank's benefit, with respect to each
Letter of Credit Issued by it, until such time as all Letter of Credit
Liability in respect of such Letter of Credit has been discharged in full.
SECTION 8.07. Documentation Agent. The Documentation Agent, as such,
shall have no duties or obligations whatsoever with respect to this Agreement,
the Notes or any of the other Loan Documents.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Notes or the Loan Documents, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Majority Banks (or consented to in
writing in the case of the Loan Documents), and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of following: (a) waive
any of the conditions specified in Article IV, (b) increase the Commitments of
the Banks or subject the Banks to any additional monetary obligations, (c)
reduce the principal of, or interest on, the Committed Rate Advances or the
Committed Rate Notes or any fees or other amounts payable hereunder, (d)
postpone the date fixed for the scheduled payment of principal of, or interest
on, the Committed Rate Advances or the Committed Rate Notes or any fees or
other amounts payable hereunder or waive any such payment when due, (e) change
the percentage of the Commitments or of the aggregate unpaid principal amount
of the Committed Rate Advances or the Committed Rate Notes, or the number or
percentage of Banks, which shall be required for the Banks or any of them to
take any action hereunder or (f) amend this Section 9.01; provided, further,
that no amendment, waiver or consent shall, in writing and signed by the Agent
in addition to the Banks required above to take such action, affect the rights
or duties of the Agent under this Agreement or any Note; and provided, further,
that no amendment, waiver or consent shall, unless in writing and signed by any
Issuing Bank in addition to the Banks required above to take such action,
affect the rights or duties of such Issuing Bank under this Agreement; and
provided also that no amendment, waiver or consent, unless in writing and
signed by the Designated Bidder holding such Note, affect the rights of the
holder of a Competitive Bid Note under such Note.
SECTION 9.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telecopier, telegraphic, telex or
cable communication) and mailed (by certified mail, return receipt requested),
telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at
its address at 30 Burton Hills Blvd., Suite 400, Nashville, TN 37215, Attention:
Mr. John K. Crawford, telecopier no. (615) 665-7840; if to any Bank, at its
Domestic Lending Office as specified in its Administrative Details Reply Form;
if to the Agent, at its address at 1 Court Square, 7th Floor, Zone 1, Long
Island City, New York, New York 11120, Attention: Mr. Dennis Agnew, telecopier
no. (718) 248-4844; and if to any Issuing Bank, as specified in its
Administrative Details Reply Form; with a copy, in the cases of notices to the
Agent or the Issuing Bank, to Ms. Margaret A. Brown, 399 Park Avenue, 8th Floor,
Zone 11, New York 10043; or, as to each Person, at such other address or
telecopier number as shall be designated by such party in a written notice to
the other parties. All such notices and communications shall, when mailed (by
certified mail, return receipt requested), telecopied, telegraphed, telexed,
cabled, or faxed be effective when deposited in the mails, telecopied, delivered
to the telegraph company, confirmed by telex answerback, delivered to the cable
company or confirmed received in the case of a telecopy or facsimile,
respectively, except that notices and communications to the Agent pursuant to
Article II or VIII or to any Issuing Bank
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pursuant to Article III or VIII shall not be effective until received by the
Agent or such Issuing Bank, as the case may be.
SECTION 9.03. No Waiver: Remedies. No failure on the part of any Bank,
any Issuing Bank or the Agent to exercise, and no delay in exercising, any
right under any Loan Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs. Expenses and Taxes.
(a) The Borrower agrees to pay the Agent and each Issuing Bank on demand
all reasonable costs and expenses of the Agent and such Issuing Bank in
connection with the preparation, negotiation, approval, execution, delivery,
filing, recording, administration, modification and amendment of the Loan
Documents and the other documents to be delivered under the Loan Documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
special and local counsel for the Agent and such Issuing Bank with respect
thereto and with respect to advising the Agent and such Issuing Bank as to its
rights and responsibilities under the Loan Documents and the other documents to
be delivered hereunder and thereunder. The Borrower further agrees to pay on
demand (i) all costs and expenses, if any, of the Agent, each Issuing Bank or
any Bank in connection with the enforcement (whether through negotiations or
legal proceedings, in bankruptcy, reorganization or other insolvency proceedings
or otherwise) of the Loan Documents and the other documents to be delivered
under the Loan Documents, including, without limitation, reasonable counsel fees
and expenses in connection with the enforcement of rights under this Section
9.04(a), and (ii) all costs and expenses in connection with appraisals,
valuations, audits and search reports, all insurance and title costs, and all
filing and recording fees required hereby or associated with any enforcement of
rights or remedies specified in clause (i).
(b) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance or LIBOR Advance is made other than on the last day of an Interest
Period relating to such Advance, as a result of a payment (including, without
limitation, any payment pursuant to Section 2.09) or Conversion pursuant to
Section 2.08 or 2.11 or acceleration of the maturity of the Notes pursuant to
Section 7.01 or for any other reason, the Borrower shall, upon demand by any
Bank (with a copy of such demand to the Agent), pay to the Agent for the
account of such Bank any amounts required to compensate such Bank for any
additional losses (including loss of anticipated profits), costs or expenses
which it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Bank to fund or maintain such Advance.
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 7.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 7.01 or
to demand payment of (or cash collateralization of) all then
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outstanding Letter of Credit Liability, each Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such Bank
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under any Loan Document to
such Bank (including, to the fullest extent permitted by law, obligations
indirectly owed to such Bank by virtue of its purchase of a participation of the
Letter of Credit Liability pursuant to Section 3.04), whether or not such Bank
shall have made any demand under this Agreement or such Note and although such
obligations may be unmatured. Each Bank agrees promptly to notify the Borrower
after any such set-off and application made by such Bank, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Bank under this Section 9.05 are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Bank may have.
SECTION 9.06. Indemnification. The Borrower agrees to defend, protect,
indemnify and hold harmless the Agent, each Bank and each Issuing Bank and
their respective Affiliates and the directors, officers, employees, attorneys
and agents of the Agent, each Bank, each Issuing Bank and such Affiliates (each
of the foregoing being an "Indemnitee" and all of the foregoing being
collectively the "Indemnitees") from and against any and all claims, actions,
damages, liabilities, costs and expenses (including, without limitation, all
fees and disbursements of counsel and environmental consultants which may be
incurred in the investigation or defense of any matter) imposed upon, incurred
by or asserted against any Indemnitee by any third party, whether direct,
indirect or consequential and whether based on any federal, state or foreign
laws or other statutes or regulations (including, without limitation,
securities laws, commercial laws and Environmental Laws and regulations),
under common law or on equitable cause, or on contract, tort or otherwise,
including, without limitation, those arising:
(a) by reason of, relating to or in connection with the execution,
delivery, performance or enforcement of any Loan Document, any
commitments relating thereto, or any transaction contemplated by any Loan
Document; or
(b) in connection with any investigation, litigation, proceeding or
other action relating to any Loan Document (whether or not any Indemnitee
is a party thereto); or
(c) by reason of, relating to or in connection with any credit
extended or used under the Loan Documents or any act done or omitted by
any Person, or any event occurring, in connection therewith, or the
exercise of any rights or remedies thereunder, including, without
limitation, any Environmental Activity or Environmental Law; or
(d) arising out of, related to or in connection with any acquisition
or proposed acquisition (including, without limitation, by tender offer,
merger or other method) by the Borrower or any of its Subsidiaries or
Affiliates of any Facility (or the assets thereof) or any Related
Businesses or any Existing Clinic Acquisition, whether or not an
Indemnitee is a party thereto;
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provided, however, that, notwithstanding the foregoing, the Borrower shall not
be liable to any Indemnitee for any portion of such claims, damages,
liabilities and expenses resulting from such Indemnitee's or such Indemnitee's
Affiliate's, director's, officer's, employee's, attorney's or agent's gross
negligence or willful misconduct. In the event this indemnity is unenforceable
as a matter of law as to a particular matter or consequence referred to herein,
it shall be enforceable to the full extent permitted by law.
This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the date of payment
in full of the Advances, including any Environmental Activity or Environmental
Law, regardless of whether the act, omission, event or circumstance constituted
a violation of any Environmental Law at the time of its existence or
occurrence. The indemnification provisions set forth above shall be in
addition to any liability the Borrower may otherwise have. Without prejudice
to the survival of any other obligation of the Borrower hereunder, the
indemnities and obligations of the Borrower contained in this Section 9.06
shall survive the payment in full of the Advances.
SECTION 9.07. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower, the Agent and each Issuing Bank
and when the Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of
the Borrower, the Agent, each Issuing Bank and each Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Banks.
SECTION 9.08. Assignments and Participations.
(a) Each Bank may assign, with the prior consent of the Borrower, any
Issuing Bank and the Agent (which, in either case, shall not be unreasonably
withheld), to one or more banks, financial institutions or other entities all
or a portion of its rights and obligations as a Bank under this Agreement and
the other Loan Documents (including, without limitation, all or a portion of
its Commitment, the Advances owing to it and the Notes held by it in respect of
the Committed Rate Advances and its participation in reimbursement obligations
of the Borrower in respect of Letters of Credit); provided, however, that (i)
each such assignment shall be of a constant, and not a varying, percentage of
all of the assigning Bank's rights and obligations under the Loan Documents,
(ii) the amount of the Commitments, if any, of the assigning Bank being
assigned pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $10,000,000, and shall be an integral multiple of $1,000,000 in
excess thereof, or the remaining amount of such Bank's Commitments, (iii) each
such assignment shall be to an Eligible Assignee, and (iv) the parties to each
such assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any
Notes subject to such assignment and a processing and recordation fee of
$3,000; provided, further, that each Bank may, without the consent of the
Borrower or the Agent, assign, as collateral or otherwise, any of its rights
under this Agreement and the other Loan Documents (including, without
limitation, the right to payment of principal and interest under the Notes) to
any Federal Reserve Bank, and such assignment of rights to the Federal
Reserve Bank shall not be subject to the conditions and restrictions set forth
in items (i) through (iv) of the immediately foregoing proviso; and provided,
further, that each Bank may, without the consent of (but with prior written
notice to) the Borrower or the Agent, assign, in whole or in part, any of its
rights and obligations under this Agreement and the other Loan Documents to any
of its Affiliates, and such assignment to Affiliates shall not be subject to
the conditions and
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<PAGE> 85
restrictions set forth in items (i) through (iv) of the proviso above. Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (x) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations under the
Loan Documents have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and thereunder
and (y) the Bank assignor thereunder shall, to the extent that rights and
obligations under the Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Bank's rights
and obligations under the Loan Documents, such Bank shall cease to be a party
hereto).
(b) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant hereto or thereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Loan Party or the performance or observance by any Loan Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee confirms that it has
received a copy of each of the Loan Documents, together with copies of the
financial statements referred to in Section 5.01(e) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, any Issuing Bank, such
assigning Bank or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement or any other Loan Document;
(v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of the Loan Documents are required to be performed by it as a Bank.
(c) The Agent shall maintain at its address referred to in Section 9.02 a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Banks and the
Commitment and principal amount of the Advances owing to, each Bank from time
to time (the "Register"). The entries in the Register
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<PAGE> 86
shall be conclusive and binding for all purposes, absent manifest error,
and the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee,
together with any Notes subject to such assignment, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially the form
of Exhibit E, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the
Agent in exchange for the surrendered Committed Rate Notes, new Committed Rate
Notes to the order of such Eligible Assignee in an aggregate principal amount
equal to the principal amount of Committed Rate Advances owed to it pursuant to
such Assignment and Acceptance and, if the assigning Bank has retained any
principal amount of Committed Rate Advances hereunder, new Committed Rate Notes
to the order of the assigning Bank in an aggregate principal amount equal to
such principal amount. Such new Committed Rate Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Committed Rate Notes, shall be dated the effective date of such Assignment and
Acceptance, shall consist of Committed Rate Notes payable to the order of such
Eligible Assignee and, if the assigning Bank has retained ownership of any
Committed Rate Advances hereunder, the assigning Bank in the appropriate
principal amounts, and shall otherwise be in substantially the forms required
by this Agreement.
(e) Each Bank may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of its Commitments,
the Notes held by it and reimbursement obligations of the Borrower in respect
of Letters of Credit); provided, however, that (i) such Bank's obligations
under the Loan Documents (including, without limitation, its Commitments to the
Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Bank shall remain the holder of any such Notes for all
purposes of the Loan Documents, and (iv) the Borrower, the Agent, each Issuing
Bank and the other Banks shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under the Loan
Documents; provided, further, that, to the extent of any such participation
(unless otherwise stated therein and subject to the preceding proviso), the
assignee or purchaser of such participation shall, to the fullest extent
permitted by law, have the same rights and benefits hereunder as it would have
if it were a Bank hereunder; and provided, further, that each such
participation shall be granted pursuant to an agreement providing that the
purchaser thereof shall not have the right to consent or object to any action
by the selling Bank (who shall retain such right) other than an action which
would (i) reduce principal of or interest on any Advance or fees in which such
purchaser has an interest or (ii) postpone any date fixed for payment of
principal of or interest on any such Advance or such fees.
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<PAGE> 87
(f) The Borrower agrees that any Bank purchasing a participation from
another Bank pursuant to Section 2.14 or 9.08(e) may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation.
(g) Notwithstanding any other provision of this Section 9.08, each
Designated Bidder may assign to one or more Eligible Assignees any Competitive
Bid Note.
SECTION 9.09. Headings. Article and Section headings in this Agreement
are included for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose.
SECTION 9.10. Confidentiality. Neither the Agent nor any Bank shall
disclose to any third party any Confidential Information disclosed to the Agent
or such Bank pursuant to the Loan Documents, except that (i) the Agent or any
Bank may disclose Confidential Information to a third party to the extent
compelled by law, subpoena, civil investigative demand, interrogatory or
similar legal process or by any rule, regulation or request of any regulatory
authority having jurisdiction over the Agent or such Bank, as the case may be,
(ii) the Agent or any Bank may disclose Confidential Information to a potential
transferee who is an Eligible Assignee, provided that such potential transferee
agrees to be bound by the same confidentiality obligations as the Banks under
this Section and (iii) the Agent or any Bank may disclose Confidential
Information to its affiliates or its legal counsel or other agents provided
that prior to any such disclosure the Agent or such Bank, as the case may be,
informs such affiliates, counsel or agent of the confidential nature of
such Confidential Information. For purposes hereof, "Confidential Information"
is written information disclosed by the Borrower or any of its Subsidiaries to
the Agent or any Bank pursuant hereto that is not information which (x) has
become generally available to the public, other than as a result of disclosure
by the Agent or such Bank, (y) was available on a non-confidential basis prior
to its disclosure to the Agent or such Bank by the Borrower or any of its
Subsidiaries, or (z) becomes available to the Agent or such Bank on a
non-confidential basis from a source other than the Borrower or any of its
Subsidiaries. The Agent and the Banks acknowledge that the Confidential
Information may from time to time include material non-public information
relating to the Borrower or its Subsidiaries.
SECTION 9.11. Severability of Provisions. Each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
or unenforceable in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 9.12. Independence of Provisions. All agreements and covenants
hereunder and under the Loan Documents shall be given independent effect such
that if a particular action or condition is prohibited by the terms of any such
agreement or covenant, the fact that such
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<PAGE> 88
action or condition would be permitted within the limitations of another
agreement or covenant shall not be construed as allowing such action to be
taken or condition to exist.
SECTION 9.13. Consent to Jurisdiction.
(a) The Borrower hereby irrevocably submits to the jurisdiction of any New
York State or Federal court sitting in New York City in any action or proceeding
arising out of or relating to this Agreement or any Loan Document, and the
Borrower hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or Federal court.
The Borrower hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding. The Borrower hereby irrevocably appoints CT
Corporation System (the "Process Agent"), with an office on the date hereof at
1633 Broadway, New York, New York 10019, United States, as its agent to receive
on behalf of the Borrower and its property service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding. Such service may be made by mailing or delivering a copy of such
process to the Borrower in care of the Process Agent at the Process Agent's
above address, and the Borrower hereby irrevocably authorizes and directs the
Process Agent to accept such service on his behalf. As an alternative method
of service, the Borrower also irrevocably consents to the service of any and
all process in any such action or proceeding by the mailing of copies of such
process to the Borrower at its address specified in Section 9.02. The Borrower
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
(b) Nothing in this section shall affect the right of any Bank, any
Issuing Bank or the Agent to serve legal process in any other manner permitted
by law or affect the right of any Bank, any Issuing Bank or the Agent to bring
any action or proceeding against the Borrower or its property in the courts of
any other jurisdictions.
SECTION 9.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS THAT WOULD RESULT IN THE
APPLICATION OF ANY OTHER LAW.
SECTION 9.15. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT, THE
ISSUING BANK AND THE BANKS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT' OF OR RELATING TO ANY OF
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 9.16. Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
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<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER
PHYCOR, INC.
By
------------------------------
Name:
Title:
THE AGENT
CITIBANK, N.A.,
as Agent
By
------------------------------
Name:
Title:
THE ISSUING BANK
CITIBANK, N.A.,
as Issuing Bank
By
------------------------------
Name:
Title:
83
<PAGE> 90
THE DOCUMENTATION AGENT
NATIONSBANK, N.A.,
as Documentation Agent
By
------------------------------
Name:
Title:
84
<PAGE> 91
Commitment: THE BANKS
Commitment: $21,250,000.00 CITIBANK, N.A.
By
------------------------------
Name:
Title:
Commitment: $6,250,000.00 AMSOUTH BANK
By
------------------------------
Name:
Title:
Commitment: $9,375,000.00 BANK OF AMERICA ILLINOIS
By
------------------------------
Name:
Title:
Commitment: $16,875,000.00 THE BANK OF NOVA SCOTIA
By
------------------------------
Name:
Title:
Commitment: $9,375,000.00 BANKERS TRUST COMPANY
By
------------------------------
Name:
Title:
85
<PAGE> 92
Commitment: $6,250,000.00 COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND"
By
------------------------------
Name:
Title:
Commitment: $12,500,000.00 CORESTATES BANK, N.A.
By
------------------------------
Name:
Title:
Commitment: $12,500,000.00 CREDIT LYONNAIS NEW YORK BRANCH
By
------------------------------
Name:
Title:
Commitment: $12,500,000.00 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES
By
------------------------------
Name:
Title:
By
------------------------------
Name:
Title:
Commitment: $15,625,000.00 FIRST AMERICAN NATIONAL BANK
By
------------------------------
Name:
Title:
86
<PAGE> 93
Commitment: $6,250,000.00 THE FIRST NATIONAL BANK OF CHICAGO
By
------------------------------
Name:
Title:
Commitment: $16,875,000.00 FIRST UNION NATIONAL BANK
By
------------------------------
Name:
Title:
Commitment: $6,250,000.00 THE FUJI BANK, LIMITED
By
------------------------------
Name:
Title:
Commitment: $15,625,000.00 MELLON BANK, N.A.
By
------------------------------
Name:
Title:
Commitment: $18,750,000.00 NATIONSBANK, N.A.
By
------------------------------
Name:
Title:
Commitment: $12,500,000.00 PNC BANK, KENTUCKY, INC.
By
------------------------------
Name:
Title:
87
<PAGE> 94
Commitment: $12,500,000.00 THE SUMITOMO BANK, LIMITED
By
------------------------------
Name:
Title:
Commitment: $16,875,000.00 SUNTRUST BANK, NASHVILLE, N.A.
By
------------------------------
Name:
Title:
Commitment: $15,625,000.00 TORONTO DOMINION (TEXAS), INC.
By
------------------------------
Name:
Title:
Commitment: $6,250,000.00 UNION BANK OF SWITZERLAND, NEW YORK BRANCH
By
------------------------------
Name:
Title:
Total Commitments: $250,000,000
88
<PAGE> 1
Exhibit 10.10
PHYCOR, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
I. NAME AND PURPOSE
PhyCor, Inc. ("PhyCor") has determined that it is reasonable, desirable
and necessary to provide for retirement benefits to certain executive employees
of PhyCor that supplement the retirement benefits provided under the PhyCor,
Inc. Savings and Profit Sharing Plan. Accordingly, PhyCor has established this
PhyCor Supplemental Executive Retirement Plan (the "Plan") in order to enable
PhyCor to attract into and retain persons of outstanding competence. This Plan
is to be an unfunded plan of deferred compensation covering a select group of
management or highly compensated employees, within the meaning of sections
201(2), 301(a)(3), and 401(a)(1) of ERISA, and is intended to be exempt from
Parts 2, 3, and 4 of ERISA.
This Plan shall be effective January 1, 1997, and shall continue
indefinitely until it is terminated by an amendment permissible under Section .
II. DEFINITIONS
When used in this Plan, the following terms will have the meanings set
forth below:
2.1 "Change in Control" means (i) a merger of PhyCor with or into
any other person, (ii) a consolidation of PhyCor with any other person, (ii) the
sale, lease or other disposition of all or substantially all of the assets of
PhyCor to any other person, (iv) complete liquidation or dissolution of PhyCor,
or (v) the acquisition by any person, including a "group" as contemplated by
section 13(d)(3) of the Securities Exchange Act of 1934, as amended, of
beneficial ownership or control of securities of PhyCor representing 50% or more
of the combined voting power of PhyCor's then outstanding securities; provided,
however, a Change in Control shall not be deemed to have occurred solely as a
result of any transaction between PhyCor and one or more of its Affiliates
(whether or not in existence on the date hereof).
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Commencement Date" means January 1 following any termination
of employment.
2.4 "Committee" means the compensation committee of the board of
directors of PhyCor; provided, however, that after the occurrence of a Change in
Control, the members of the Committee shall instead be the individuals who are
Participants immediately prior to the Change in Control event.
<PAGE> 2
2.5 "Compensation" means the average of a Participant's annual
compensation, as defined under the Qualified Plan, that is paid over the three
consecutive fiscal years that will produce the highest average, adjusted as
follows:
(a) Annual compensation under the Qualified Plan shall be
calculated without regard to the limits on compensation imposed by
section 401(a)(17) of the Code.
(b) If termination of employment occurs after a Change in
Control, Compensation shall be the Compensation on the date the Change
in Control occurs compounded by the Interest Rate through the
Commencement Date.
2.6 "Death Benefit" means (a) in the case of a Participant who
dies prior to the Early Retirement Date, three times the Participant's
Compensation divided by one minus the maximum federal income tax rate in the
year of payment and (b) in any case of a Participant who dies after the Early
Retirement Date, one times the Participant's Compensation divided by one minus
the maximum federal income tax rate in the year of payment.
2.7 "Disability" shall have the same meaning as under PhyCor's
long term disability plan.
2.8 "Early Retirement Date" means, unless there is a Change in
Control, the date a Participant, other than Joe Hutts, attains 55 years of age
and, in the case of Joe Hutts, means the date he attains 60 years of age.
2.9 "Early Retirement Benefit" means the Normal Retirement Benefit
reduced by 5% for each year or portion of a year that retirement occurs before
such Participant attains 60 years of age.
2.10 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.11 "Interest Rate" means the rate on one-year Treasury Bills that
is in effect on the date for which the Interest Rate determination is being
made.
2.12 "Normal Retirement Date" means the earlier of a Change in
Control or date the Participant attains 60 years of age.
2.13 "Normal Retirement Benefit" means the benefit described in
Section.
2.14 "Participant" means an individual who is: (i) a member of a
select group of management or highly compensated employees of PhyCor, within the
meaning of sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, (ii) designated
by the Committee to participate in this Plan, and (iii) identified on Exhibit A.
The identification of an individual on Exhibit A shall
2
<PAGE> 3
be deemed to be irrebuttable evidence that PhyCor has deemed such individual for
all purposes to be a member of a select group of management and highly
compensated employees.
2.15 "PhyCor Qualified Contributions" means the average
contributions made by PhyCor to the Qualified Plan on behalf of a Participant
over the three completed calendar years immediately preceding the date a
Participant's employment terminates. Where termination occurs after a Change in
Control, the PhyCor Qualified Contributions shall be the average such amounts
for the three complete calendar years preceding the Change in Control compounded
at the Interest Rate.
2.16 "Qualified Benefit" means an amount equal to the maximum
annual payment which would be provided by an annuity that could be purchased
with a Participant's Qualified Plan Balance on the date employment terminates
from one of the top 1% insurance companies, as rated by A.M. Best and Company,
that would provide payments, over the Participant's remaining life with a 10
year term certain.
2.17 "Qualified Plan" means the PhyCor, Inc. Savings and Profit
Sharing Plan and any successor thereto.
2.18 "Qualified Plan Balance" means in the case of any Participant,
the contributions made by PhyCor to the Participant's qualified plan compounded
at a rate of interest equal to the Interest Rate. Where termination occurs after
a Change in Control, the Qualified Plan Balance shall be the amount of such
balance on the date of the Change in Control compounded at the Interest Rate
through the Commencement Date. For purposes of calculating the Normal Retirement
Benefit under Sections and , the Qualified Benefit shall be calculated on
January 1 following the date the Participant attains 60 years of age but the
Participant's Qualified Plan balance for purposes of such calculation shall be
deemed to be the amount of such balance upon the date employment terminated
compounded at the Interest Rate.
2.19 "Trust" means the grantor trust which is described in Section
and has been established to hold, administer, and invest the assets accrued and
reserved to pay benefits under the Plan and for the purposes otherwise stated in
the Trust instrument.
2.20 "Years of Service" means (a) the number of months in any
described period that a Participant, prior to a Change in Control, has been
employed by PhyCor plus the number of months between a Change in Control and the
Commencement Date divided by (b) 12.
III. ELIGIBILITY
3.1 Designation of Participants. Executive employees of PhyCor
shall be eligible to benefit under this Plan. An individual shall become a
Participant upon designation as such by the Committee.
3
<PAGE> 4
3.2 Effective Date of Participation. An Executive employee shall
become a Participant in this Plan as of the date designated by the Committee.
All deferred compensation amounts that are accrued under this Plan shall be
deemed to have been accrued as of the last day of the fiscal year of the Plan
which includes the last day of PhyCor's fiscal year for which the accrual is
calculated.
IV. ADMINISTRATION
4.1 Administration Committee. This Plan shall be administered by
the Committee. The Committee shall have full discretionary power and authority
to interpret, construe and administer this Plan and the Committee's
interpretations and constructions thereof, and actions thereunder, including the
amount or recipient of the payment to be made from this Plan including
determination of the Qualified Benefit, shall be binding and conclusive on all
persons for all purposes.
4.2 Funding. All benefits payable hereunder shall be unfunded for
purposes of section 83 of the Code and Title I of ERISA.
(a) PhyCor shall establish the Trust as a reserve for the
benefits payable hereunder and for the purposes stated in the Trust
instrument. PhyCor shall be the grantor of the Trust and the Trust
shall be established for the benefit of the Participants herein and, in
the case of the insolvency or bankruptcy of PhyCor, for the benefit of
the general creditors of PhyCor. To the extent that the Participants'
benefits are not paid from the Trust, such benefits shall be paid from
the general assets of PhyCor. Except as provided in the Trust, the
Participants shall have no funded, secured, or preferential right to
payment hereunder, but rather shall at all times have the status of a
general unsecured creditor.
(b) The Committee, in its sole discretion, may at any
time prior the time that a Change in Control is being considered by the
officers, shareholders or directors of PhyCor, cease funding the Trust.
4.3 Claims Procedure. Prior to or upon becoming entitled to
receive a benefit hereunder, a Participant or his beneficiary ("Claimant") shall
request payment of such benefits at the time and in the manner prescribed by the
Committee. The Committee may direct payment of benefits without requiring the
filing of a claim therefor, if the Committee has knowledge of such Claimant's
whereabouts. The Committee shall provide adequate notice in writing as
prescribed pursuant to paragraph (b) below to any Claimant whose claim for
benefits under the Plan has been denied.
(a) Such notice must be sent within 90 days of the date
the claim is received by the Committee unless special circumstances
require an extension of time for processing the claim. Such extension
shall not exceed 90 days and no extension shall be
4
<PAGE> 5
allowed unless, within the initial 90 day period, the claimant is sent
an extension notice indicating the special circumstances requiring the
extension and specifying a date by which the Committee expects to
render its decision.
(b) The Committee's notice of denial to the Claimant
shall set forth the following:
(1) the specific reason or reasons for the denial;
(2) specific references to pertinent Plan provisions
on which the Committee based its denial;
(3) a description of any additional material and
information needed for the Claimant to perfect his or her
claim and an explanation of why the material or information is
needed;
(4) a statement that the Claimant may request a
review upon written application to the Committee, review
pertinent Plan documents, and submit issues and comments in
writing;
(5) a statement that any appeal of the Committee's
adverse determination must be made in writing to the Committee
within 60 days after receipt of the Committee's notice of
denial of benefits, and that failure to appeal the action to
the Committee in writing within the 60-day period will render
the Committee's determination final, binding, and conclusive;
and
(6) the address of the Committee to which the
Claimant may forward his or her appeal.
(c) If the Claimant should appeal to the Committee, the
Claimant or a duly authorized representative, may submit, in writing,
whatever issues and comments the Claimant deems pertinent. The
Committee shall re-examine all facts related to the appeal and make a
final determination as to whether the denial of benefits is justified
under the circumstances. The Committee shall advise the Claimant in
writing of its decision on the appeal, the specific reasons for the
decision, and the specific Plan provisions on which the decision is
based. The notice of the decision shall be given within 60 days of the
Claimant's written request for review, unless special circumstances
(such as a hearing) would make the rendering of a decision within the
60 day period infeasible, but in no event shall the Committee render a
decision regarding the denial of a claim for benefits later than 120
days after its receipt of a request for review. If an extension of time
for review is required because of special circumstances, written notice
of the extension shall be furnished to the claimant prior to the date
the extension period commences.
5
<PAGE> 6
4.4 Designation of Beneficiaries. Each Participant shall designate
in a writing prescribed by the Committee a Beneficiary(ies) and contingent
Beneficiary(ies) to whom benefits due hereunder shall be paid. If any
Participant fails to designate a Beneficiary or if the designated Beneficiary
predeceases the Participant, benefits due hereunder at that Participant's death
shall be paid to his or her contingent Beneficiary or, if none, to the deceased
Participant's surviving spouse, if any, and if none, to the deceased
Participant's estate. Beneficiaries may be changed at any time by filing a new
Participation Agreement without the consent of any prior Beneficiaries.
Provided, however, that the Participant must designate his spouse as his
beneficiary or must obtain his spouse's written consent to the designation of
another beneficiary. Such spousal consent must be witnessed by the Committee or
a notary public. Any attempted designation of a beneficiary without the written
consent of the Participant's spouse shall be void. A Participant may change a
Beneficiary designation in writing in accordance with the above procedures at
any time prior to his death.
V. BENEFITS
5.1 Death Benefit. The Death Benefit will be paid to the
Beneficiaries of a Participant on the January 1 following the date of a
Participant's death.
5.2 Normal Retirement Benefit. A Participant whose employment
terminates on or after the Normal Retirement Date shall begin receiving the
Normal Retirement Benefit on the Commencement Date. The Normal Retirement
Benefit shall be calculated as follows:
(a) Prior to the occurrence of a Change in Control, the
Normal Retirement Benefit shall be the sum of amounts that have been
set aside or reserved through a "rabbi trust," insurance contract or
any other funding medium that has been selected by the Company to fund
benefits under the Plan.
(b) After the occurrence of a Change in Control, the
Normal Retirement Benefit shall be an annuity for life with a ten year
term certain, with annual payments equal to: (the greater of (a) 55% or
(b) 2.5% multiplied by the Participant's Years of Service)) multiplied
by (the sum of the Participant's Compensation and the PhyCor Qualified
Contributions) less (the Qualified Benefit).
5.3 Early Retirement Benefit. A Participant whose employment
terminates prior to the Normal Retirement Date, other than as a result of
Disability, shall begin receiving the Early Retirement Benefit on January 1
following the Early Retirement Date.
5.4 Disability Benefit. A Participant whose employment terminates
prior to the Normal Retirement Date as a result of Disability shall be entitled
to begin receiving the Normal Retirement Benefit on January 1 following the date
he attains the age of 60.
6
<PAGE> 7
5.5 Distribution After Termination of Employment. A Participant's
benefits hereunder will be paid as follows to the Participant or his
Beneficiary, if the Participant is deceased:
(a) Generally, a payment of a Participant's benefit will
commence on the Commencement Date and will be made in the form of a
Normal Retirement Benefit, or, as appropriate, an Early Retirement
Benefit or a Death Benefit.
(b) The Committee may, in its absolute discretion, give
its consent to any alternate payment election made by the Participant,
provided that such consent is given on account of a change in PhyCor's
business and/or financial considerations that the Committee deems
appropriate. The decision of the Committee to consent or deny consent
to a Participant's election described in this Section shall for all
purposes be deemed to have been made pursuant to valid business or
financial considerations.
(c) Any payments that are made hereunder in a form other
than the Normal Retirement Benefit shall be actuarially calculated to
be equivalent to the Normal Retirement Benefit form by utilizing the
interest rate and mortality assumptions that are specified in section
417(e) of the Code, but without regard to pre-retirement mortality
calculations and, provided further, that the interest rate utilized
shall be the lowest rate available during the period for which the
calculations are being made.
(d) Notwithstanding the provisions of Section , following
a Change in Control the Committee may not consent to or provide for a
Plan distribution other than the payments described in Section without
the approval of PhyCor (or its successor).
5.6 Additional Change in Control Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by or on behalf of PhyCor to or for the benefit of the
Participant as a result of a change in control, as defined in Section
280G of the Code, (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under
this Section (a "Payment")) would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or penalties are incurred
by the Participant with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Participant
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Participant of
all taxes (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Participant retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
7
<PAGE> 8
(b) Subject to the provisions of Section , all
determinations required to be made under this Section , including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
selected by the Participant, subject to the consent of PhyCor, which
consent shall not be unreasonably withheld (the "Accounting Firm");
provided, however, that the Accounting Firm shall not determine that no
Excise Tax is payable by the Participant unless it delivers to the
Participant a written opinion (the "Accounting Opinion") that failure
to pay the Excise Tax and to report the Excise Tax and the payments
potentially subject thereto on or with the Participant's applicable
federal income tax return will not result in the imposition of an
accuracy-related or other penalty on the Participant. All fees and
expenses of the Accounting Firm shall be borne solely by PhyCor. Within
15 business days of the receipt of notice from the Participant that
there has been a Payment, or such earlier time as is requested by
PhyCor, the Accounting Firm shall make all determinations required
under this Section , shall provide to PhyCor and the Participant a
written report setting forth such determinations, together with
detailed supporting calculations, and, if the Accounting Firm
determines that no Excise Tax is payable, shall deliver the Accounting
Opinion to the Participant. Any Gross-Up Payment, as determined
pursuant to this Section , shall be paid by PhyCor to the Participant
within fifteen days of the receipt of the Accounting Firm's
determination. Subject to the remainder of this Section , any
determination by the Accounting Firm shall be binding upon PhyCor and
the Participant; provided, however, that the Participant shall only be
bound to the extent that the determinations of the Accounting Firm
hereunder, including the determinations made in the Accounting Opinion,
are reasonable and reasonably supported by applicable law. As a result
of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by
PhyCor should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in
Section that the Participant is required to make a payment of any
Excise Tax, the Accounting Firm shall reasonably determine the amount
of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by PhyCor to or for the benefit of the Participant. In
determining the reasonableness of Accounting Firm's determinations
hereunder, and the effect thereof, the Participant shall be provided a
reasonable opportunity to review such determinations with Accounting
Firm and the Participant's tax counsel. Accounting Firm's
determinations hereunder, and the Accounting Opinion, shall not be
deemed reasonable until the Participant's reasonable objections and
comments thereto have been satisfactorily accommodated by Accounting
Firm.
(c) The Participant shall notify PhyCor in writing of any
claims by the Internal Revenue Service that, if successful, would
require the payment by PhyCor of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30
calendar days after the Participant actually receives notice in writing
of such
8
<PAGE> 9
claim and shall apprise PhyCor of the nature of such claim and the date
on which such claim is requested to be paid; provided, however, that
the failure of the Participant to notify PhyCor of such claim (or to
provide any required information with respect thereto) shall not affect
any rights granted to the Participant under this Section except to the
extent that PhyCor is materially prejudiced in the defense of such
claim as a direct result of such failure. The Participant shall not pay
such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to PhyCor (or such shorter period
ending on the date that any payment of taxes with respect to such claim
is due). If PhyCor notifies the Participant in writing prior to the
expiration of such period that it desires to contest such claim, the
Participant shall:
(1) give PhyCor any information reasonably
requested by PhyCor relating to such claim;
(2) take such action in connection with
contesting such claim as PhyCor shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney selected by PhyCor and reasonably acceptable to
the Participant;
(3) cooperate with PhyCor in good faith in order
effectively to contest such claim; and
(4) if PhyCor elects not to assume and control
the defense of such claim, permit PhyCor to participate in any
proceedings relating to such claim;
provided, however, that PhyCor shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Participant harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this Section ,
PhyCor shall have the right, at its sole option, to assume the defense
of and control all proceedings in connection with such contest, in
which case it may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may either direct the Participant to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Participant agrees to prosecute such
contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts, as
PhyCor shall determine; provided, however, that if PhyCor directs the
Participant to pay such claim and sue for a refund, PhyCor shall
advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Participant
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations
9
<PAGE> 10
relating to payment of taxes for the taxable year of the Participant
with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, PhyCor's right to
assume the defense of and control the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
hereunder and the Participant shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Participant of an amount
advanced by PhyCor pursuant to Section the Participant becomes entitled
to receive any refund with respect to such claim, the Participant shall
(subject to PhyCor's complying with the requirements of Section )
promptly pay to PhyCor the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Participant of an amount advanced by PhyCor
pursuant to Section , a determination is made that the Participant is
not entitled to a refund with respect to such claim and PhyCor does not
notify the Participant in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination,
then such advance shall, to the extent of such denial, be forgiven and
shall not be required to be repaid and the amount of forgiven advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
VI. FORFEITURE OF BENEFITS
6.1 Noncompete Violation. A Participant who violates the
non-competition provision contained in his Employment Agreement shall forfeit
his right to any and all benefits under this Plan.
6.2 For Cause Termination. A Participant who is terminated "for
cause," as herein defined, shall forfeit his right to any and all benefits under
this Plan. Termination "for cause" shall mean termination upon:
(a) the Participant's final conviction of a felony crime
involving moral turpitude, or the Participant's deliberate and
intentional continuing refusal to substantially perform his duties and
obligations under his employment (except by reason of incapacity due to
illness or accident) if he shall have either failed to remedy such
alleged breach within 45 days from his receipt of written notice from
PhyCor demanding that he remedy such alleged breach, or shall have
failed to take reasonable steps in good faith to that end during such
45 day period and thereafter; or
(b) a determination that the Participant has engaged in
willful fraud and defalcation or other dishonesty involving the funds,
assets or the operation of PhyCor.
6.3 Effect of Change in Control. The occurrence of a Change in
Control shall not result in any acceleration of vesting of benefits or the
removal of any conditions of forfeiture.
10
<PAGE> 11
However, all determinations under the Plan, including a determination under this
Article , shall be made by the Committee as it is configured following a Change
in Control pursuant to Section .
VII. MISCELLANEOUS
7.1. Non-assignment of Interest. No right or interest to or in any
payment or benefit to a Participant shall be assignable by such Participant
except by will or the laws of descent and distribution. No right, benefit or
interest of a Participant hereunder shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge, hypothecation or
set-off in respect of any claim, debt or obligation, or to execution,
attachment, levy or similar process, or assignment by operation of law. Any
attempt, voluntarily or involuntarily, to effect any action specified in the
immediately preceding sentence shall, to the full extent permitted by law, be
null, void and of no effect; provided, however, that this provision shall not
preclude a Participant from designating one or more Beneficiaries to receive any
amount that may be payable to such Participant under the Plan after his death
and shall not preclude the legal representatives of the Participant's estate
from assigning any right hereunder to the person or persons entitled thereto
under his will, or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
7.2 Successors. This Plan shall be binding upon and inure to the
benefit of PhyCor, its successors and assigns and the Participants and their
heirs, executors, administrators, duly appointed legal representatives.
7.3 Amendment and Termination. PhyCor may at any time modify or
terminate this Plan by an amendment pursuant to an action that is approved or
ratified by PhyCor's board of directors. Provided, however, that amendments that
would reduce benefits or rights of an individual who is a Participant at the
time of the amendment shall not be binding with respect to such Participant
without the Participant's prior written consent.
7.4 Taxes. All payments made hereunder shall be subject to all
taxes required to be withheld under applicable laws and regulations of any
governmental authorities in effect at the time of such payments.
7.5 Controlling Law. Except to the extent superseded by federal
law, the internal laws of the State of Tennessee shall be controlling in all
materials relating to the Plan, including construction and performance hereof.
11
<PAGE> 12
EXECUTION PAGE
IN WITNESS WHEREOF, PhyCor, Inc. has caused this instrument to be
executed by its duly authorized officer on this ___ day of December, 1997, to be
effective as of the date first written above.
PHYCOR, INC.
By:
---------------------------------
Its:
---------------------------------
12
<PAGE> 13
EXHIBIT A
The individuals listed below have been identified by PhyCor to be
members of a select group of management or highly compensated employees of
PhyCor, within the meaning of sections 201(2), 301(a)(3), and 401(a)(1) of
ERISA, and have been designated by the Committee to participate in this Plan:
Joseph C. Hutts
Thompson P. Dent
Derril W. Reeves
Richard D. Wright
- -------------------------------------------------
EFFECTIVE JANUARY 1, 1998
Joseph C. Hutts
Thompson P. Dent
Derril W. Reeves
Richard D. Wright
John K. Crawford
- -------------------------------------------------
13
<PAGE> 1
EXHIBIT 13
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
<PAGE> 2
PHYCOR, INC. AND SUBSIDIARIES
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................ 1
Consolidated Balance Sheets................................................................. 2
Consolidated Statements of Income........................................................... 3
Consolidated Statements of Shareholders' Equity............................................. 4
Consolidated Statements of Cash Flows....................................................... 5 - 6
Notes to Consolidated Financial Statements.................................................. 7 - 27
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
PhyCor, Inc.:
We have audited the consolidated balance sheets of PhyCor, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of PhyCor, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Nashville, Tennessee
February 18, 1998
1
<PAGE> 4
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(All amounts are expressed in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,160 30,530
Accounts receivable, less allowances of $208,534 in 1997 and
$134,556 in 1996 391,668 295,437
Inventories 18,578 15,185
Prepaid expenses and other current assets (notes 15 and 16) 48,158 42,275
---------- ---------
Total current assets 496,564 383,427
Property and equipment, net (notes 4, 10, and 11) 235,685 160,228
Intangible assets (notes 3 and 6) 807,726 559,705
Other assets (note 5 and 15) 22,801 15,221
---------- ---------
Total assets $1,562,776 1,118,581
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of long-term debt (notes 7 and 10) $ 1,144 424
Current installments of obligations under capital leases (note 11) 3,564 1,237
Accounts payable 34,622 24,103
Due to physician groups (notes 2 and 3) 50,676 42,636
Purchase price payable (note 3) 114,971 63,097
Salaries and benefits payable 37,141 23,120
Other accrued expenses and liabilities 51,145 46,257
---------- ---------
Total current liabilities 293,263 200,874
Long-term debt, excluding current installments (notes 7 and 10) 210,893 123,112
Obligations under capital leases, excluding current installments (note 11) 5,093 1,467
Purchase price payable (note 3) 23,545 35,710
Deferred tax credits and other liabilities (note 13) 57,918 21,797
Convertible subordinated notes payable to physician groups (notes 7 and 8) 61,576 83,918
Convertible subordinated debentures (notes 7 and 9) 200,000 200,000
---------- ---------
Total liabilities 852,288 666,878
---------- ---------
Shareholders' equity (notes 8, 9, 12, and 13):
Preferred stock, no par value, 10,000 shares authorized -- --
Common stock, no par value; 250,000 shares authorized; issued and outstanding,
64,530 shares in 1997 and 54,831 shares in 1996 645,288 389,712
Retained earnings 65,200 61,991
---------- ---------
Total shareholders' equity 710,488 451,703
---------- ---------
Commitments and contingencies (notes 3, 11, 12 and 14)
Total liabilities and shareholders' equity $1,562,776 1,118,581
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997, 1996,
and 1995 (All amounts are expressed in thousands,
except for earnings per share)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net revenue (note 2) $ 1,119,594 766,325 441,596
Operating expenses:
Clinic salaries, wages and benefits 421,716 291,361 166,031
Clinic supplies 181,565 119,081 67,596
Purchased medical services 31,171 21,330 17,572
Other clinic expenses 171,480 125,947 71,877
General corporate expenses 26,360 21,115 14,191
Rents and lease expense 100,170 65,577 36,740
Depreciation and amortization 62,522 40,182 21,445
Nonrecurring charge (note 13) 83,445 _ -
----------- ------- -------
Net operating expenses 1,078,429 684,593 395,452
----------- ------- -------
Earnings from operations 41,165 81,732 46,144
Other (income) expense:
Interest income (3,323) (3,867) (1,816)
Interest expense 23,507 15,981 5,230
----------- ------- -------
Earnings before income taxes and minority interest 20,981 69,618 42,730
Income tax expense (note 13) 6,098 22,775 13,923
Minority interest in earnings of consolidated partnerships 11,674 10,463 6,933
----------- ------- -------
Net earnings $ 3,209 36,380 21,874
=========== ======= =======
Earnings per share:
Basic $ .05 .67 .45
Diluted .05 .60 .41
=========== ======= =======
Weighted average number of shares and diluted shares equivalents outstanding
(note 12):
Basic 62,899 54,608 48,817
Diluted 66,934 61,096 53,662
=========== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996, and 1995
(All amounts are expressed in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ -------- -------- -------
<S> <C> <C> <C> <C>
Balances at December 31, 1994 37,899 $180,388 3,737 184,125
Issuance of common stock and warrants, net of
placement commissions and
offering expenses totaling $5,760 7,835 127,773 -- 127,773
Conversion of subordinated debentures
to common stock 4,882 27,566 -- 27,566
Conversion of notes payable to
common stock 2,670 26,405 -- 26,405
Stock options exercised and related tax benefits 113 1,079 -- 1,079
Net earnings for the year ended
December 31, 1995 -- -- 21,874 21,874
------ -------- ------ -------
Balances at December 31, 1995 53,399 363,211 25,611 388,822
Issuance of common stock and warrants, net of
placement commissions
and offering expenses totaling $192 261 10,312 -- 10,312
Conversion of notes payable
to common stock 859 11,450 -- 11,450
Stock options exercised and related tax benefits 312 4,739 -- 4,739
Net earnings for the year ended
December 31, 1996 -- -- 36,380 36,380
------ -------- ------ -------
Balances at December 31, 1996 54,831 $389,712 61,991 451,703
Issuance of common stock and warrants, net of
placement commissions
and offering expenses totaling $8,957 8,109 232,422 -- 232,422
Conversion of notes payable
to common stock 1,046 14,816 -- 14,816
Stock options exercised and related tax benefits 544 8,338 -- 8,338
Net earnings for the year ended
December 31, 1997 -- -- 3,209 3,209
------ -------- ------ -------
Balances at December 31, 1997 64,530 $645,288 65,200 710,488
====== ======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
(All amounts are expressed in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,209 36,380 21,874
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 62,522 40,182 21,445
Deferred income taxes (9,677) 9,616 2,948
Minority interests 11,674 10,463 6,933
Nonrecurring charge 83,445 -- --
Increase (decrease) in cash, net of effects of acquisitions, due to
changes in:
Accounts receivable, net (28,920) (36,376) (12,179)
Inventories (1,929) (1,880) (1,280)
Prepaid expenses and other current assets 137 (16,481) (1,749)
Accounts payable 2,211 (3,291) 5,474
Due to physician groups 10,396 13,489 8,595
Other accrued expenses and liabilities (17,020) 23,006 2,204
--------- -------- --------
Net cash provided by operating activities 116,048 75,108 54,265
--------- -------- --------
Cash flows from investing activities:
Payments for acquisitions, net (299,191) (252,270) (145,075)
Purchase of property and equipment (66,486) (50,053) (29,292)
Payments to acquire other assets (12,711) (4,719) (2,943)
--------- -------- --------
Net cash used by investing activities (378,388) (307,042) (177,310)
--------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock and warrants 226,458 4,975 113,594
Net proceeds from issuance of convertible debentures -- 194,395 --
Proceeds from long-term borrowings 295,000 161,000 130,400
Repayment of long-term borrowings (235,972) (104,546) (100,144)
Repayment of obligations under capital leases (4,088) (1,811) (1,965)
Distributions of minority interests (11,107) (10,291) (6,204)
Loan costs incurred (321) (85) (269)
--------- -------- --------
Net cash provided by financing activities 269,970 243,637 135,412
--------- -------- --------
Net increase in cash and cash equivalents 7,630 11,703 12,367
Cash and cash equivalents - beginning of year 30,530 18,827 6,460
--------- -------- --------
Cash and cash equivalents - end of year $ 38,160 30,530 18,827
========= ======== ========
</TABLE>
5
<PAGE> 8
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 23,005 13,745 4,674
Income taxes, net of refunds 18,314 13,991 10,760
========= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Effects of acquisitions (note 3):
Assets acquired, net of cash $ 450,872 384,807 270,925
Liabilities assumed (131,681) (89,326) (50,015)
Issuance of convertible subordinated notes payable (11,286) (36,084) (62,942)
Issuance of common stock and warrants (8,714) (7,127) (12,893)
--------- ------- -------
Payment for assets acquired $ 299,191 252,270 145,075
========= ======= =======
Capital lease obligations incurred to acquire equipment $ 555 471 173
Conversion of subordinated debentures and notes payable to common stock 14,816 11,450 53,971
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 9
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) DESCRIPTION OF BUSINESS
PhyCor, Inc. (Company) is a physician practice management company
that acquires and operates multi-specialty medical clinics and
develops and manages independent practice associations ("IPAs").
PhyCor's objective is to organize physicians into professionally
managed networks that assist physicians in assuming increased
responsibility for delivering cost-effective medical care while
attaining high-quality clinical outcomes and patient satisfaction.
The Company, through wholly-owned subsidiaries, acquires certain
assets of and operates clinics under long-term service agreements
with affiliated physician groups that practice exclusively through
such clinics. The Company provides administrative and technical
support for professional services rendered by the physician groups
under service agreements. Under most service agreements, the
Company is reimbursed for all clinic expenses, as defined in the
agreement, and participates at varying levels in the excess of net
clinic revenue over clinic expenses. As of December 31, 1997, the
Company operated 55 clinics in 28 states.
The Company also manages IPAs which are networks of independent
physicians. Fees earned from managing the IPAs are based upon a
percentage of revenue collected by the IPAs and also upon a share
of surplus, if any, of capitated revenue of the IPAs. At December
31, 1997, these IPAs include over 19,000 physicians in 28 markets
which provide capitated medical services to approximately
1,132,000 members, including approximately 174,000 Medicare
members.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries, partnerships and
other entities in which the company has more than 50% ownership
interest or exercises control. All significant intercompany
balances and transactions are eliminated in consolidation. The
Company does not consolidate the physician practices it manages as
it does not have operating control as defined in EITF 97-2,
"Application of APB Opinion No. 16 and FASB Statement No. 94 to
Physician Practice Entities."
(C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents as of December 31, 1997
include approximately $2,943,000 of consolidated partnership cash.
These balances may only be used for the operations of the
respective partnerships.
(D) ACCOUNTS RECEIVABLE
Accounts receivable principally represent receivables from
patients and third-party payors for medical services provided by
physician groups. Terms of the service agreements require the
Company to purchase receivables generated by the physician groups
on a monthly basis. Such amounts are recorded net of contractual
allowances and estimated bad debts. Accounts receivable are a
function of net clinic revenue rather than net revenue of the
Company (See note 2).
(Continued)
7
<PAGE> 10
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(E) INVENTORIES
Inventories are comprised primarily of medical supplies,
medications and other materials used in the delivery of health
care services by the physician groups at the Company's clinics.
The Company values inventories at the lower of cost or market with
cost determined using the first-in, first-out (FIFO) method.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment held under
capital leases is stated at the present value of minimum lease
payments at the inception of the related leases. Depreciation of
property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets. Equipment
held under capital leases and leasehold improvements are amortized
on a straight line basis over the shorter of the lease term or
estimated useful life of the assets.
(G) INTANGIBLE ASSETS
CLINIC SERVICE AGREEMENTS
Costs of obtaining clinic service agreements are amortized using
the straight-line method over the periods during which the
agreements are effective, currently twenty-five to forty years.
Clinic service agreements represent the exclusive right to operate
the Company's clinics in affiliation with the related physician
groups during the term of the agreements. In the event of
termination of a service agreement, the related physician group is
required to purchase all clinic assets, including the unamortized
portion of intangible assets, generally at then current net book
value.
EXCESS OF COST OF ACQUIRED ASSETS OVER FAIR VALUE
Excess of cost of acquired assets over fair value (goodwill) is
amortized using the straight line method over thirty years.
OTHER INTANGIBLE ASSETS
Other intangible assets include costs associated with obtaining
long-term financing which are being amortized systematically over
the terms of the related debt agreements.
8
<PAGE> 11
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
AMORTIZATION AND RECOVERABILITY
The Company periodically reviews its intangible assets to assess
whether recoverability and impairments would be recognized in the
statement of operations if a permanent impairment were determined
to have occurred. Recoverability of intangibles is determined
based on undiscounted future operating cash flows from the related
business unit or activity. The amount of impairment, if any, is
measured based on discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds or
based on the fair value of the related business unit or activity.
The assessment of the recoverability of intangible assets will be
impacted if estimated future operating cash flows are not
achieved. Amortization of intangibles amounted to $23,865,000,
$15,150,000, and $7,441,000, and for 1997, 1996 and 1995,
respectively.
(H) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeded the fair value of the assets.
(I) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in the tax rates
is recognized in income in the period that includes the enactment
date.
(J) FINANCIAL INSTRUMENTS
In 1997, the Company entered into an interest rate swap agreement
to reduce the exposure to fluctuating interest rates with respect
to $100,000,000 of its bank credit facility. The interest rate
swap agreement matures in October 2002, with a lender's option to
terminate beginning October 1999, and is accounted for on the
accrual method. Gains and losses resulting from this instrument
are recognized in the same period as the related interest expense.
Gains and losses are included in interest expense. The Company
does not use interest rate swap agreements or other derivative
financial instruments for speculative or trading purposes.
(Continued)
9
<PAGE> 12
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(K) STOCK OPTION PLANS
The Company accounts for its compensation and stock option plans
in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense would
be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. In accordance
with SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123), the Company provides pro forma net income and pro forma
earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied.
(L) EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards
No. 128, Earnings Per Share, in 1997. This statement requires that
a dual presentation of both Basic and Diluted earnings per share.
Basic earnings per share is computed based on weighted average
shares outstanding and excludes any potential dilution. Diluted
earnings per share reflects the potential dilution from the
exercise or conversion of all dilutive securities into common
stock based on the average market price of common shares
outstanding during the period. All periods presented have been
restated to conform with the provisions of the new statement.
(M) USE OF ESTIMATES
Management of the Company has made certain estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could
differ from those estimates.
(N) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to
the 1997 presentation.
(2) NET REVENUE
Clinic service agreement revenue is equal to the net revenue of the
clinics, less amounts retained by physician groups. Net clinic revenue is
recorded by the physician groups at established rates reduced by
provisions for doubtful accounts, contractual adjustments and amounts
retained by physician groups. Contractual adjustments arise due to the
terms of certain reimbursement and managed care contracts. Such
adjustments represent the difference between charges at established rates
and estimated recoverable amounts and are recognized in the period the
services are rendered. Any differences between estimated contractual
adjustments and actual final settlements under reimbursement contracts
are recognized as contractual adjustments in the year final settlements
are determined. The physician groups, rather than the Company, enter into
managed care contracts. Through calculation of its service fees, the
Company shares indirectly in any capitation risk assumed by its
affiliated physician groups.
IPA management revenue is equal to the difference between the amount of
capitation and risk pool payments due to the IPA's managed by the
Company, less amounts retained by the IPA.
(Continued)
10
<PAGE> 13
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following represent amounts included in the determination of net
revenue (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Gross physician group revenue $2,849,646 1,928,045 1,069,033
Less:
Provisions for doubtful accounts
and contractual adjustments 1,090,329 699,186 359,653
---------- --------- ---------
Net physician group revenue 1,759,317 1,228,859 709,380
IPA revenue 411,912 255,181 146,975
---------- --------- ---------
Net physician group and IPA revenue 2,171,229 1,484,040 856,355
Less amounts retained by physician groups and IPAs:
Physician groups 634,983 459,179 266,725
Clinic technical employee compensation 74,715 50,395 29,435
IPAs 341,937 208,141 118,599
---------- --------- ---------
Net revenue $1,119,594 766,325 441,596
========== ========= =========
</TABLE>
The Company derives most of its net revenue from 55 physician groups located in
28 states with which it has service agreements at December 31, 1997. The
Company's affiliated physician groups derived approximately 20% of their net
revenues from services provided under the Medicare program for the years ended
December 31, 1997, 1996 and 1995. Other than the Medicare program, the physician
groups have no customers which represent more than 10% of aggregate net clinic
revenue or 5% of accounts receivables at December 31, 1997 and 1996.
(Continued)
11
<PAGE> 14
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) ACQUISITIONS
(A) MULTI-SPECIALTY MEDICAL CLINICS
During 1997, 1996, and 1995, the Company, through wholly-owned
subsidiaries, acquired certain operating assets of the following
clinics:
<TABLE>
<CAPTION>
CLINIC EFFECTIVE DATE LOCATION
------ ----------- ---------
<S> <C> <C>
1997:
Vancouver Clinic January 1, 1997 Vancouver, Washington
First Physicians Medical Group February 1, 1997 Palm Springs, California
St. Petersburg-Suncoast
Medical Group February 28, 1997 St. Petersburg, Florida
Greater Chesapeake Medical Group May 1, 1997 Annapolis, Maryland
Welborn Clinic June 1, 1997 Evansville, Indiana
White-Wilson Medical Center July 1, 1997 Ft. Walton Beach, Florida
Maui Medical Group September 1, 1997 Maui, Hawaii
Murfreesboro Medical Clinic October 1, 1997 Murfreesboro, Tennessee
West Florida Medical Center Clinic October 1, 1997 Pensacola, Florida
Northern California Medical
Association December 1, 1997 Santa Rosa, California
Lakeview Medical Center(A) December 1, 1997 Suffolk, Virginia
1996:
Arizona Physicians Center January 1, 1996 Phoenix, Arizona
Clinics of North Texas March 1, 1996 Wichita Falls, Texas
Carolina Primary Care May 1, 1996 Columbia, South Carolina
Harbin Clinic May 1, 1996 Rome, Georgia
Focus Health Services July 1, 1996 Denver, Colorado
Clark-Holder Clinic July 1, 1996 LaGrange, Georgia
Medical Arts Clinic August 1, 1996 Minot, North Dakota
Wilmington Health Associates August 1, 1996 Wilmington, North Carolina
Gulf Coast Medical Group August 1, 1996 Galveston, Texas
Hattiesburg Clinic October 1, 1996 Hattiesburg, Mississippi
Straub Clinic & Hospital (B) October 1, 1996 Honolulu, Hawaii
Toledo Clinic November 1, 1996 Toledo, Ohio
Lewis-Gale Clinic November 1, 1996 Roanoke, Virginia
</TABLE>
(Continued)
12
<PAGE> 15
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C> <C>
1995:
Tidewater Physicians Multi-specialty
Group January 1, 1995 Newport News, Virginia
Northeast Arkansas Clinic March 1, 1995 Jonesboro, Arkansas
PAPP Clinic May 1, 1995 Newnan, Georgia
Ogden Clinic June 1, 1995 Ogden, Utah
Arnett Clinic August 1, 1995 Lafayette, Indiana
Casa Blanca Clinic September 1, 1995 Mesa, Arizona
South Texas Medical Clinics November 1, 1995 Wharton, Texas
South Bend Clinic (C) November 1, 1995 South Bend, Indiana
Guthrie Clinic (D) November 17, 1995 Sayre, Pennsylvania
</TABLE>
(A) Lakeview Medical Center was operated under a management agreement
during December 1997. Effective January 1, 1998, the Company completed
the purchase of certain clinic operating assets and entered into a
long-term service agreement with the affiliated physician group.
(B) Straub Clinic & Hospital (Straub) was operated under an administrative
service agreement effective October 1, 1996. The Company completed its
merger and entered into a long-term service agreement with Straub
effective January 17, 1997.
(C) The South Bend Clinic was operated by the Company under a management
agreement between November 1, 1995 and December 31, 1995. Effective
January 1, 1996 the Company completed the purchase of certain clinic
operating assets and entered into a long-term service agreement with
the affiliated physician group.
(D) The Company has entered into a series of agreements with Guthrie Clinic
whereby the Company agreed to provide management services for up to
five years and agreed, pending satisfaction of certain conditions, to
acquire certain assets of the clinic prior to the termination or
expiration of the interim management agreement.
In addition, the Company acquired certain operating assets of various
individual physician practices and single specialty groups which were
merged into clinics already operated by the Company.
The Company acquires operating assets and liabilities in exchange for cash,
convertible debentures, common stock or a combination thereof. Such
consideration for the above clinic acquisitions and single specialty mergers was
$430,757,000 for 1997, $357,458,000 for 1996, and $239,620,000 for 1995. The
acquisitions were accounted for as purchases, and the accompanying consolidated
financial statements include the results of their operations from the dates of
acquisition. Simultaneous with each acquisition, the Company entered into a
long-term service agreement with each physician group. In conjunction with
certain acquisitions, the Company is obligated at December 31, 1997 to make
deferred payments to physician groups of which $100,988,000 are due on demand or
within one year and $18,366,000, $4,300,000, and $879,000 are due in 1999, 2000,
and 2001, respectively. Such payments are included in purchase price payable in
the accompanying consolidated balance sheets.
(Continued)
13
<PAGE> 16
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(B) NORTH AMERICAN MEDICAL MANAGEMENT, INC. (NORTH AMERICAN)
Effective January 1, 1995, the Company completed its acquisition of
North American, an operator and manager of IPAs. The Company made
additional payments for the North American acquisition pursuant to
an earn-out formula during 1996 and 1997 totaling $35,000,000. A
final payment of $35,000,000, of which $14,000,000 is included in
current purchase price payable, will be made pursuant to the
earn-out formula during the first quarter of 1998. Of the final
payment to be made, a portion may be paid in shares of the
Company's common stock.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Land and improvements $ 6,018 3,326
Buildings and leasehold improvements 70,558 50,154
Equipment 211,959 142,745
Equipment under capital leases 20,080 9,571
Construction in progress 13,318 10,470
-------- -------
321,933 216,266
Less accumulated depreciation and amortization 86,248 56,038
-------- -------
Property and equipment, net $235,685 160,228
======== =======
</TABLE>
(5) INVESTMENT IN PHYCOR MANAGEMENT CORPORATION (PMC)
In June 1995, the Company purchased a minority interest of approximately
9% in PMC and manages PMC pursuant to a 10-year administrative services
agreement. PMC develops and manages IPA's and provides other services to
physician organizations. PhyCor will exercise its option to purchase the
remaining equity interest of PMC on March 31, 1998. In accordance with
the terms of the option, the aggregate purchase price for these shares
will be approximately $23,000,000 and paid in shares of the Company's
common stock. In connection with the PMC transaction, the Company
established a revolving line of credit of $2,000,000 for PMC for a period
of five years of which $1,550,000 was outstanding as of December 31, 1997
and none was outstanding at December 31, 1996.
14
<PAGE> 17
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) INTANGIBLE ASSETS
Intangible assets at December 31, consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Clinic service agreements $732,848 508,869
Excess of cost of acquired assets over fair value 67,384 42,571
Franchise rights 2,078 2,219
Loan issuance costs 5,416 6,046
-------- -------
$807,726 559,705
======== =======
</TABLE>
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1997 and 1996, the fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable, due to
physician groups, and accrued expenses approximated their carrying value
because of the short maturities of those financial instruments. The fair
value of the Company's long-term debt also approximates its carrying
value since the related notes bear interest at current market rates.
The estimated fair value of the convertible subordinated notes payable to
physician groups was approximately $65,218,000 and $102,723,000 as of
December 31, 1997 and 1996, respectively. The carrying value of these
notes was approximately $61,576,000 and $83,918,000 at December 31, 1997
and 1996, respectively. The estimated fair value of these convertible
securities is based on the greater of their face value and the closing
market value of the common shares into which they could have been
converted at the respective balance sheet date. The estimated fair value
of the Company's convertible subordinated debentures was $195,000,000 and
$198,000,000 as of December 31, 1997 and 1996, respectively, compared to
a carrying value of $200,000,000. The estimated fair value of these
convertible debentures is based on current market indicators or quotes
from brokers.
(8) CONVERTIBLE SUBORDINATED NOTES PAYABLE TO PHYSICIAN GROUPS
At December 31, 1997 and 1996, the Company had outstanding subordinated
convertible notes payable to affiliated physician groups in the aggregate
principal amount of approximately $61,576,000 and $83,918,000,
respectively. These notes bear interest at rates of 5.84% to 7.0% and are
convertible into shares of the Company's common stock at conversion
prices ranging from $9.59 to $57.78 per share. A convertible subordinated
note of $33,295,000 issued in connection with the Guthrie Clinic
transaction will be convertible into approximately 903,000 shares of
common stock upon the Company's acquisition of the clinic's assets prior
to November 17, 2005. If the then current price of the common stock is
less than the conversion price, PhyCor will pay the clinic the principal
amount of the note. The remaining convertible notes may be converted into
approximately 1,263,000 shares of common stock, with 648,000 shares
convertible at December 31, 1997 and 615,000 shares convertible
commencing on varying dates in 1998 through 2002 at the option of the
holders.
(Continued)
15
<PAGE> 18
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) CONVERTIBLE SUBORDINATED DEBENTURES
At December 31, 1994, the Company had $28,655,000 of convertible
subordinated debentures outstanding. The debentures had a coupon rate of
6.5% and were convertible into the Company's common stock at $5.87 per
share. The Company called for redemption effective January 20, 1995, all
outstanding debentures at a redemption price of 105.2% of par value plus
accrued interest. In January 1995, prior to the redemption date, the
debentures were converted into common stock of the Company.
During February 1996, the Company completed a public offering of
convertible subordinated debentures, which mature in 2003. Gross and net
proceeds from the offering were $200,000,000 and approximately
$194,395,000, respectively. The debentures were priced at par with a
coupon rate of 4.5% and are convertible into the Company's common stock
at $38.67 per share. The debentures may not be redeemed at the Company's
option prior to February 15, 1998. From February 15, 1998 to February 15,
1999, the bonds may be redeemed only if the price of the Company's common
stock exceeds $54.13. From February 15, 1999 to maturity, the bonds may
be redeemed at prices decreasing from 102.572% of face value to face
value.
(10) LONG-TERM DEBT
Long-term debt at December 31, consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Bank credit facility, bearing interest at a weighted average
rate of 6.75% at December 31, 1997 $204,000 119,000
Mortgages payable, bearing interest at rates ranging from
8.00% to 10.5%, secured by land, building, and
certain equipment 3,704 3,899
Other notes payable 4,333 637
-------- -------
Total long-term debt 212,037 123,536
Less current installments 1,144 424
-------- -------
Long-term debt, excluding current installments $210,893 123,112
======== =======
</TABLE>
In July 1997, the Company completed modifications to its bank credit
facility (Bank Credit Facility), which included the revision of certain
terms and conditions and the addition of seven participating financial
institutions. The revised Bank Credit Facility provides for a five-year,
$250,000,000 revolving line of credit and a $150,000,000 364-day facility
for use by the Company prior to July 2002, for acquisitions, working
capital, capital expenditures and general corporate purposes. The total
drawn cost of borrowings under the Bank Credit Facility ranges from .375%
to .75% above the applicable eurodollar rate or the agent's base rate
plus .10% to .225% per annum.
(Continued)
16
<PAGE> 19
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Bank Credit Facility contains covenants which, among other things, require
the Company to maintain certain financial ratios and impose certain limitations
or prohibitions on the Company with respect to (i) the incurrence of certain
indebtedness, (ii) the creation of security interest on the assets of the
Company, and (iii) the payment of cash dividends on, and the redemption or
repurchase of, securities of the Company, (iv) investments and (v) acquisitions.
The Company is required to obtain bank consent for acquisitions with an
aggregate purchase price of $75.0 million or more. The Company was in compliance
with such covenants at December 31, 1997.
The aggregate maturities of long-term debt at December 31, 1997, are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 1,144
1999 969
2000 880
2001 752
2002 204,774
Thereafter 3,518
--------
$212,037
========
</TABLE>
(11) LEASES
The Company has entered into operating leases of commercial property and
clinic equipment with affiliated physician groups and third parties.
Commercial properties under operating leases include clinic buildings,
satellite operations, and administrative facilities. Capital leases
relating to clinic equipment expire at various dates during the next five
years.
The future minimum lease payments under noncancelable operating leases
and the present value of future minimum capital lease payments at
December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
NET
CAPITAL OPERATING
LEASES LEASES
------- -------
<S> <C> <C>
1998 $ 4,134 2,932
1999 2,902 2,577
2000 2,208 1,721
2001 723 1,375
2002 138 1,325
Thereafter 14 1,094
------- ------
Total minimum lease payments $10,119 11,024
======
Less amount representing interest (at rates ranging from 10% to 13%) 1,462
-------
Present value of net minimum capital lease payments 8,657
Less current installments of obligations under capital leases 3,564
-------
Obligations under capital leases, excluding current installments $ 5,093
=======
</TABLE>
(Continued)
17
<PAGE> 20
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997 and 1996, equipment with a cost of approximately
$20,080,000 and $9,571,000, and accumulated depreciation of approximately
$8,215,000 and $6,054,000, respectively, was held under capital leases.
Net payments under operating leases include total commitments of $801,769,000
reduced by amounts to be reimbursed under clinic service agreements of
$790,745,000. Payments due under operating leases include $434,479,000 payable
to physician groups and their affiliates. In the event of a service agreement
termination, any related lease obligations are also terminated.
(12) SHAREHOLDERS' EQUITY
(A) COMMON STOCK
On June 23, 1995, the Company completed a public offering of
6,955,000 shares of its common stock. Net proceeds from the
offering were approximately $110.9 million. In the first quarter
of 1997, the Company completed an additional public offering of
7,295,000 shares of its common stock. Net proceeds from the
offering were approximately $210.0 million.
On August 18, 1995, the Company declared a three-for-two stock
split to shareholders of record on September 1, 1995. Another
three-for-two stock split was declared on May 17, 1996 to
shareholders of record on May 31, 1996. All common share and per
share data included in the accompanying consolidated financial
statements and footnotes thereto have been restated to reflect
these stock splits.
(B) PREFERRED STOCK
The Company has 10,000,000 shares of authorized but unissued
preferred stock. The Company has reserved for issuance 500,000
shares of Series A Junior Participating Preferred Stock issuable
in the event of certain change-in-control events.
18
<PAGE> 21
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(C) WARRANTS
In June 1995, the Company issued warrants for the purchase of
348,001 shares of common stock in connection with the PMC
offering, which consisted of the warrants and shares of PMC's
Class B common stock. The exercise price of the warrants is
$15.40. The warrants are exercisable at any time prior to May
2005. In connection with certain clinic transactions, the Company
has issued warrants for the purchase of a total of 546,010 shares
of common stock. The following represents a summary of warrants
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
EXERCISABLE AT
GRANT EXPIRATION NUMBER EXERCISE DECEMBER 31,
DATE DATE OF SHARES PRICE 1997
----- ----- -------- ----- ------
<S> <C> <C> <C> <C>
February 1992 2002 7,188 $ 4.74 7,188
June 1995 2005 348,001 15.40 348,001
November 1995 2003 387,967 25.78 --
April 1996 2002 50,208 29.87 --
July 1996 2002 67,835 44.23 --
February 1997 2007 250,000 31.13 --
May 1997 2007 250,000 27.75 --
August 1997 2002 40,000 33.16 --
-------- --------
1,401,199 355,189
======== ========
</TABLE>
(D) 1988 STOCK INCENTIVE PLAN AND DIRECTORS' STOCK PLAN
The Company has two stock option plans. Under the Amended 1988
Incentive Stock Plan ("Incentive Plan"), the Company has reserved
17,000,000 shares of its common stock for issuance pursuant to
option and stock grants to employees and directors. Under the
Amended 1992 Directors Stock Plan ("Directors Plan"), 337,500
shares of common stock are reserved. Under both plans, stock
options are granted with an exercise price equal to the estimated
fair market value of the Company's common stock on the date of
grant. All options have a term of ten years and become exercisable
in installments over periods ranging up to five years. In addition
to options granted under the two plans, the Company has granted
options for the purchase of 25,313 shares of its common stock to a
director of the Company and a consultant.
At December 31, 1997, there were approximately 2,758,000 and
134,000 additional shares available for grant under the Incentive
Plan and the Directors Plan, respectively.
The per share weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $15.18, $16.97, and $9.25 on the
date of grant using the Black Scholes option-pricing model with
the following assumptions: an expected dividend yield of 0.0% for
all years, expected volatility of 56% in 1997 and 1996, and 43% in
1995, risk-free interest rate ranging from 5.88% to 6.63% in 1997,
5.25% to 6.63% in 1996 and 5.50% to 7.75% in 1995, and an expected
life of five years for all years.
(Continued)
19
<PAGE> 22
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below (in thousands except for earnings per share):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C> <C>
Net income (loss) As reported $ 3,209 36,380 21,874
Pro forma (13,806) 30,133 20,673
Basic earnings (loss) per share As reported $ .05 .67 .45
Pro forma (.22) .55 .42
Diluted earnings (loss) per share As reported $ .05 .60 .41
Pro forma (.22) .49 .39
</TABLE>
Pro forma net income reflects only options granted beginning in 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period and
compensation cost for options granted prior to January 1, 1995 is not
considered.
Stock option activity during the periods indicated is as follows (shares in
thousands):
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Balance at December 31, 1994 4,870 $ 7.13
Granted 2,924 19.81
Exercised (113) 4.27
Forfeited (127) 9.36
------
Balance at December 31, 1995 7,554 11.93
Granted 3,164 30.55
Exercised (297) 5.25
Forfeited (134) 19.49
------
Balance at December 31, 1996 10,287 17.84
Granted 3,542 27.81
Exercised (544) 6.14
Forfeited (302) 22.91
------ ------
Balance at December 31, 1997 12,983 $20.99
====== ======
</TABLE>
(Continued)
20
<PAGE> 23
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.97 - $38.33 and 8.16
years, respectively.
At December 31, 1997, 1996, and 1995, the number of options exercisable was
2,268,000, 1,392,000, and 854,000, respectively, and the weighted-average
exercise price of those options was $7.02, $5.23, and $4.15, respectively.
(E) STOCK PURCHASE PLANS
The Company has reserved 843,750 common shares for issuance pursuant to its
employee stock purchase plan. During 1997 and 1996, approximately 82,000 and
110,000 shares were issued relative to the plan. Shares issued under the
employee stock purchase plan will generally be priced at the lower of 85% of the
fair market value of the Company's common stock on the first or the last trading
days of the plan year.
The Company also established the 1996 Affiliate Stock Purchase Plan and has
reserved 2,250,000 common shares for this plan. Eligible participants generally
include physicians and other employees of medical clinics with which the Company
has a management or service agreement and employees of limited liability
companies and partnerships in which the Company has an equity interest of at
least 50%. Shares issued under the plan will be priced using a similar method as
that of the employee stock purchase plan. During 1997, approximately 343,000
shares were issued under this plan and no shares were issued in 1996.
Pro forma compensation expense included in the pro forma calculation above is
recognized for the fair value of each stock purchase right estimated on the date
of grant using the Black Scholes pricing model. The following assumptions were
used for stock purchases: an expected dividend yield of 0.0% for all years,
expected volatility of 56% in 1997 and 1996, risk-free interest rate of 6.0% in
1997 and 6.25% in 1996 and an expected life of one year for all years.
(Continued)
21
<PAGE> 24
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(F) RECONCILIATION OF EARNINGS PER SHARE CALCULATION
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net earnings:
<TABLE>
<CAPTION>
INCOME SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE
----------- ------------- -----
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------
BASIC EPS
Income available to common shareholders $ 3,209 62,899 .05
===
EFFECT OF DILUTIVE SECURITIES
Options -- 2,353
Warrants -- 225
Convertible Notes -- 1,457
------- ------
DILUTED EPS
Income available to common shareholders $ 3,209 66,934 .05
======= ====== ===
FOR THE YEAR ENDED DECEMBER 31, 1996
BASIC EPS
Income available to common shareholders $36,380 54,608 .67
===
EFFECT OF DILUTIVE SECURITIES
Options -- 4,520
Warrants -- 290
Convertible Notes -- 1,678
------- ------
DILUTED EPS
Income available to common shareholders $36,380 61,096 .60
======= ====== ===
FOR THE YEAR ENDED DECEMBER 31, 1995
BASIC EPS
Income available to common shareholders $21,874 48,817 .45
===
EFFECT OF DILUTIVE SECURITIES
Options -- 2,937
Warrants -- 87
Convertible Notes -- 1,669
Convertible Debentures 49 152
------- ------
DILUTED EPS
Income available to common shareholders $21,923 53,662 .41
======= ====== ===
</TABLE>
(Continued)
22
<PAGE> 25
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Options and warrants to purchase 162,000 and 18,000 shares of common stock were
outstanding during 1997 and 1996, respectively, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares, resulting in the options being
antidilutive. Interest paid on the convertible notes is offset by service
agreement fees received by the Company of an equal amount.
(13) NONRECURRING CHARGE
The following table sets forth the components of the nonrecurring charge:
<TABLE>
<S> <C>
Writedown of assets to be disposed of to fair value less costs to sell $29,220,000
Recognition of impairment of assets acquired and related
service agreement intangibles 54,225,000
-----------
$83,445,000
</TABLE>
The Company determined to dispose of certain clinics in the fourth quarter of
1997 due to circumstances arising in that quarter that indicated to the Company
that those clinics could not be operated at an acceptable profit level. The
Company expects to dispose of the assets and service agreements related to such
clinics in 1998. Clinic net assets to be disposed of totaling $3,237,000 have
been included in prepaid expense and other current assets. Net losses from the
clinics to be disposed of totaled $666,000 in 1997.
In addition, the Company reviewed certain of its clinics, consistent with SFAS
121, when specific events occurred in the fourth quarter that indicated that the
individual clinics involved could be impaired (i.e. physician group declared
bankruptcy, notifications of physician termination, etc.). The Company
determined that an impairment had occurred and wrote down the associated clinic
assets and service agreement intangibles to fair value determined by discounting
future operating cash flows of the related physician groups.
(14) INCOME TAX EXPENSE
Income tax expense for the years ended December 31, 1997, 1996, and 1995,
consists of (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------ ------
<S> <C> <C> <C>
Current:
Federal $ 12,724 10,935 9,476
State 3,051 2,224 1,499
Deferred:
Federal (10,391) 9,354 2,564
State 714 262 384
-------- ------ ------
$ 6,098 22,775 13,923
======== ====== ======
</TABLE>
(Continued)
23
<PAGE> 26
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For federal income tax purposes, the Company receives a deduction arising from
the exercise of non-qualified stock options equal to the difference between the
fair market value at date of exercise and the exercise price. This tax benefit
was recorded as a credit to common stock in the amount of $5,464,000,
$2,940,000, and $625,000 in 1997, 1996, and 1995, respectively.
Total income tax expense differed from the amount computed by applying the U.S.
federal income tax rate of 35 percent in 1997, 1996, and 1995 to earnings before
income taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Computed "expected" tax expense $ 3,257 20,704 12,529
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax benefit 2,447 1,616 1,224
Increase in deferred tax rate -- -- 160
Amortization of nondeductible goodwill 791 499 --
Other (397) (44) 10
------- ------- ------
Total income tax expense $ 6,098 22,775 13,923
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax asset and deferred tax liability at December 31 are
presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
Reserves for incurred but not reported self-insurance claims $ 9,289 3,013
Operating loss carryforwards 9,668 4,921
Cash to accrual adjustment 14,883 --
Other 2,406 1,427
-------- -------
Total gross deferred tax asset 36,246 9,361
Less valuation allowance (12,315) (3,441)
-------- -------
Net deferred tax asset $ 23,931 5,920
-------- -------
Deferred tax liability:
Plant and equipment, principally due to differences in depreciation $ 10,398 6,968
Capital leases 3,672 2,347
Clinic service agreements 24,971 10,265
Prepaid expenses 2,033 1,726
Income from partnerships 4,889 1,506
Accounts receivable 3,811 --
Other 1,397 382
-------- -------
Total gross deferred tax liability 51,171 23,194
-------- -------
Net deferred tax liability $ 27,240 17,274
======== =======
</TABLE>
(Continued)
24
<PAGE> 27
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The significant components of the deferred tax expense as of December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -----
<S> <C> <C>
Change in net deferred tax liability $ 9,966 9,616
Deferred taxes of acquired entities (19,643) --
-------- -----
Deferred tax (benefit) expense $ (9,677) 9,616
======== =====
</TABLE>
The net change in the total valuation allowance for the year ended
December 31, 1997, which primarily relates to federal and state net
operating loss carryforwards and expenses relating to the nonrecurring
charge not expected to be deductible for state tax purposes, was an
increase of $8,874,000. As of December 31, 1997, the Company had
approximately $6,950,000 of federal and $118,034,000 of state net
operating loss carryforwards which begin to expire in 2007. The
utilization of these carryforwards is subject to the future level of
taxable income of the applicable subsidiaries.
The Company has been the subject of an audit by the IRS since 1991, and
the IRS has proposed adjustments relating to the timing of recognition
for tax purposes of certain revenue and deductions relating to
uncollectable accounts. PhyCor disagrees with the positions asserted by
the IRS and is vigorously contesting these proposed adjustments. The
Company believes that any adjustments resulting from resolution of this
disagreement would not affect reported net earnings of PhyCor but would
defer tax benefits and change the levels of current and deferred tax
assets and liabilities.
(15) EMPLOYEE BENEFIT PLANS
As of January 1, 1989, the Company adopted the PhyCor, Inc. Savings and
Profit Sharing Plan. The Plan is a defined contribution plan covering
substantially all employees. Company contributions are based on specified
percentages of employee compensation. The Company funds contributions as
accrued. The contributions for 1997, 1996, and 1995 amounted to
$10,245,000, $7,803,000, and $3,976,000, respectively.
In connection with certain of the Company's acquisitions, the Company
adopted employee retirement plans previously sponsored solely by the
physician groups. The Company has recognized as expense its required
contributions to be made to the plans of approximately $4,789,000,
$3,174,000, and $1,248,000 relative to its employees for 1997, 1996, and
1995, respectively.
(Continued)
25
<PAGE> 28
PHYCOR, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) COMMITMENTS AND CONTINGENCIES
(A) EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of
its management employees, which include, among other terms,
noncompete provisions and salary and benefits continuation.
(B) COMMITMENTS TO PHYSICIAN GROUPS
Under terms of certain of its service agreements, the Company is
committed to provide capital for the improvement and expansion of
clinic facilities. The commitments vary depending on such factors
as total capital expenditures, the number of physicians practicing
at each clinic, and the cost of specific planned projects. All
projects funded under these commitments must be approved by the
Company before they commence.
The Company is also committed to provide, under certain
circumstances, advances to physician groups to principally finance
the recruitment of new physicians. These advances will be repaid
out of the physician groups' share of future clinic revenue. At
December 31, 1997 and 1996, $4,038,000, and $2,230,000,
respectively, of such advances were outstanding.
(C) LITIGATION
The Company is subject to various claims and legal actions which
arise in the ordinary course of business, certain of which could
be material. In the opinion of management, the ultimate resolution
of such matters will be adequately covered by the insurance and
will not have a material adverse effect on the Company's financial
position, results of operations or liquidity.
(D) INSURANCE
The Company and its affiliated physician groups are insured with
respect to medical malpractice risks on a claims-made basis. There
are known claims and incidents that may result in the assertion of
additional claims, as well as claims from unknown incidents that
may be asserted. Management is not aware of any claims against it
or its affiliated physician groups which might have a material
impact on the Company's financial position.
(E) CONTINGENT CONSIDERATION
In connection with the acquisition of clinic operating assets, the
Company is contingently obligated to pay an estimated additional
$83,000,000 in future years, depending on the achievement of
certain financial and operational objectives by the related
physician groups. Such liability, if any, will be recorded in the
period in which the outcome of the contingency becomes known. Any
payment made will be allocated among the assets acquired and will
not immediately be charged to expense.
26
<PAGE> 1
EXHIBIT 21
PHYCOR, INC.
SUBSIDIARIES
AS OF MARCH 23, 1998
<TABLE>
<S> <C>
PhyCor, Inc. Tennessee
Arnett Health Systems, Inc. Indiana
North American Medical Management, Inc. Tennessee
IPA Management Associates, L.P. Tennessee
PhyCor - Lafayette, LLC Tennessee
PhyCor/Lexington Real Estate, LLC Tennessee
PhyCor of Anne Arundel County, Inc. Tennessee
PhyCor of Birmingham, Inc. Tennessee
PhyCor of Boulder, Inc. Tennessee
PhyCor of Charlotte, LLC Delaware
PhyCor of Chickasha, Inc. Tennessee
PhyCor of Coachella Valley, Inc. Tennessee
PhyCor of Columbia, Inc. Tennessee
PhyCor of Conroe, L.P. Tennessee
PhyCor of Corsicana, L.P. Tennessee
PhyCor of Dallas, L.P. Tennessee
PhyCor of Denver, Inc. Tennessee
PhyCor of Dixon, Inc. Tennessee
PhyCor of Evansville, LLC Tennessee
PhyCor of Fort Smith, Inc. Tennessee
PhyCor of Ft. Walton Beach, Inc. Tennessee
PhyCor of Greeley, Inc. Tennessee
PhyCor of Harlingen, L.P. Tennessee
PhyCor of Hattiesburg, Inc. Tennessee
PhyCor of Hawaii, Inc. Tennessee
PhyCor of Irving, L.P. Tennessee
PhyCor of Jacksonville, Inc. Tennessee
PhyCor of Kentucky, LLC Tennessee
PhyCor of Kingsport, Inc. Tennessee
PhyCor of Laconia, Inc. Tennessee
PhyCor of LaGrange, Inc. Tennessee
PhyCor of Maui, Inc. Tennessee
PhyCor of Mesa, Inc. Tennessee
PhyCor of Minot, Inc. Tennessee
PhyCor of Murfreesboro, Inc. Tennessee
PhyCor of Nashville, Inc. Tennessee
PhyCor of New Britain, Inc. Tennessee
PhyCor of Newnan, Inc. Tennessee
PhyCor of Northeast Arkansas, Inc. Tennessee
PhyCor of Northern California, Inc. Tennessee
PhyCor of Northern Michigan, Inc. Tennessee
</TABLE>
1
<PAGE> 2
EXHIBIT 21
PHYCOR, INC.
SUBSIDIARIES
AS OF MARCH 23, 1998
<TABLE>
<S> <C>
PhyCor of Ogden, Inc. Tennessee
PhyCor of Olean, Inc. Tennessee
PhyCor of Pensacola, Inc. Tennessee
PhyCor of Phoenix, Inc. Tennessee
PhyCor of Pueblo, Inc. Tennessee
PhyCor of Richmond, Inc. Tennessee
PhyCor of Roanoke, Inc. Tennessee
PhyCor of Rome, Inc. Tennessee
PhyCor of Ruston, LLC (DE) Tennessee
PhyCor of San Antonio, L.P. Tennessee
PhyCor of Sayre, Inc. Tennessee
PhyCor of South Bend, LLC Tennessee
PhyCor of St. Petersburg, Inc. Tennessee
PhyCor of Tidewater, Inc. Tennessee
PhyCor of Toledo, Inc. Tennessee
PhyCor of Vancouver, Inc. Tennessee
PhyCor of Vero Beach, Inc. (FL) Florida
PhyCor of West Houston, L.P. Tennessee
PhyCor of Wharton, L.P. Tennessee
PhyCor of Wichita Falls, L.P. Tennessee
PhyCor of Wilmington, LLC (DE) Delaware
PhyCor of Winter Haven, Inc. Tennessee
PhyCor-Texas Gulf Coast, L.P. Tennessee
PhyCor-Texas Partnerships, Inc. Tennessee
St. Petersburg Medical Clinic, Inc. (FL) Florida
The Member Corporation, Inc. Tennessee
</TABLE>
2
<PAGE> 1
Exhibit 23
The Board of Directors and Shareholders
PhyCor, Inc.
We consent to incorporation by reference in the registration statements of
PhyCor, Inc. on Form S-3 (No. 33-98528), Form S-4 (Nos. 33-66210, 33-98530,
333-45017, and 333-45209) and Form S-8 (Nos. 33-65228 and 33-85726) of our
reports dated February 18, 1998, relating to the consolidated balance sheets of
PhyCor, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, and all
related schedules, which reports appear in the December 31, 1997 annual report
on Form 10-K of PhyCor, Inc.
/s/ KPMG Peat Marwick LLP
Nashville, Tennessee
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 38,160
<SECURITIES> 0
<RECEIVABLES> 600,202
<ALLOWANCES> 208,534
<INVENTORY> 18,578
<CURRENT-ASSETS> 496,564
<PP&E> 321,933
<DEPRECIATION> 86,248
<TOTAL-ASSETS> 1,562,776
<CURRENT-LIABILITIES> 293,263
<BONDS> 410,893
0
0
<COMMON> 645,288
<OTHER-SE> 65,200
<TOTAL-LIABILITY-AND-EQUITY> 1,562,776
<SALES> 0
<TOTAL-REVENUES> 1,119,594
<CGS> 0
<TOTAL-COSTS> 1,078,429
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,184
<INCOME-PRETAX> 20,981
<INCOME-TAX> 6,098
<INCOME-CONTINUING> 3,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,209
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,530
<SECURITIES> 0
<RECEIVABLES> 429,993
<ALLOWANCES> 134,556
<INVENTORY> 15,185
<CURRENT-ASSETS> 383,427
<PP&E> 216,266
<DEPRECIATION> 56,038
<TOTAL-ASSETS> 160,228
<CURRENT-LIABILITIES> 170,481
<BONDS> 323,112
0
0
<COMMON> 389,712
<OTHER-SE> 61,991
<TOTAL-LIABILITY-AND-EQUITY> 1,118,581
<SALES> 0
<TOTAL-REVENUES> 766,325
<CGS> 0
<TOTAL-COSTS> 684,593
<OTHER-EXPENSES> 10,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,114
<INCOME-PRETAX> 59,155
<INCOME-TAX> 22,775
<INCOME-CONTINUING> 36,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,380
<EPS-PRIMARY> .67
<EPS-DILUTED> .60
<FN>
1996 earnings per share has been restated to conform with the provisions of FAS
No. 128, Earnings per share, adopted by the Company in 1997.
</FN>
</TABLE>
