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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from__________ to _________
COMMISSION FILE #0-23946
PEDIATRIC SERVICES OF AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-1873345
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3159 Campus Drive
Norcross, Georgia 30071-1042
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code - (770) 441-1580
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
$.01 par value
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 reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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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 the 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. X
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The aggregate market value of voting stock held by non-affiliates of the
registrant on December 1, 1997, based on a closing price of $20.50 per share,
was $126,358,946. As of December 1, 1997, the number of shares of the
registrant's common stock outstanding was 6,521,976 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant's 1997 Annual Report and Proxy
Statement for the Annual Meeting of Shareholders of the registrant to be held on
January 21, 1998 is incorporated herein by reference in Parts II and III of this
Annual Report on Form 10-K.
Page 1 of 224, including exhibits. Index of Exhibits is on page 25 hereof.
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PEDIATRIC SERVICES OF AMERICA, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
Table of Contents
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Item Page
Number Number
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PART I
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1. Business.............................................................................. 3
2. Properties............................................................................ 14
3. Legal Proceedings..................................................................... 15
4. Submission of Matters to a Vote of Security Holders................................... 15
4(A). Executive Officers of the Registrant.................................................. 15
PART II
5. Market for the Registrant's Common Stock and Related Stockholder Matters.............. 16
6. Selected Financial Data............................................................... 16
7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 16
8. Financial Statements and Supplementary Data........................................... 16
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 16
PART III
10. Directors and Executive Officers of the Registrant.................................... 16
11. Executive Compensation................................................................ 17
12. Security Ownership of Certain Beneficial Owners and Management........................ 17
13. Certain Relationships and Related Transactions........................................ 17
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 17
SIGNATURES................................................... 22
INDEX TO FINANCIAL STATEMENT SCHEDULES..................................... S-1
INDEX TO EXHIBITS................................................ 25
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain statements of a forward-looking nature relating
to future financial performance of the Company. When used in this Form 10-K,
the words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "intend," "plan" and similar expressions are intended to identify
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control. The Company cautions that various factors, including the factors
described under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1997 Annual Report to
Shareholders, which is incorporated herein by reference, and those discussed in
the Company's filings with the Securities and Exchange Commission, as well as
general economic conditions and industry trends, the level of acquisition
opportunities available to the Company and the Company's ability to negotiate
the terms of such acquisitions on a favorable basis, could cause actual results
or outcomes to differ materially from those expressed in any forward-looking
statements of the Company made by or on behalf of the Company. Any forward-
looking statement speaks only as of the date on which such statement is made,
and the Company undertakes no obligation to update any forward-looking statement
or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of an unanticipated event. New
factors emerge from time to time, and it is not possible for management to
predict all of such factors. Further, management cannot assess the impact of
each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
GENERAL
Pediatric Services of America, Inc., a Delaware corporation, ("PSA" or the
"Registrant"; unless the context otherwise requires, all references herein to
the "Company" refer to PSA and its consolidated subsidiaries) has become the
nation's largest focused pediatric home health care provider, specializing in
home nursing, respiratory therapy, infusion therapy and related services for
infants and children. PSA's pediatric home health care services are designed to
provide a high quality, lower cost alternative to prolonged hospitalization for
medically fragile children. As a complement to its pediatric respiratory and
infusion therapy services, the Company also provides respiratory and infusion
therapy and related services for adults. The Company also provides
comprehensive and paramedical testing to the life, health and disability
insurance industries. For the fiscal year ended September 30, 1997 ("fiscal
1997") pediatric patients accounted for approximately 59% of the Company's net
revenue. The Company currently offers its home health care services through a
network of 122 branch offices located in 29 states operated through various
subsidiaries.
According to industry sources, the market for home health care services in the
United States is estimated at $30 billion with the market for pediatrics
estimated at over $5 billion. The Company believes that pediatric patients
account for a significant portion of U.S. home health care service revenue. The
pediatric home health care market is currently served primarily by a large
number of small entities operating on a local or regional basis that generally
provide a limited range of services. The Company believes that there are
significant opportunities to acquire and consolidate entities operating in the
pediatric home health care market.
PSA's services are designed to comprehensively address the full range of home
health care needs of pediatric patients, particularly the needs of medically
fragile children dependent on sophisticated nursing care and medical technology.
Many pediatric patients suffer from complex medical problems, most of which
result from premature births or genetic abnormalities. These medical problems
include bronchopulmonary dysplasia, digestive and absorptive diseases, cystic
fibrosis and neurologically related respiratory problems. Patients suffering
from these disorders typically require intensive and specialized treatment over
an extended period of time by specially trained professionals in neonatal and
pediatric care. Substantially all of the Company's nurses have received
specialized training in neonatal and pediatric care and generally are required
to have had at least one year of prior experience in a neonatal critical care
unit. PSA also provides technically advanced equipment for medically fragile
children at
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home, such as ventilators, apnea monitors, aerosol generators and other
specialized medical equipment. Additionally, the Company has developed case
administration procedures that enable it to efficiently manage all aspects of
patient care by coordinating the efforts of third-party payors, physicians, case
managers and referral sources.
The Company believes that payors and referral sources recognize the specialized
needs of medically fragile children and the high cost of rehospitalization
associated with inadequate care. The Company believes further that payors and
referral sources find the Company's services to be a high quality, cost
effective alternative to prolonged hospitalization of such children. For
example, the Company and a leading pediatric children's hospital, Miami
Children's Hospital ("MCH"), have formed a joint venture to provide pediatric
home health care services in conjunction with MCH's operations in Miami, Florida
and surrounding counties. This joint venture will enable MCH to offer highly
specialized pediatric home health care services to its clients and will provide
PSA with access to a significant base of potential patients. Similarly, PSA is
one of a limited number of companies which have been designated by United
Healthcare Company and certain of its affiliates as a preferred provider of
pediatric home health care services in selected geographic areas. PSA also has
entered into preferred provider contracts with several local and regional
insurance companies and managed care companies.
The Company has expanded its operations primarily through strategic
acquisitions, new office openings and internal growth. Since fiscal 1991, the
Company has completed 28 acquisitions acquiring an aggregate of 72 branch
offices in 24 states and opened 11 additional start-up branch offices with the
goal of becoming a national pediatric home health care provider. The Company
has also experienced growth in revenue and profitability as a result of its
sales and marketing efforts, introduction of new services and improved operating
controls. See "Letter to Stockholders" incorporated by reference to the 1997
Annual Report which is filed as Exhibit 13 hereto.
RECENT DEVELOPMENTS
In October, 1997, PSA acquired the assets of Pediatric Physical Therapy, Inc., a
pediatric physical therapy operation in St. Louis, Missouri, and signed an
agreement to purchase the assets of Kid's Nurses, Inc., a pediatric nursing
company in St. Louis, Missouri.
In November, 1997, PSA acquired the assets of Kids & Nurses, Inc., a pediatric
home health care company with operations in Tennessee and Florida, adding seven
new prescribed pediatric extended care centers to PSA's already existing centers
in Florida and Georgia, and transferring to PSA pediatric certificates of need
in four major metropolitan areas of Tennessee. Prior to this acquisition, PSA
was not able to directly provide nursing services or physical and other
therapies in the State of Tennessee. With the Kids & Nurses acquisition, PSA
will be able to expand into the Tennessee pediatric market. These companies were
not deemed significant for pro forma disclosure.
Another November, 1997, acquisition was the purchase by PSA of the assets of
Intra-Care, Inc., a pharmacy and infusion company with three locations in New
Jersey. In addition to directly providing home services, the IntraCare
acquisition adds to PSA's services the management of physician's offices and
allows provision of infusion services at out-patient centers.
In December, 1997, PSA purchased the assets of Cyber Home Medical Equipment
Corporation, Inc. and Pre-Med, Inc., home medical equipment companies in New
York with coverage of Long Island and several of the New York City boroughs.
This acquisition, along with the other acquisitions in fiscal 1998, provide PSA
with additional strategic presence in Missouri, Tennessee, Florida, New Jersey
and New York, and the opportunity to expand our core business to include our
wide range of services and national managed care contracts.
In the first quarter of fiscal 1998, PSA internally expanded its geographic
coverage into the State of Rhode Island, from which it also expects to be able
to service the southern portion of Massachusetts.
Finally, in December, 1997, one of PSA's consolidated subsidiaries, Insurance
Medical Reporter, Inc. ("IMR"), purchased certain assets of ChoicePoint
Services, Inc., expanding IMR's annualized product line revenue from
approximately $26 million to $85 million. IMR provides paramedical examinations
for the life and health insurance industries. This acquisition makes IMR one of
the top five providers of paramedical
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examination services in the nation.
BUSINESS STRATEGY
The Company's strategy is to be a national provider of pediatric home health
care services through continued acquisitions of local and regional pediatric
home health care companies and through the opening of additional branch offices.
The Company believes this strategy enables it to continue to meet the needs of
managed care payors while providing high quality, cost effective services to its
patients. The Company intends to implement this strategy by taking the
following actions:
Expand Through Acquisitions, Internal Development and Strategic Alliances. The
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Company is pursuing a strategy of consolidation on a nationwide basis within the
fragmented pediatric home health care industry. To achieve this goal, the
Company intends to expand its business primarily through acquiring local and
regional home health care companies, opening branch offices in both new and
existing markets and expanding the services currently provided at its existing
branch offices. The Company's expansion strategy is to acquire pediatric home
health care providers, as well as adult home health care companies, in select
markets particularly if such companies provide attractive opportunities to
expand pediatric services. The Company also plans to service populations
covered by national managed care contracts.
The Company's expansion strategy also involves opening new branch offices or
satellite facilities in select markets. The Company typically attempts to
acquire or establish new offices in areas located near major medical centers or
pediatric hospitals where a high number of pediatric patients are discharged.
The Company then generally seeks to expand into surrounding areas by opening new
branch offices or satellite facilities, primarily with the assistance of
referrals from the initial branch office, and to accommodate patients discharged
from the medical centers or pediatric hospitals into those areas. Additionally,
the Company introduces new services to existing locations to expand its market
penetration.
The Company also will seek to establish strategic alliances with hospitals, home
health agencies, physician organizations and other health-related entities in
furtherance of its expansion strategy. For example, the Company seeks to
arrange preferred provider contracts with various managed care companies. These
contracts typically designate the Company as a preferred provider of services in
select areas but do not establish an exclusive relationship. Management intends
to take into account managed care contracts in executing its expansion strategy
by targeting acquisitions, opening new branch offices or expanding services in
markets not currently fully served by the Company where managed care contracts
cover a large number of individuals. Other strategic alliances include either a
fee-for-service contract or equity sharing arrangement, such as a joint venture
partnership with hospitals, home health agencies and other health-related
entities to further expand services into new or existing markets. There can be
no assurance, however, that the Company's expansion through acquisitions,
internal development and strategic alliances will be successfully integrated
into the Company's operations.
Develop a National Organization. The Company believes that operating
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efficiencies can be obtained through the development of a national organization.
The Company also believes that by developing a national organization it will be
in a better position to receive referrals and new business from certain large
insurance companies and other third-party payors. The Company recognizes,
however, that the provision of home health care services historically has been a
local business in which both patients and referral sources are based in the
immediate geographic area in which services are provided. The Company plans to
continue to address the local needs of its markets by providing its branch
offices with sufficient autonomy to address the sales and marketing needs of
their specific markets.
Meet the Needs of Pediatric Patients. Management believes that pediatric home
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health care services are becoming recognized as a distinct specialty within the
home health care industry. Management believes that its focus on pediatric home
health care services combined with its experience in rendering these services
provide the Company with a significant sales and marketing advantage. The
Company endeavors to maintain its position as a leading provider of
comprehensive pediatric home health care services, particularly with respect to
children dependent on sophisticated medical technology or nursing care. The
Company's management has substantial experience in pediatric care, which has
enabled the Company to provide technically advanced products and services for
medically fragile children at home, such as ventilators, apnea monitors, aerosol
generators and in-home private duty nursing.
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Provide Quality and Cost Effective Health Care to Pediatric Patients. Quality
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of service is emphasized throughout the Company's organization, both in the
hiring and training of its clinical personnel and the manner in which its home
health care services are delivered. Quality assurance and training are directed
and monitored by a Vice President of Quality Improvement, who is an experienced
health care professional. All of the Company's offices, other than those
recently acquired or established, have received accreditation from the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO"), with most of
the offices receiving accreditation with commendation. JCAHO is a nationally
recognized, not-for-profit organization that develops standards for various
health care providers and monitors compliance with such standards. The Company
believes that it provides more cost effective home health care services than its
local competitors. In the Company's experience, seriously ill patients of the
Company encounter a lower rate of rehospitalization due to the Company's quality
care and treatment expertise. Additionally, the Company's experienced case
managers schedule lower modalities of care as the patient's health improves, and
the Company provides case social workers who train and educate the patient's
family to care for the patient. This lowers both the amount of care required by
the improving patient and the levels of reimbursement from managed care payors.
Provide Efficient Case Administration. The Company has developed case
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administration controls to enable it to manage and coordinate patient care in an
efficient manner. The Company manages cases by assigning case managers to work
closely with third party payors prior to accepting a patient and during a
patient's care. The Company also assigns clinical coordinators to work with
physicians, case managers and other referral sources to arrange all of the home
health care service needs of a patient. Management believes that its efficient
case administration enables the Company to develop relationships with third
party payors, physicians, case managers and other referral sources, generating
important feedback and increased referrals for the Company.
SERVICES PROVIDED
The Company provides comprehensive home health care services to children, and
respiratory and infusion therapy services and related equipment and other
services to adults. As a result of its purchase of Premier Medical Services,
Inc. ("Premier") on February 29, 1996, the Company provides medical examinations
for the insurance industry through a wholly-owned subsidiary, Insurance Medical
Reporter, Inc. ("IMR"). These services have been categorized under the caption
"Medical Testing Services" in the table below. The following table summarizes
the net revenue and percentages of net revenue of each major category of service
offered by PSA for the periods indicated:
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YEAR ENDED SEPTEMBER 30,
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1997 1996 1995
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(In thousands) REVENUE % TOTAL REVENUE % TOTAL REVENUE % TOTAL
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PEDIATRIC HOME HEALTH CARE
Nursing $ 65,927 32.3 $ 52,025 31.7 $ 33,715 30.1
Respiratory Therapy Equipment 22,918 11.2 17,458 10.7 13,166 11.8
Home Medical Equipment 2,566 1.3 1,394 0.8 1,315 1.2
Pharmacy and Other 29,151 14.3 22,819 14.0 10,152 9.1
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Total Pediatric Home Health Care 120,562 59.1 93,696 57.2 58,348 52.2
ADULT HOME HEALTH CARE
Nursing 21,900 10.7 17,683 10.8 13,354 11.9
Respiratory Therapy Equipment 21,719 10.6 22,085 13.5 19,367 17.3
Home Medical Equipment 5,041 2.5 5,385 3.3 4,928 4.4
Pharmacy and Other 8,757 4.3 5,975 3.6 3,729 3.3
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Total Adult Home Health Care 57,417 28.1 51,128 31.2 41,378 36.9
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Total Medical Testing Services 26,044 12.8 18,980 11.6 12,134 10.9
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Total $204,023 100% $163,804 100% $111,860 100%
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Pediatric Home Nursing Services. The Company provides private duty care and
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intermittent nursing visits in the home setting for pediatric illnesses and
conditions, including bronchopulmonary dysplasia, digestive and absorptive
diseases, congenital heart defects, cancer, cerebral palsy, cystic fibrosis,
handicaps, orthopedic conditions and post surgical needs. The Company has over
5,000 registered or licensed
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pediatric nurses on its active nursing registries. Although nursing services
have traditionally provided the Company with lower profit margins than the
Company's other lines of business, management anticipates that the Company will
continue to increase the number of its branch offices that provide pediatric
nursing services as the Company continues to focus on developing its pediatric
business. Based on management's experience, referral sources generally will make
arrangements for pediatric home nursing services before making arrangements for
other pediatric home health care services necessary for the release from the
hospital of a medically fragile child or an adult patient. As a result,
management believes that its pediatric home nursing business facilitates the
Company's ability to market its other pediatric services.
Respiratory Therapy Equipment Services. The Company's respiratory therapy
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equipment services involve the (i) delivery and setup of equipment, such as
ventilators, apnea monitors and aerosol generators in accordance with
physicians' prescriptions and standard operating procedures, (ii) periodic
evaluation and maintenance of such equipment and (iii) delivery and setup of
supplies necessary for the operation of such equipment. The Company provides
such service and equipment to patients in the home with a variety of conditions,
including obstructive pulmonary disease (e.g., emphysema, chronic bronchitis and
asthma), neurologically related respiratory problems, cystic fibrosis,
congenital heart defects and cancer. The Company hires skilled registered
respiratory therapists and certified respiratory therapy technicians to provide
these services. The Company also offers training to the patient and the family
in equipment use and provides a 24-hour repair service through emergency on-call
technicians.
Home Medical Equipment. The Company provides rentals and service of home
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medical equipment, which consists of wheelchairs, beds, walkers and other
equipment primarily to adult patients. These services and equipment are
typically provided at low profit margins in connection with other adult home
health care services provided by the Company. As a result of management's focus
on more profitable portions of the Company's business, revenue associated with
home medical equipment has declined as a percentage of the Company's total
net revenue to 3.8% in fiscal 1997.
Pharmacy. The Company provides home infusion therapy for its patients. The
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Company's infusion therapy services involve the in-home administration of
nutrients, antibiotics and other medications intravenously or through feeding
tubes. Infusion therapies offered by the Company include growth hormone and
hemophilia factor replacements, parenteral and enteral nutrition, antibiotic
therapy, pain management, chemotherapy and other infusion therapies.
The Company's mail order medication service provides unit dose medications to
respiratory therapy patients based upon physicians' prescriptions. The Company
is able to offer its patients medication in a premixed unit dose form,
professional clinical support and claims processing. The Company employs
licensed pharmacists to assist with its unit dose medication services business.
Sleep Disorder Studies. The Company's sleep disorder services involve providing
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sleep studies on its patients in the hospital's sleep laboratory, or in the
patient's home. The Company employs registered polysomnographic technicians
experienced in sleep disorders. The Company administers sleep disorder studies
that are scored and interpreted by a physician who is experienced in sleep
disorder medicine.
Medical Testing Services. As a result of the purchase of Premier, the
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Company's services expanded to include services categorized as "Medical Testing
Services" under the operating subsidiary of IMR. IMR is the fourth largest
company providing comprehensive medical and paramedical testing, such as health
histories, phlebotomy services and electrocardiograms to over 800 life, health
and disability insurance companies. The testing services are provided through a
network of over 80 field offices in strategic geographical locations. Licensed
professionals administer the tests and provide the test results to the
underwriting departments of the insurance companies for their risk assessment.
IMR provides the testing services in all 50 states including Puerto Rico.
The Company's services are provided by more than 5,000 licensed or credentialed
nurses and therapists. All of the Company's offices, other than those recently
acquired or established, have received accreditation from the JCAHO.
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OPERATIONS.
Local Office Network. The Company currently provides home health care services
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through a network of 122 branch offices located in 29 states. The Company seeks
to address the local market needs of the home health care industry through its
branch office network. Each branch office conducts local marketing efforts,
negotiates contracts with local referral sources, recruits personnel and
coordinates patient care. Since the provision of home health care service is
generally a local business, the Company provides its branch office managers with
training, comprehensive policies and procedures and standardized operating
systems, while allowing them sufficient autonomy to address local needs.
The Company's branch offices are divided into five divisions. Each division has
its own Divisional Vice President who coordinates all activities within his or
her division. Under the Company's management structure, branch office managers
may report either to a Regional Vice President or directly to the Divisional
Vice President.
Case Administration. Before the Company provides services to a patient, the
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Company coordinates with third-party payors, physicians, case managers and other
referral sources. In order to accomplish this coordination, the Company has
developed and implemented case management and clinical coordination functions.
Case Management. Prior to accepting certain patients, the Company assigns a
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case manager to review the patient's insurance status to determine coverage and
relevant reimbursement criteria. The case manager contacts the relevant third-
party payors to negotiate the services that will be covered and the applicable
rates. The case manager then communicates with the billing and collection
department to assist in accurate billing. The case manager also assists in
resolving disputes that may arise between the Company and third-party payors.
Clinical Coordination. The Company assigns a clinical coordinator as soon as a
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case is referred to the Company, typically before the patient leaves the
hospital. The clinical coordinator works with the physician, case manager or
other referral source to arrange all home healthcare services needed by the
patient.
Sales, Marketing and Strategic Alliances. PSA's products and services are
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marketed primarily through its branch office personnel and various media
formats. Sales and marketing activities at the branch office level are
conducted through the office directors. These directors generally have a
clinical background as registered nurses and/or therapists, and, as such, they
are able to describe and promote the Company's products and services. The
branch office directors attempt to cultivate relationships with their local
referral sources through quality service, personal contacts and education about
the appropriate role of home health care in the treatment of patients.
The Company obtains patients primarily through referrals from physicians (e.g.,
neonatologists, pediatricians, pulmonologists and internists), hospital
discharge planners, case managers, community based health care institutions and
social service agencies. The Company maintains a case management service
department that develops and services formal relationships with large insurance
companies and case managers. This department acts as the central point for
coordination of services and benefits for patients referred by such
organizations.
The Company also seeks to arrange preferred provider contracts with various
managed care companies. These contracts typically designate the Company as a
preferred provider of certain services in select areas but do not establish an
exclusive relationship. The Company has preferred provider contracts that are
both national and regional in scope. These preferred provider contracts
typically set forth a range of services that the Company may provide and
applicable rates payable to the Company for the provision of such services, as
well as specifying required billing and claims procedures, record maintenance
policies and other requirements.
As part of its sales and marketing strategy, the Company actively attempts to
enter into relationships with payors and referral sources, such as managed care
companies, as a preferred provider. The Company believes that payors and
referral sources find the Company's services to be a high quality, cost
effective alternative to prolonged hospitalization or re-hospitalization of
medically fragile children. Strategic
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alliances with large established payors and referral sources can significantly
expand the Company's base of potential clients. Such strategic alliances include
the formation of joint ventures and fee-for-service contracts to provide
pediatric home health care services with other healthcare companies who have
access to a significant base of potential patients.
The Company believes that JCAHO accreditation of its branch offices is an
important factor in its sales and marketing efforts. Accreditation by JCAHO is
one of the few indicators that referral sources have for judging the standard of
quality of a home health care provider. The Company also believes that its
focus on pediatric home care services combined with management's experience in
rendering these services provides the Company with a significant sales and
marketing advantage.
Billing and Collection. The Company derives substantially all of its net
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revenue from commercial insurance and private payors, Medicare and Medicaid.
The current reimbursement environment is a complicated process, involving
multiple payors with differing coverage and reimbursement policies. Management
of accounts receivable, through effective billing, collection and reimbursement
procedures, is critical to the financial success of medical service providers
due to lengthy reimbursement periods. The billing, collection and reimbursement
process involves the collection, review and approval of a significant number of
required documents. PSA reimbursement specialists work closely with the branch
offices and third-party payors. Each specialist is responsible for ensuring the
adequacy of the documentation, submitting the documentation and claims to third-
party payors and expediting payment.
The Company's billing and collection process has recently been strengthened by
the partial implementation of its new National Patient Accounting System
("NPAS"). When fully implemented, this system will greatly enhance the
Company's ability to control the quality of the revenue billed. The system
employs client-server technology which provides all locations throughout the
country with immediate access to patient information. Each location controls
the set-up of its patients on the computer, however, the Corporate Reimbursement
Department releases all charges for billing. This provides a high level of
quality assurance and communications between the locations and the reimbursement
staff.
Recruiting, Training and Retention of Professional Staff. As of September 30,
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1997, the Company had over 5,000 licensed or credentialed nurses and therapists
on its staff and active registries. The Company hires skilled pediatric nurses
and skilled respiratory therapists to provide its services. Nurses generally
have a minimum of one year prior pediatric or neonatal intensive care unit
experience, a nursing license and current CPR certification, and each nurse must
pass a written pediatric and medication exam and provide employment references.
Therapists generally have a minimum of one year prior experience and current CPR
certification, and must provide employment references as well.
To provide a qualified, reliable nursing and therapy services staff, the Company
continuously recruits professional nurses and technical specialists, and trains
and offers benefits and other programs to encourage retention of these
professionals. Recruiting is conducted primarily through advertising,
employment fairs, direct contact with community groups and employment programs,
and the use of bonus and other benefit programs designed to encourage new
employee referrals by existing employees. The Company has in the past recruited
pediatric nurses who have cared for a patient in the hospital to continue to
provide care for such patient in the home through part-time or full-time
employment with the Company. Under the Company's pediatric nursing training
program, nurses are required to attend an orientation program where they are
trained in aspects of home health care, such as equipment use, which differ from
institutionally provided health care. If qualified, nurses receive additional
training in the use of ventilators and other home respiratory equipment. The
Company requires that nurses attend continuing education sessions on safety and
techniques in home health care. Further, the Company offers its nurses periodic
continuing education courses and professional seminars on various topics in home
health care to assist in the retention of qualified personnel.
Quality Assurance. The Company has established a quality assurance program for
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the implementation and monitoring of service standards. All of the Company's
branch offices, other than those recently acquired or established, have received
accreditation from JCAHO, a nationally recognized, not-for-profit organization
that develops standards for various health care providers and monitors
compliance with such standards. JCAHO's objective standards are one of the few
methods by which referring health care professionals may assess the quality of
services of a home health care provider. The Company adheres to JCAHO
guidelines and standards in all aspects of patient care delivery.
PAGE - 9
<PAGE>
The Company's quality assurance program includes periodic quality audits and
other measures designed to ensure compliance with the documentation and
operating procedures required by state law, JCAHO standards and internal
standards. The Company's officers oversee the results of these quality
assurance audits and implements changes where necessary.
REIMBURSEMENT
During the past decade, federal and state governments and third-party payors
have taken extensive steps intended to contain or reduce the costs of health
care. These steps have included, among others, reduced reimbursement rates,
changes in services covered, increased utilization review of services,
negotiated prospective or discounted contract pricing and adoption of a
competitive bid approach to service contracts. Cost containment efforts are
expected to continue in the future. Home health care, which is usually less
costly than hospital-based care, generally has benefited from many of these cost
containment efforts. As expenditures on home health care services continue to
grow, however, initiatives aimed at reducing the cost of health care delivery in
non-institutional settings are increasing. Many state Medicaid programs, in an
effort to contain the cost of health care and in light of state budgetary
constraints, have reduced their payment rates and have narrowed the scope of
covered services. Likewise, the federal 1990 Omnibus Budget Reconciliation Act
("OBRA 1990") imposed reimbursement limits and a national rate system for home
medical equipment, including respiratory equipment. Similar initiatives are
expected to continue in the future. A significant change in coverage or a
reduction in payment rates for the types of services provided by the Company
could have a material adverse effect upon the Company's business.
Medicare Program. Medicare is a federally funded health insurance program which
- ----------------
provides health insurance coverage for certain disabled persons, persons age 65
and older and those with chronic renal disease. The Secretary of the United
States Department of Health and Human Services (the "Secretary") is charged with
administering the program. In turn, the Secretary has delegated much of that
responsibility to the Health Care Financing Administration ("HCFA"). The
Medicare program was enacted in 1965 as Title XVIII of the Social Security Act
and consists of two separate insurance programs. "Hospital Insurance,"
established in Part A of the Social Security Act, provides certain benefits
covering inpatient hospital, nursing facility, home health and hospice services.
"Supplementary Medical Insurance," established in Part B of the Social Security
Act, provides benefits in the areas of outpatient hospital visits, physician
services, other types of outpatient services, respiratory therapy, infusion
therapy, home medical equipment and prosthetic devices. Individuals age 65 and
older who qualify for Social Security or Railroad Retirement Benefits
automatically qualify for Medicare Part A. Medicare Part B is a voluntary
program and all individuals who are eligible for Part A coverage may elect to
enroll in Part B. The Company is an authorized provider eligible to receive
direct reimbursement under Medicare Part A and B in certain geographic
locations.
Part A providers are required to sign provider agreements to participate in
Medicare. The Medicare Part A home health benefit currently is a cost-based
reimbursement program that requires the Company to file an annual cost report
for those branch offices performing services under Part A and for the Company's
home office. Medicare reimburses the Company for covered home health care
services at the lowest of the Company's reimbursable costs (based on Medicare
regulations), cost limits established by HCFA, or the Company's charges.
Under Part B, the beneficiary must pay an annual deductible amount before
Medicare will make any payments. After the Part B deductible is satisfied,
Medicare ordinarily will pay 80% of the Medicare approved payment amount, and
the beneficiary is responsible for paying the remaining 20%. Medicare has
developed approved forms for submission of bills and claims. Health care
providers must meet "conditions of participation" to receive Medicare payments.
The conditions of participation are federal requirements intended to ensure the
quality of the medical services provided.
The passage of the 1997 Balanced Budget Act is expected to materially affect
Medicare reimbursement to the home health industry. For services furnished on
or after January 1, 1998, coverage of home health services under Part A will be
reduced to a maximum of 100 visits during a spell of illness after a three-day
hospitalization or after receiving services in a skilled nursing facility.
Coverage for all other services will be shifted to Part B over the next seven
years, requiring a patient co-payment and deductible. Periodic
PAGE - 10
<PAGE>
Interim Payments ("PIP") will be eliminated for cost reporting periods on or
after October 1, 1999. Home health and durable medical equipment ("DME")
companies will be required to post a $50,000 surety bond. Reimbursement
reductions will be phased in beginning January 1, 1998 for oxygen and oxygen
equipment, and DME fee schedules will be frozen.
Medicaid Program. Medicaid (Title XIX of the Social Security Act) is a
- ----------------
cooperative state-federal program for medical assistance to the poor. In order
to be eligible, a person must be either aged (over 65), blind or disabled or be
the caretaker for minor children. States have great flexibility in determining
the services which will be paid for under their Medicaid programs. Beyond
mandatory services, states can provide a wide range of medical services,
including services not otherwise covered under Medicare, such as long-term
nursing care. The 1997 Balanced Budget Act also allows states to amend their
state plans to expand services to uninsured children by providing $24 billion
over the next 5 years in matching funds to State Medicaid Programs.
Commercial Insurance. Other non-governmental payors, such as health maintenance
- --------------------
organizations, preferred provider organizations, and traditional indemnity
insurers are increasing pressure on health care providers to control health care
costs and are limiting increases or even reducing reimbursement rates for health
care services. Such pricing pressures could have a negative effect on the
Company's business and financial condition.
The following are the approximate percentages of the Company's net revenue
attributable to various payors for the periods presented:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1997 September 30, 1996
Payor ---------------------- ------------------------
<S> <C> <C>
Commercial Insurance and Self Payors........... 64% 63%
Medicaid and Other State Programs.............. 27% 27%
Medicare and Other Federal Programs............ 9% 10%
--- ---
Total 100% 100%
=== ===
</TABLE>
COMPETITION
The home health care market is highly competitive and is divided among a large
number of providers, some of which are national providers, but most of which are
either regional or local providers. Home health providers compete for referrals
primarily based on quality of care and service, reputation with referring health
care professionals, ability to develop and maintain contacts with referral
sources and price of services. The Company believes that its specialization in
pediatric home health care, as well as its coordinated care approach to home
health care services, broadens its appeal to local health care professionals and
to managed care organizations.
In addition to its traditional competitors, other types of health care
providers, including hospitals, physician groups and home health agencies, have
entered, and may continue to enter, the Company's business. Except for the
current moratorium on certifying new providers, which is expected to be a short-
lived barrier, relatively few barriers to entry exist in the home health care
industry in states that do not require a certificate of need. Certain of the
Company's competitors and potential competitors have significantly greater
financial, technical and marketing and sales resources than the Company and may,
in certain locations, possess licenses or certificates that permit them to
provide services that the Company cannot currently provide. There can be no
assurance that the Company will not encounter increased competition in the
future that could limit the Company's ability to maintain or increase its
business and could adversely affect the Company's operating results.
REGULATION
The Company's business is subject to extensive and frequently changing state and
federal regulation. The Company is subject to state laws governing and
regulating several aspects of its business, including the dispensing,
distributing and compounding of prescription products, the providing of home
health care services and home infusion services (including certificate of need
and licensure requirements in states
PAGE - 11
<PAGE>
where applicable), the licensing of branch offices, criminal background checks
of employees and the licensing of professionals under contract with the Company.
The Company also is subject to certain state laws prohibiting the payment of
remuneration for patient or business referrals and the provision of services
where a financial relationship exists between a referring physician and the
entity providing the service.
Federal laws governing the Company's activities include regulations concerning
pharmacy operations and regulations under the Medicare and Medicaid programs
relating to, among other things, certification of home health agencies and
reimbursement. In addition, federal fraud and abuse laws prohibit or restrict,
among other things, the payment of remuneration to parties in a position to
influence or cause the referral of patients or business.
New laws and regulations are enacted from time to time to regulate new and
existing services and products in the home health care industry. Changes in the
law or new interpretations of existing laws also could have an adverse effect on
the Company's methods and costs of doing business. Further, failure of the
Company to comply with such laws could adversely affect the Company's ability to
continue to provide, or receive reimbursement for, its equipment and services,
and also could subject the Company and its officers and employees to civil and
criminal penalties. There can be no assurance that the Company will not
encounter regulatory impediments that could adversely affect its ability to open
new branch offices and to expand the services currently provided at its existing
branch offices. There can be no assurance that current or future government
regulation will not have an adverse effect upon the Company's business.
Set forth below is a more detailed discussion of certain factors related to
federal and state regulation of the Company and its business.
Medicare and Medicaid Regulations. As a provider of services under the Medicare
- ---------------------------------
and Medicaid programs, the Company is subject to federal laws and regulations
governing reimbursement procedures and practices. These laws include the
Medicare and Medicaid fraud and abuse statutes and regulations, which prohibit
the payment or receipt of any form of remuneration in return for referring
business or patients to providers of services for which payments are made by a
government health care program. Violation of these laws may result in civil and
criminal penalties, including substantial fines, loss of the right to
participate in the Medicare and Medicaid programs and imprisonment. In addition,
the Government recently enacted the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), a portion of which took effect this year,
expanding the government's fraud and abuse elimination efforts. HIPPA, among
other provisions, expands the Government's efforts for prosecuting fraud and
abuse beyond Medicare and Medicaid to all payors; makes exclusion from the
Medicare and Medicaid programs mandatory for a minimum of five years for any
felony conviction relating to fraud; requires that organizations contracting
with another organization or individual take steps to be informed as to whether
the organization or individual is excluded from Medicare and Medicaid
participation; and enhances civil penalties by increasing the amount of fines
permitted.
While regulations interpreting Stark I (prohibiting referrals by physicians to
clinical laboratories where the physician has a financial interest in such
laboratory) have been issued, regulations interpreting Stark II (prohibiting
such referrals by physicians to a more extensive range of services, including
home health and durable medical equipment) have not been promulgated to date. No
assurance can be given that all of the practices of the Company, if reviewed,
would be found to be in compliance with such federal laws or with any future
laws or regulations, as such laws and regulations ultimately may be interpreted.
In addition, various federal and state laws impose civil and criminal penalties
against participants in the Medicare or Medicaid programs who make false claims
for payment for services or otherwise engage in false billing practices. The
Government has significantly increased its scrutiny of the home health care
industry by expanding Operation Restore Trust ("ORT") to twelve new states, as
well as implementing "Wedge" audits. Any adverse findings under these types of
audits can result in adjustments in future payments. While the Company has
accounting and verification procedures designed to detect and prevent such
practices, no assurance can be given that such findings, if any, will not
adversely affect the business and financial condition of the Company.
Many states also have statutes prohibiting the payment or receipt (or the offer
of) anything of value in return for, or to induce, a referral for health care
goods or services. In addition, there are several other statutes that, although
they do not explicitly address illegal payments for referrals, could be
interpreted as prohibiting the practice. While similar in many respects to the
federal laws, these state laws vary from
PAGE - 12
<PAGE>
state to state, are often vague and have been interpreted inconsistently by
courts and regulatory agencies. Private insurers and various state enforcement
agencies also have increased their scrutiny of health care providers' practices
and claims, particularly in the home health and home medical equipment areas.
The Company currently is implementing a corporate compliance program, which
serves as a mitigating factor under the federal sentencing guidelines. This
program, proactive in nature, is being established to monitor internal practices
for adherence to applicable federal, state and local rules and regulations.
Medicare Certification. Federal regulations governing the Medicare program are
- ----------------------
also applicable to the Company. Regulations for Medicare reimbursement include
an annual review of health care facilities and personnel and provide criteria
for coverage and reimbursement. The Company is Medicare certified to provide
nursing services in 21 states and Washington, D.C. In September 1997, the
Clinton Administration issued a moratorium on certification of new home health
providers for an indefinite period. While the Administration's action has been
challenged in court, there can be no assurance that it will not have an adverse
effect on the business and financial condition of the Company.
Permits and Licensure. Many states require companies providing pharmacy
- ---------------------
services, home health care services, home infusion therapy products and services
and other products and services offered by the Company to be licensed. The
Company currently is licensed as a home health agency in 17 states and is
licensed as a home care agency in 8 states. The Company is currently licensed
as a pharmacy in 34 states. The Company provides unit dose medications by mail
order to various states. The Company has obtained or, in certain cases, is in
the process of obtaining, licenses for its mail order services from such states.
Certificates of Need. Certain states (approximately 19) require companies
- --------------------
providing home health care services, home infusion therapy products and services
and other products and services offered by the Company to have a certificate of
need issued by a state health planning agency. Certificates of need are often
difficult to obtain and in many instances a certificate of need is not
obtainable at all (because an area is determined to be adequately served by
existing providers or for other reasons). If the Company commences operations
in a state, or expands its operations in a state where it is currently
operating, and those operations require a certificate of need, the Company will
be required to obtain a certificate of need with respect to those operations.
There can be no assurance that the Company will be able to obtain any required
certificate of need, and, if so required, the Company will incur expenses in
connection with attempting to obtain a certificate of need.
HEALTH CARE REFORM
Political, economic and regulatory influences are subjecting the health care
industry in the United States to extensive and dynamic change, and many
competing proposals have been introduced in Congress and various state
legislatures to reform the present health care system.
Provisions in the Balanced Budget Act of 1997 are expected to significantly
impact Medicare home health programs. The current cost reimbursement system for
home health services will remain in effect for the two-year period prior to the
implementation of a prospective payment system in October 1999. Effective for
cost-reporting periods ending on or after October 1, 1997, agencies will be
reimbursed at the lower of three amounts: a) their actual costs; b) the cost
per visit limits reduced to 105% of the median costs for free-standing agencies;
or c) an aggregate per beneficiary limit based on 75% of agency-specific costs
and 25% on census region costs for cost-reporting years ending during fiscal
year 1994, updated by the home health market basket index. For cost-reporting
------
periods beginning on or after October 1, 1997, the cost-per-visit limits will
apply to claims based on the geographic area where the service is furnished,
rather than on the geographic area where the agency is located. For services
furnished on or after October 1, 1997, the Secretary is authorized to issue
regulations establishing normative guidelines for the frequency and duration of
home health services, beyond which services will not be covered. The Secretary
is also authorized to implement not more than five competitive bidding
demonstration projects which must terminate by the end of calendar year 2002 for
items or services covered under Part B. Updates to the durable medical
equipment fee schedules will be eliminated for the years 1998 through 2002.
Payment rates for parenteral and enteral nutrients, supplies and equipment will
also be frozen for the years 1998 through 2002 at the rate in effect during
1995. Beginning with services furnished on or after January 1, 1998, coverage
of home health services under Part A will be reduced to a maximum of 100 visits
during a spell of illness after a three-day hospitalization or after receiving
any covered services in a skilled nursing
PAGE - 13
<PAGE>
facility. Coverage for all other home health services would be under Part B.
Funding responsibility for payment of the services under Part B will be
transferred gradually out of the Part A trust fund over a seven year period. All
claims will continue to be submitted to, and paid by, the fiscal intermediaries.
Beginning six months after October 1, 1997, home skilled nursing care will not
be covered if it is solely venipuncture for the purpose of drawing blood. The
effect that these changes ultimately will have on the home health industry
cannot be quantified at this time. There can be no assurance that these and
other changes mandated by the Balanced Budget Act of 1997 will not adversely
affect the business and financial condition of the Company. Additionally, it is
possible that health care reform at the federal or state level, whether
implemented through legislation or through action by federal or state
administrative agencies, would require the Company to make significant changes
in the way it conducts business. Certain aspects of health care reform such as
proposed reductions in Medicare and Medicaid payments, if successfully developed
and adopted, could have a material adverse effect upon the Company's business.
The Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and payment
methodologies, and public debate of these issues will likely continue in the
future. It is not possible at this time to predict what, if any, further reforms
will be adopted, or when such reforms will be adopted and implemented. No
assurance can be given that any such reforms will not have a material adverse
effect upon the Company's business, results of operations, and financial
condition.
MEDICARE REIMBURSEMENT FOR THE PROVISION OF OXYGEN THERAPY AND OTHER HOME
MEDICAL SERVICES
The Balanced Budget Act of 1997 also mandates that the national payment limit
for oxygen and oxygen equipment be reduced by 25% of 1997 rates for 1998, with
an additional 5% reduction of 1997 rates for 1999 and subsequent years. The
General Accounting Office has been requested to submit a report to Congress
addressing access to home oxygen equipment and recommendations for further
legislation. The Company had approximately $11.5 million in net revenue derived
from Medicare oxygen therapies for the fiscal year ended September 30, 1997.
These and any further changes in laws impacting oxygen services and supplies
could have an impact on the Company's business.
EMPLOYEES
As of September 30, 1997, the Company had over, 5000 licensed or credentialed
nurses, therapists and pharmacists on its staff and active registries, and
employed approximately 1,200 full-time employees. The nurses and respiratory
therapists are treated as employees of the Company for federal income tax
purposes.
ENVIRONMENTAL MATTERS
Medical facilities are subject to a wide variety of federal, state and local
environmental and occupational health and safety laws and regulations, such as
air and water quality control requirements, waste management requirements and
requirements for training employees in the proper handling and management of
hazardous materials and wastes. The typical branch office facility operations
include, but are not limited to, the handling, use, storage, transportation,
disposal and/or discharge of hazardous, toxic, infectious, flammable and other
hazardous materials, waste, pollutants or contaminants. These activities may
result in injury to individuals or damage to property or the environment and may
result in legal liability damages, injunctions, fires, penalties or other
governmental agency actions. PSA is not aware of any pending or threatening
claim, investigation or enforcement action regarding environmental issues which,
if determined adversely to PSA, would have an adverse effect upon the capital
expenditures, earnings, or competitive position of the Company.
ITEM 2. PROPERTIES
PSA's principal executive offices are located in Norcross, Georgia. These
offices currently utilize approximately 36,000 square feet of office and
warehouse space. A new corporate office of approximately 60,000 square feet is
currently under construction nearby. The lease term on this facility is ten
years. The Company does not anticipate any problems subletting the existing
space for the remainder of the lease term after it is vacated. The Company
currently has 122 branch offices in 29 states. Branch offices are typically
located in office parks or complexes and average approximately 2,500 square
feet. Each facility is a combination warehouse and office. The Company
believes that its current facilities are suitable for
PAGE - 14
<PAGE>
and adequate to support the levels of its present operations. Lease terms on
branch offices are generally three years or less.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain claims and lawsuits, the outcomes of which are
not determinable at this time. In the opinion of management, any liability that
might be incurred upon the resolution of these claims and lawsuits will not, in
the aggregate, have a material adverse effect on the consolidated financial
condition or results of operations of PSA.
In recent years, physicians, hospitals and other participants in the health care
industry have become subject to an increasing number of lawsuits alleging
malpractice, product liability or related legal theories, many of which involve
large claims and significant defense costs. The Company currently maintains
liability insurance intended to cover any claims. This insurance coverage is
provided under a "claims-made" policy which provides, subject to the terms of
the policy, coverage for certain claims made against the Company during the term
of the policy and does not provide coverage for losses occurring during the term
of the policy for which a claim is made subsequent to the termination of the
policy. There can be no assurance that the coverage limits of the Company's
insurance policies will be adequate. In addition, while the Company has been
able to obtain liability insurance in the past, such insurance varies in cost,
is difficult to obtain and may not be available in the future on acceptable
terms or at all.
The Company is also subject to accident claims arising out of the normal
operation of its fleet of vans and small trucks and maintains insurance intended
to cover these claims. The Company also is named as an additional insured in
the product liability policies maintained by certain manufacturers of health
care equipment utilized by the Company in connection with its business and
operations. A successful claim against the Company in excess of the insurance
coverage could have a material adverse effect upon the Company's business.
Claims against the Company, regardless of their merits or eventual outcome, also
may have a material adverse effect upon the Company's reputation and business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of PSA's fiscal year ended September 30, 1997, no
matter was submitted to a vote of PSA's shareholders through the solicitation of
proxies or otherwise.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below, in accordance with General Instruction G(3) of Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K, is certain information regarding
the executive officers of PSA, including their ages as of October 24, 1997,
their principal occupations for at least the past five years, the year in which
each was elected and any directorships held by them in other public companies.
Joseph D. Sansone (54) has been Chairman of the Board of Directors, President
- -----------------
and Chief Executive Officer of PSA since its formation in 1989. From 1987 until
the formation of PSA, Mr. Sansone was President of Ambulatory Services of
America, Inc. ("ASA"), a wholly-owned subsidiary of Charter Medical, PSA's
former parent. Prior to joining Charter Medical, Mr. Sansone was employed by
American Medical International, Inc. ("AMI"). From 1985 to 1987, Mr. Sansone
also served as Vice President of AMI Home Health Equipment Centers, a division
of AMI specializing in durable medical equipment sales and rentals.
Stephen M. Mengert (48) has been Senior Vice President, Chief Financial Officer,
- ------------------
Secretary and Treasurer of PSA since July 1996. Prior to joining PSA, Mr.
Mengert was Senior Vice President and Chief Financial Officer of Arbor Health
Care Company from November 1995 to July 1996. From July 1990 until joining
Arbor Health Care Company, Mr. Mengert was employed in a similar capacity at
Rehability Corporation.
Charles P. Gaetano (46) has served as PSA's Senior Vice President of Development
- ------------------
since March 1996 and as Vice President of Development beginning March 31, 1995
when the Company acquired Pediatric Partners, Inc. ("PPI"). Mr. Gaetano served
as Chief Executive Officer of PPI from 1990 to 1995.
PAGE - 15
<PAGE>
James R. Henderson (52) joined ASA in 1987 as a Senior Regional Director and in
- ------------------
1989 became a Divisional Vice President of PSA. In 1996, Mr. Henderson became
Senior Vice President of Operations of PSA. From 1985 until joining ASA, Mr.
Henderson was Director of Operations and President of Healthfocus Medical
Equipment, Inc. in Houston, Texas, a wholly-owned subsidiary of Healthfocus,
Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Information concerning the market for, holders of and dividends paid on the
Company's Common Stock is set forth on the inside back cover page of the
Company's 1997 Annual Report, which information is incorporated herein by
reference. The Company intends to retain any future earnings to finance the
growth and development of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated Financial
Data" on page 5 of the Company's 1997 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Managements' Discussion and
Analysis of Financial Condition and Results of Operations" on pages 6-9 of
the Company's 1997 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the notes thereto as of
September 30, 1997 and 1996, and for each of the years in the three year period
ended September 30, 1997, together with the report thereon of Ernst & Young
LLP, set forth on pages 10-23 of the Company's 1997 Annual Report is
incorporated herein by reference. Supplemental schedules, together with the
independent auditors' reports thereon, are included beginning on page S-1
hereof. Such additional financial data should be read in conjunction with the
consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the past two fiscal years and the period from October 1, 1997 to the date
hereof, the Company has not changed its independent auditors, and there have
been no reportable disagreements with the Company's auditors regarding
accounting principles or practices or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company set forth under the
captions "Proposal 1 - Election of Directors - Nominees for Re-election as
Directors at the 1998 Annual Meeting" and "Proposal 1 - Election of Directors -
Continuing Directors of the Company" in the Company's Proxy Statement for its
1998 Annual Meeting of Shareholders ("1998 Proxy Statement") is incorporated
herein by reference. Information relating to the executive officers of the
Company is, pursuant to Instruction 3 of Item 401(b) of Regulation S-K and
General Instruction G(3) of Form 10-K, set forth at Part I, Item 4(A) of this
report under the caption "Executive Officers of the Registrant." Information
regarding compliance by the directors and executive officers of the Company and
owners of more than ten percent of the Company's Common Stock with the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended, set forth under the caption "Section 16(a) of the Securities Exchange
Act Beneficial Ownership Reporting Compliance" in the 1998 Proxy Statement is
incorporated herein by reference.
PAGE - 16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information relating to management compensation set forth under the captions
"Proposal 1 - Election of Directors - Directors' Compensation and Attendance",
"Executive Compensation" and "Stock Performance Graph" in the Company's 1998
Proxy Statement is incorporated herein by reference, except for the information
set forth in the sections entitled "Executive Compensation - Report of the
Compensation Committee of the Board of Directors on Executive Compensation" and
"Stock Performance Graph" which specifically is not so incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information regarding ownership of the Company's $0.01 par value Common Stock by
certain persons is set forth under the caption "Stock Ownership" in the
Company's 1998 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the Company
and certain of its affiliates set forth under the caption "Certain Relationships
and Related Transactions" in the Company's 1998 Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
(1) FINANCIAL STATEMENTS
The consolidated financial statements of the Company and the related
reports of independent auditors thereon which are required to be
filed as part of this report are included in the Company's 1997
Annual Report and are incorporated by reference in Item 8 hereof or
are included herein. These consolidated financial statements are as
follows:
. Consolidated Balance Sheets as of September 30, 1997 and 1996.
. Consolidated Statements of Income for the years ended September
30, 1997, 1996, and 1995.
. Consolidated Statements of Redeemable Preferred Stock, Common
Stock and Other Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995.
. Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995.
. Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules referred to in Item 8 are
described in the "Index to Financial Statement Schedules" included
in this report on page S-1. All other schedules for which provision
is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
PAGE - 17
<PAGE>
(3) EXHIBITS
The following exhibits are filed with this report. The Company will
furnish any exhibit upon request to Pediatric Services of America,
Inc., 3159 Campus Drive, Norcross, Georgia 30071-1042. There is a
charge of $.50 per page to cover expenses for copying and mailing.
10.9(j) PSA Non-Qualified Deferred Compensation Plan, dated October 1,
1997, filed herewith.
10.14 Credit Agreement, by and among Pediatric Services of America, Inc.,
a Georgia corporation, as Borrower, Pediatric Services of America,
Inc., a Delaware corporation, and Nationsbank, N.A., dated as of
August 13, 1997, filed herewith.
11 Computation of Primary Earnings per Share, filed herewith.
11.1 Computation of Fully Diluted Earnings per Share, filed herewith.
13 1997 Annual Report
21 Subsidiaries of Company, filed herewith.
23.1 Consent and Report as to Schedules of Independent Auditors, Ernst &
Young LLP, filed herewith.
23.2 Consent of Independent Auditors, Deloitte & Touche LLP.
23.3 Report of Independent Auditors, Deloitte & Touche LLP.
25 Powers of Attorney, filed herewith.
27 Financial Data Schedule
(B) NO REPORTS ON FORM 8-K WERE FILED BY THE COMPANY DURING THE QUARTER
ENDED SEPTEMBER 30, 1997.
(C) EXHIBITS
The following exhibits are filed with or incorporated by reference
in this report. Where such filing is made by incorporation by
reference to a previously filed registration statement or report,
such registration statement or report is identified in parentheses.
The Company will furnish any exhibit upon request to Pediatric
Services of America, Inc., 3159 Campus Drive, Norcross, Georgia
30071-1042. There is a charge of $.50 per page to cover expenses for
copying and mailing.
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-77880) filed
on May 31, 1994).
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996).
3.3 Bylaws of the Company, as amended and restated (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 filed on May 31, 1994).
PAGE - 18
<PAGE>
10.1 Asset Purchase Agreement, dated August 20, 1993, by and among the
Registrant, County Respiratory Products, Inc., Hyman Juter and
Arlene Juter (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement of Form S-1 filed on May 31, 1994).
10.2 Loan and Security Agreement, dated January 14, 1993, by and among
Pediatric Services of America, Inc., a Georgia corporation ("PSA-
Georgia"), and Creditanstalt-Bankverein (incorporated by reference
to Exhibit 10.3 to the Company's Registration Statement on Form S-1
filed on May 31, 1994).
10.3 First Amendment to Loan and Security Agreement, dated July 29, 1994,
by and among PSA-Georgia, PSA and Creditanstalt-Bankverein
(incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994).
10.4 Second Amendment to Loan and Security Agreement, dated as of March
31, 1995 by and among PSA-Georgia, PSA and Creditanstalt-Bankverein
(incorporated by reference to Exhibit 10 to the Company's Current
Report on Form 8-K (Date of Report: March 31, 1995)).
10.5 First Amended and Restated Loan and Security Agreement, dated as of
December 4, 1996, by and among PSA-Georgia, PSA and Creditanstalt-
Bankverein and Nationsbank, N.A., as Lenders, (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on Form 10-
K, for the fiscal year ended September 30, 1996).
10.6 Amended and Restated Warrant Agreement, dated July 29, 1994, by and
among the Company and Creditanstalt-Bankverein (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1994).
10.7 Preferred Stock Rights Agreement, dated October 2, 1992, among the
Company and the preferred stockholders of the Company named therein
(incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 filed on May 31, 1994).
10.8 Stock Purchase and Stockholders Agreement, dated September 25, 1989,
by and among the Company and the stockholders of the Company named
therein, as amended on October 16, 1991 and January 14, 1993
(incorporated by reference to Exhibit 10.6 of the Company's
Registration Statement on Form S-1 filed on May 31, 1994).
10.9 Executive Compensation Plans and Arrangements:
(a) Pediatric Services of America, Inc. Amended and Restated
Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.7 of the Company's Registration Statement
on Form S-1 filed on May 31, 1994).
(b) Amendment to the Pediatric Services of America, Inc.
Amended and Restated Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.7 of the
Company's Registration Statement on Form S-1 filed on
May 31, 1994).
(c) Pediatric Services of America, Inc. Director's Stock
Option Plan, (incorporated by reference to Exhibit 10.12
of the Company's Registration Statement on Form S-1
filed on May 31, 1994).
PAGE - 19
<PAGE>
(d) Amendment to the Pediatric Services of America, Inc.
Directors' Stock Option Plan, (incorporated by reference
to Exhibit 10.8(d) of the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995).
(e) Pediatric Services of America, Inc. 401(k) Savings Plan
(incorporated by reference to Exhibit 10.8 of the
Company's Registration Statement of Form S-1 filed on
May 31, 1994).
(f) Pediatric Services of America, Inc. Employee Stock
Purchase Plan (incorporated by reference to Exhibit
10.8(f) of the Company's Annual Report Form 10-K for the
fiscal year ended September 30, 1995).
(g) Form of Employment Agreement between Company and certain
other executive officers (incorporated by reference to
Exhibit 10.10 of the Company's Registration Statement on
Form S-1 filed on May 31, 1994).
(h) Employment Agreement, dated October 1, 1996, between the
Company and Joseph D. Sansone (incorporated by reference
to Exhibit 10.9(h) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1996).
(i) Employment Agreement, dated July 22, 1996, between the
Company and Stephen M. Mengert (incorporated by
reference to Exhibit 10.9(h) to the Company's Annual
Report on Form 10-K for the fiscal year ended September
30, 1996).
(j) Non-Qualified Deferred Compensation Plan, dated October
1, 1997, filed herewith.
10.10 Stock Purchase Agreement, dated October 1, 1994, among the Company,
Dean Elazab and Oxygen Specialties, Inc. (incorporated by reference
to Exhibit 2 to the Company's Current Report on Form 8-K (Date of
Report: October 1, 1995)).
10.11 Stock Purchase Agreement, among the Company and Joseph Balskus, Lisa
Balskus, Celia Winkelman, Herman Winkelman and Balwink Enterprises,
Inc. effective as of January 13, 1995 (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K (Date of
Report: January 13, 1995)).
10.12 Stock Purchase Agreement, dated as of March 31, 1995, among the
Company, T2 Medical, Inc., Charles Gaetano, Thomas D'Anna, Coram
Healthcare Corporation and Consulting Agreement & Employment
Agreement, Chuck Gaetano and Thomas D'Anna, Pediatric Partners, Inc.
(incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K (Date of Report: March 31, 1996)).
10.13 Stock Exchange Agreement, dated February 29, 1996, among the Company
and Premier Medical Services, Inc. (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K (Date of
Report: February 29, 1996)).
10.14 Credit Agreement, by and among Pediatric Services of America, Inc.,
a Georgia corporation, as Borrower, Pediatric Services of America,
Inc., a Delaware corporation, and Nationsbank, N.A., dated as of
August 13, 1997, filed herewith.
11 Computation of Primary Earnings per Share, filed herewith.
11.1 Computation of Fully Diluted Earnings per Share, filed herewith.
PAGE - 20
<PAGE>
13 1997 Annual Report
Except for the portions of the 1997 Annual Report that are
specifically incorporated into this Form 10-K by reference, the 1997
Annual Report is not deemed to be "filed" with the Securities and
Exchange Commission or subject to the liabilities of Section 18 of
the Securities Exchange Act of 1934, as amended.
21 Subsidiaries of Company, filed herewith.
23.1 Consent and Report as to Schedules of Independent Auditors, Ernst &
Young LLP, filed herewith.
23.2 Consent of Independent Auditors, Deloitte & Touche LLP.
23.3 Report of Independent Auditors, Deloitte & Touche LLP.
25 Powers of Attorney, filed herewith.
27 Financial Data Schedule
PAGE - 21
<PAGE>
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.
Pediatric Services of America, Inc.
(Registrant)
By: /s/ Joseph D. Sansone
------------------------
Joseph D. Sansone
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph D. Sansone Chairman of the Board of December 23, 1997
- --------------------------- Directors, President and
Joseph D. Sansone Chief Executive Officer
*
- --------------------------- Chief Financial Officer, December 23, 1997
Stephen M. Mengert Senior Vice President,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
*
- --------------------------- Director December 23, 1997
Michael J. Finn
*
- --------------------------- Director December 23, 1997
Adam O. Holzhauer
*
- --------------------------- Director December 23, 1997
Robert P. Pinkas
*
- --------------------------- Director December 23, 1997
Irving S. Shapiro
*
- --------------------------- Director December 23, 1997
Richard S. Smith
*By: /s/ Stephen M. Mengert
-------------------------------------
(Attorney in Fact)
PAGE - 22
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedules
- ---------
Schedules numbered in accordance with Rule 5.04 of Regulation S-X
II Valuation and Qualifying Accounts ................................... S-2
All schedules except Schedule II have been omitted because the required
information is shown in the consolidated financial statements, or notes thereto,
or the amounts involved are not significant, or the schedules are not
applicable.
S-1
PAGE - 23
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II---VALUATION AND QUALIFYING ACCOUNTS
PEDIATRIC SERVICES OF AMERICA, INC. AND SUBSIDIARY
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
---------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS BALANCE AT END
DESCRIPTIONS OF PERIOD EXPENSES -DESCRIBE -DESCRIBE OF PERIOD
------------ --------- --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995:
Deducted from asset accounts:
Valuation allowance for deferred
tax assets.................... $ 7,000 $ $ $ 7,000(2) $
Allowance for doubtful accounts.. 2,280,000 3,163,799 2,939,690(4) 1,513,489(1) 6,870,000
---------- ---------- ------------- ------------- -----------
Total......................... $2,287,000 $3,163,799 $ 2,939,690 $ 1,520,489 $ 6,870,000
========== ========== ============= ============= ===========
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts.. $6,870,000 $4,707,989 $ 264,000(5) $3,318,989(1) $ 8,523,000
========== ========== ============= ============= ===========
Year ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts.. $8,523,000 $6,239,000 $1,406,000(6) $6,132,000(1) $10,036,000
========== ========== ============= ============= ===========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Utilization of net operating loss carryforwards.
(3) Allowance for doubtful accounts acquired in connection with the purchases
of Peters Pediatric Nursing Team, Inc.
(4) Allowance for doubtful accounts acquired in connection with the purchases
of Oxygen Specialties, Inc., Balwink Enterprises, Inc., Pediatric Partners,
Inc. and Echo Medical, Inc.
(5) Allowance for doubtful accounts acquired in connection with the purchases
of Maternal Infant Homecare, Inc., Case Management Systems, Inc. and
Primary Health Services, Inc.
(6) Allowance for doubtful accounts acquired in connection with the purchases
of IntensiCare, Pediatric Specialists, Inc., Ivonyx Pharmacy, Home
Vitality, Inc., Concerned Nursing Care, Inc., Home Health Nursing Services,
Inc., Supplemental Staffing Services, Inc., Special Medical Services, Inc.
and Lifetec Medical & Home Care, Inc.
S-2
PAGE - 24
<PAGE>
INDEX TO EXHIBITS
NO.
EXHIBITS PAGE
----
The following exhibits are filed with this report. The Company will
furnish any exhibit upon request to Pediatric Services of America,
Inc., 3159 Campus Drive, Norcross, Georgia 30071-1042. There is a
charge of $.50 per page to cover expenses for copying and mailing.
10.9(j) PSA Non-Qualified Deferred Compensation Plan, dated October 1,
1997, filed herewith.
10.14 Credit Agreement, by and among Pediatric Services of America, Inc.,
a Georgia corporation, as Borrower, Pediatric Services of America,
Inc., a Delaware corporation, and Nationsbank, N.A., dated as of
August 13, 1997, filed herewith.
11 Computation of Primary Earnings per Share, filed herewith.
11.1 Computation of Fully Diluted Earnings per Share, filed herewith.
13 1997 Annual Report
21 Subsidiaries of Company, filed herewith.
23.1 Consent and Report as to Schedules of Independent Auditors, Ernst &
Young LLP, filed herewith.
23.2 Consent of Independent Auditors, Deloitte & Touche LLP.
23.3 Report of Independent Auditors, Deloitte & Touche LLP.
25 Powers of Attorney, filed herewith.
27 Financial Data Schedule
PAGE - 25
<PAGE>
EXHIBIT 10.9(j)
PEDIATRIC SERVICES OF AMERICA, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
THIS NON-QUALIFIED DEFERRED COMPENSATION PLAN is adopted by PEDIATRIC
SERVICES OF AMERICA, INC., a Georgia corporation (the "Company"), effective as
of October 1, 1997 (the "Effective Date"), with reference to the following:
----------
A. The Company is establishing this Plan to provide key employees a tax
deferred, capital accumulation, retention program.
B. This Plan is intended to provide benefits to a select group of
management or highly compensated personnel in order to attract and retain the
highest quality executives. Therefore, this Plan is not intended to be a
---
qualified plan within the meaning of sections 401(a) and 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
C. This Plan is intended to be an unfunded plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Company
contributions and voluntary compensation deferrals shall be held in a "Rabbi
Trust", as that term is defined in Revenue Procedure 95-64, 1992-2 C.B. 422.
NOW, THEREFORE, the Company hereby adopts the PEDIATRIC SERVICES OF
AMERICA, INC. NON-QUALIFIED DEFERRED COMPENSATION PLAN on the following terms
and conditions:
1. Definitions. Whenever used in this Plan, the following words and
-----------
phrases shall have the meaning set forth below, unless a different meaning is
expressly provided or plainly required by the context in which the words or
phrases are used:
1.1. Beneficiary means a person designated by a Participant to receive Plan
-----------
benefits in the event of the Participant's death.
1.2. Board means the Board of Directors of the Company and its successors.
-----
1.3. Change in Control of Company means:
----------------------------
(A) a change in ownership, holding or power to vote more than fifty percent
(50%) of the voting stock of the Company;
(B) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason to constitute
at least a majority thereof, unless the election or the nomination for elect by
the Company's shareholders of each new director was approved by a vote of at
least three-quarters of the directors still in office of the Company who were
directors at the beginning of the period;
(C) the shareholders of The Company approve any plan or proposal for the
liquidation or dissolution of the Company;
(D) substantially all of the assets of the Company are sold or otherwise
transferred to parties that are not within the "controlled group of
corporations" (as defined in section 1563 of the Internal Revenue Code of 1986)
in which the Company is a member;
(E) the Company voluntarily files a petition for bankruptcy under federal
bankruptcy law, or an involuntary bankruptcy petition is filed against the
Company under federal bankruptcy law, which is not dismissed within 120 days of
the filing;
(F) the Company makes a general assignment for the benefit of creditors; or
PAGE - 26
<PAGE>
(G) the Company seeks or consents to the appointment of a trustee,
receiver, liquidator or similar person;
(H) A merger, consolidation, or reorganization of the Company with or
involving any other corporation, other than a merger, consolidation, or
reorganization that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.
1.4. Company means Pediatric Services of America, Inc., a Georgia
-------
Corporation.
1.5. Disability means (A) "disability" as defined in any group long-term
----------
disability policy or program sponsored by the Company and in effect at the time
a Participant who has suffered a physical or mental impairment makes application
under this Plan for a disability distribution, or (B) if no such policy or
program is in force at such time, "Disability" as defined in section 1382c(a)(3)
of volume 42 of the United States Code and regulations promulgated thereunder,
provided, however, that the disability (whether under the definition in (A) or
in (B)) must be of a duration of at least six (6) consecutive months from the
date the Participant suffers the disability notwithstanding any different
requirements of duration under either definition in the actual policy or program
or in the United States Code, respectively.
A Participant who has suffered a Disability shall be Disabled within the
meaning of this Section 1.5.
The determination of whether a Participant is Disabled within the meaning
of this Section 1.5 shall be made by the Plan Committee. A Participant who
believes he has suffered a Disability within the meaning of this Section 1.5
shall make application to the Plan Committee, on a form prescribed by the Plan
Committee, for a determination of whether he is Disabled under the terms of this
Section 1.5. The Participant shall make such written application to the Plan
Committee on or after the date which is at least five (5) consecutive months
following the date he first suffered the impairment under consideration. Any
determination by the Plan Committee that a Disability exists under the
provisions of this Section 1.5 shall be effective only after the date the
Disability has existed for six (6) consecutive months. All determinations made
by the Plan Committee shall be final, and no Participant shall be considered
Disabled for any purpose whatsoever under the provisions of this Plan if
determined not to be Disabled by the Plan Committee under the procedures set
forth in this Section 1.5.
The Plan Committee shall notify each Participant who has made application
under this Section 1.5, in writing, of his determination within three (3) months
of the date the Plan Committee receives the Participant's application hereunder.
The Participant shall cooperate in providing any information to the Plan
Committee which it requires in making its determination, including, but not
limited to, access to the Participant's medical records, direct contact with his
physician and physical examination by a physician selected by the Company. Any
Participant who does not fully cooperate shall be deemed not Disabled by the
Plan Committee and so notified.
1.6. Key Employee means an employee of the Company, selected by the Board,
------------
who is a member of a select group of management or highly compensated employees
within the meaning of (S)2520.104-23 of the Department of Labor ERISA
Regulations.
1.7. Participant means (A) a Key Employee designated by the Board, in
-----------
writing, to participate in the benefits under the Plan who timely files a
written election pursuant to Section 2.4, below, and (B) a former Employee who,
at the time of his termination from employment, retirement, death, or occurrence
of Disability, retains, or whose beneficiary retains, benefits earned under the
Plan in accordance with its terms.
1.8. Plan means the Pediatric Services of America, Inc. Non-Qualified
----
Deferred Compensation Plan established by this document and the Trust Agreement
established in connection herewith.
PAGE - 27
<PAGE>
1.9. Plan Committee means the body of individuals, and its successors,
--------------
appointed by the Board to handle the day-to-day responsibilities of
administering the Plan.
1.10. Plan Year means, for the initial Plan Year, which is a short Plan
---------
Year, October 1, 1997 through December 31, 1997, and for subsequent Plan Years,
the twelve (12)-consecutive-month period beginning each January 1 and ending
each December 31.
1.11. Plan Year Compensation means the total income paid to an Active
----------------------
Participant by the Committee during any Plan Year, or portion thereof in which
he is a Participant in this Plan, as reflected on the Participant's form W-2.
For purposes of the elections under Section 2.4 of this Plan, Plan Year
Compensation, for the 1997 short Plan Year, shall consist of annual base salary
or annual bonus. After the 1997 short Plan Year, for purposes of the elections
under Section 2.4 of the Plan, Plan Year compensation shall consist of annual
base salary.
1.12. Trust Agreement means the grantor trust established in connection
---------------
with this Plan between the Company as grantor and the Trustee.
1.13. Trustee means Joseph D. Sansone, or any successor trustee named to
------- -----------------
succeed such Trustee under the terms of the Trust Agreement established in
connection with this Plan.
1.14. Eligibility. A Key Employee of the Company is eligible to
-----------
participate in this Plan on the Entry Date first following the date as of which
the following events have occurred:
(A) the Board has designated him in writing as a Participant in the Plan;
(B) the Key Employee has made a Written Election in accordance with the
terms of Section 2.4 below; and
(C) the Key Employee has completed the lesser of either: (i) twelve months
of continuous service, or (ii) another number of months of continuous service
determined and approved by the President of the Company.
2.2. Entry Date. Any Key Employee who has met the Eligibility requirements
----------
specified in Section 2.1 as of the Effective Date of this Plan shall be come a
Participant in the Plan as of the Effective Date. Any Key Employee of the
Company who meets the Eligibility requirements specified in Section 2.1 after
the Effective Date of this Plan shall become a Participant on the first day of
the payroll period immediately following the date on which he has met the
Eligibility requirements.
2.3. Designation. The Board shall designate for each Plan Year, in
-----------
writing, the name of each Key Employee who shall be entitled to participate in
the Plan for the Plan Year and the tier to which each Key Employee shall be a
member. Such designation by the Board shall occur on a date such that each
designated Key Employee shall have sufficient time to make his Written Election
as required by Section 2.4 below.
2.4. Written Election by Participant. Each Key Employee designated by the
-------------------------------
Board as a Participant for a Plan Year shall submit to the Plan Committee a
Written Election prior to the first day of the first such Plan Year in which he
will be a Participant.
(A) Such Written Election shall be made on the form presented to the Key
Employee by the Plan Committee and shall set forth:
(1) his participation in this Plan under the terms hereof;
(2) the amount of Plan Year Compensation the Key Employee has determined to
defer under the Plan for Plan Year, pursuant to Section 3.1 below;
(3) the investment vehicles into which the Key Employee elects to invest
his Participant Deferral Account and his Company Contribution Account and the
percentage of his Participant Deferral Account and his Company Contribution
Account allocated to each elected investment vehicle;
PAGE - 28
<PAGE>
(4) the date on which his benefit is to be distributed which is the earlier
of a specific date or when he terminates employment with the Company due to
termination of service, retirement, Disability or death;
(5) the form in which his benefit is to be distributed upon a termination
of service or retirement;
(B) A Participant may change a submitted Written Election in accordance
with the following:
(1) A Participant may change the investment vehicle(s) and the percentage
of his Participant Deferral Account and his Company Contribution Account
allocated to each investment vehicle by completing and submitting any form or
forms required by the Company. Such change shall be effective on the first day
of the quarter following the quarter in which the form was submitted to the Plan
Committee;
(2) A Participant may change the date or form of distribution by submitting
a new Written Election to the Company, provided that such change is submitted at
least sixty (60) days prior to the original date of distribution, the new date
of distribution is subsequent to the original date of distribution, and only one
change may be made after the original election.
2.5. Duration of Participation. Any Key Employee who has become a
-------------------------
Participant at any time shall remain a Participant, even though he is no longer
an Active Participant, until his entire benefit under the terms of he Plan has
been paid to him (or to his Beneficiary in the event of his death), at which
time he ceases to be a Participant.
2.6. Maintenance of Records. The annual Designation of Participants by the
----------------------
Board shall be maintained in the corporate minute book. The Written Elections
by Participants shall be maintained in the corporate records with all other
files pertaining to this Plan by the Board.
3. Contributions and Allocation.
----------------------------
3.1. Participant Contributions.
-------------------------
(A) A Participant may elect to defer a portion of his Plan Year
Compensation each Plan Year, up to the maximum amount allowed, from the
following schedule, for the tier to which such Participant is a member:
<TABLE>
<CAPTION>
Tier Maximum Deferral%
-------------------------------
<S> <C> <C>
Tier 1 100%
Tier 2 25%
Tier 3 12%
Tier 4 10%
</TABLE>
Once a Participant's contributions for a Plan Year has reached his elected
dollar amount, such Participant shall not be allowed to defer additional
portions of his Plan Year Compensation for the remainder of the Plan Year. Any
deferred amounts in excess of his elected dollar amount shall be refunded to the
Participant as soon as practicable.
(B) For the initial short Plan Year of October 1, 1997 to December 31,
1997, a Participant may elect to defer out of his or her annual bonus an amount
equal to no more than the refund the Participant receives or will receive from
the Company's 401(k) plan in 1997.
3.2. Company Contributions. On behalf of each Participant for any Plan
---------------------
Year, the Company may contribute to the Plan an amount equal to a percentage of
the amount each Participant contributes to the Plan as a Participant
Contribution. The applicable percentage of the amount contributed by each
Participant shall be determined and authorized by the Board.
PAGE - 29
<PAGE>
3.3. Allocation of Participant Contributions. All amounts which a
---------------------------------------
Participant elects to defer under the terms of this Plan shall be allocated to
his Participant Deferral Account. Each such Participant Deferral Account shall
be credited with earnings as provided in Section 3.5 below.
3.4. Allocation of Company Contributions. In each Plan Year, the amount of
-----------------------------------
any contribution determined for each Participant under Section 3.1 above shall
be allocated to the Company Contribution Account of each Participant. Each such
Company Contribution Account shall be credited with earnings as in Section 3.5
below.
3.5. Credited Earnings.
-----------------
(A) The amount credited to the Participant Deferral Account and Company
Contribution Account of each Participant shall be deemed to be invested and
reinvested in mutual funds, stocks, bonds, securities, and any other assets or
investment vehicles, as may be selected by the Plan Committee in its sole
discretion.
(B) Each Participant shall have the right to elect among the investment
vehicles designated by the Plan Committee to designate the investments in which
all amounts allocated to his Participant Deferral Account and his Company
Contribution Account are deemed to be invested and to change such designation
quarterly.
(C) At the close of each calendar quarter, the Participant Deferral Account
and Company Contribution Account of each Participant shall be credited or
charged with income, gains, losses, and expenses of investments deemed held in
such account at the close of each calendar quarter.
(D) A Participant, by electing to participate in this Plan, agrees on
behalf of himself or herself and his or her designated beneficiaries, to assume
all risk in connection with any increase or decrease in value of the investments
which are deemed to be held in his or her account. Each Participant further
agrees that the Plan Committee and the Company shall not in any way be held
liable for any investment decisions or for the failure to make any investments
by the Plan Committee.
(E) Notwithstanding the foregoing, the Trustee, as directed by the Plan
Committee, solely shall have the duty and authority to invest the trust assets
and funds in accordance with the terms of the Trust Agreement, and all rights
associated with the trust assets shall be exercised by the Trustee as designated
by the Board and shall in no event be exercisable by or be settled upon
Participants or their Beneficiaries.
3.6. Forfeitures. If any amount of Participant Contributions are
-----------
forfeited in any year, such forfeited amounts shall be returned to the Company
or used to reduce future employer contributions.
3.7. Funding. The assets of the Plan shall be held under the Trust
-------
Agreement (a "grantor trust") designated in Article I above. As such, the Plan
is intended to be an unfunded plan for purposes of the requirements of ERISA and
the Code.
Notwithstanding the provisions under the terms of the Plan that amounts
contributed to this Plan, plus earnings thereon, shall be allocated to separate
Accounts of Participants, all such amounts credited to such individual Accounts
shall remain the general assets of the Employer, and as such shall remain
subject to the claims of the general creditors of the Company. This Plan and
the related Trust Agreement do not create, nor does any Employee, Participant or
Beneficiary have, any right with respect to any specific assets of the Company.
4. Vesting of Benefits.
-------------------
4.1. Vesting of Participant Deferral Accounts. The Participant Deferral
----------------------------------------
Account of each Participant shall be one hundred percent (100%) vested in such
Participant at all times. However, in the event of an Unplanned In-Service
Benefit of Section 5.7, a portion of such Account shall be forfeited in
accordance with Section 5.7.
PAGE - 30
<PAGE>
4.2. Company Contribution Account. The Company Contribution Account of
----------------------------
each Participant shall be one hundred percent (100%) vested in such Participant
at all times. However, in the event of an Unplanned In-Service Benefit of
Section 5.7, a portion of such Account shall be forfeited in accordance with
Section 5.7.
5. Types of Benefits.
-----------------
5.1. Retirement Benefit. A Participant's Retirement Benefit is the unpaid
------------------
balance of his Participant Deferral Account and his Company Contribution Account
which equals the total of all contributions made by the Participant and
allocated to his Participant Deferral Account, all vested contributions made by
the Company and allocated to his Participant Deferral Account, all vested
contributions made by the Company and allocated to his Company Contribution
Account, and all earnings credited to his Participant Deferral Account and his
Company Contribution Account in accordance with the terms of the Plan and the
Trust Agreement, less any distributions already paid.
5.2. Projected Retirement Benefit. A Participant's Projected Retirement
----------------------------
Benefit is a projection of such Participant Retirement Benefit upon the date of
his retirement at age 65, taking into account his past Participant Contributions
allocated to his Participant Deferral Account, and the fixed annual rate of
earnings determined by the Board.
5.3. Termination of Service Benefit. If a Participant elects to receive
------------------------------
his Retirement Benefit upon his termination of his employment with the Company,
or if a Participant's employment with the Company terminates prior to
distribution of his In-Service Benefit, the Company will pay his Retirement
Benefit, calculated under Section 5.1, under the applicable form elected by the
Participant in his Written Election.
5.4. Disability Benefit. If a Participant becomes disabled as defined in
------------------
Section 1.5 above, the Company will pay his Retirement Benefit, calculated under
Section 5.1, under the applicable form elected by the Participant in his Written
Election. If such Disabled Participant's life is insured under a life insurance
contract acquired in connection with the Plan and such life insurance contract
contains a waiver of premiums benefit in the event of Disability, then the
amount that would have been such Participant's Contribution had such Participant
not suffered a Disability shall continue to be contributed to his Participant
Deferral Account, up to the following limits:
<TABLE>
<CAPTION>
AGE IN WHICH DISABILITY MAXIMUM AMOUNT
OCCURRED
--------------------------------------------------
<S> <C> <C>
19-30 $30,000
31-40 $40,000
41-59 $50,000
60-65 $ 0
</TABLE>
5.5. Death Benefit.
-------------
(A) If a Participant dies after a distribution has commenced, the Company
will continue the payments of such distribution otherwise due to the Participant
to his designated Beneficiary, under the applicable form elected by the
Participant in his Written Election.
(B) If a Participant dies before a distribution has commenced and the
Company has not purchased a life insurance contract in connection with such
Participant's Retirement Benefit, the Company will pay the Participant's
designated Beneficiary his Retirement Benefit as determined under Section 5.1
above, under the applicable form elected by the Participant in his Written
Election.
(C) If a Participant dies before a distribution has commenced and the
Company has acquired a life insurance contract in connection with such
Participant's Retirement Benefit, the Company will pay the Participant's
designated Beneficiary his Projected Retirement Benefit as determined under
Section 5.2, under the applicable form elected by the Participant in his
Written Election.
PAGE - 31
<PAGE>
5.6. In-Service Benefit. A Participant may designate a date that is at
------------------
least five (5) years after the effective date of his election to defer his Plan
Year Compensation, in which he will remain employed with the Company and will
receive a distribution of his Participant Contribution, without Credited
Earnings attributable to such Participant Contribution. Such Credited Earnings
and Company Contributions contributed to match such Participant Contributions
shall be distributed in the form of a lump sum upon termination of service.
5.7. Unplanned In-Service Benefit. A Participant may elect to receive his
----------------------------
Retirement Benefit as an Unplanned In-Service Benefit at any time by providing
the Plan Committee with a written election to do so. In consideration for
receiving an Unplanned In-Service Benefit, such Participant shall permanently
forfeit an amount equal to ten percent (10%) of his Retirement Benefit and
forego all future participation in the Plan.
5.8. Financial Hardship Benefit. A Participant may request a portion of
--------------------------
his Retirement Benefit as a Financial Hardship Benefit at any time by providing
the Plan Committee, to its satisfaction, with a written election to do so, proof
of an unforeseeable financial hardship, and proof that all other financial
resources have been explored and utilized. The amount of a Financial Hardship
Benefit shall be limited to the lesser of the amount needed for the financial
hardship or such Participant's Retirement Benefit. In consideration for
receiving a Financial Hardship Benefit, such Participant shall forego all future
participation for the remainder of the Plan Year and the following Plan Year.
6. Distributions.
-------------
6.1. Form of Benefits. The Company shall pay benefits in the form
----------------
associated with Type of Benefit elected by the Participant, and, to the extent a
Type of Benefit may be distributed in various forms, the Company shall pay
benefits in the form elected by the Participant. The forms of benefits
associated with the Types of Benefits are the following:
(A) Retirement Benefit, Termination of Service Benefit, Disability Benefit,
and Death Benefit shall be paid in (i) one lump sum; (ii) 5 yearly installments;
(iii) 10 yearly installments; or (iv) 15 yearly installments.
(B) In-Service Benefit shall be paid in 4 equal yearly installments;
(C) Unplanned In-Service Benefit shall be paid in one lump sum; and
(D) Financial Hardship Benefit shall be paid in one lump sum.
6.2. Commencement of Payments. The Company will pay, or begin to pay, the
------------------------
Types of Benefits under this Plan to the Participant in accordance with the
following:
(A) Retirement Benefit, Termination of Service Benefit, Disability Benefit,
and Death Benefit payments shall commence no later than January 15 of the Plan
Year following the Plan Year in which the Participant retires, terminates
service, becomes disabled, or dies;
(B) In-Service Benefit payments shall commence on the date designated by
the Participant on his Written Election pursuant to Section 2.4, provided that
such payments are from Participant Contributions that have been in such
Participant's Account for at least five years;
(C) Unplanned In-Service Benefit payments shall commence no later than
sixty-five (65) days after a written request for an Unplanned In-Service Benefit
is received by the Committee.
(D) Financial Hardship Benefit payments shall commence no later than sixty
five (65) days after a request for a Financial Hardship Benefit is approved by
the Plan Committee.
7. Amendment, Termination of Plan, Change in Control.
-------------------------------------------------
PAGE - 32
<PAGE>
7.1. Amendment. The Company reserves the right to amend the Plan at any
---------
time by resolution of the Board. The Board will determine the effective date of
any such amendment. The amendment may not deprive any Participant or
Beneficiary of any portion of a benefit under the terms of this Plan at the time
of the amendment.
7.2. Termination of Plan. The Company reserves the right to terminate the
-------------------
Plan at any time by resolution of the Board. In the event of Plan termination,
the Company will calculate the Retirement Benefit of each Participant and
distribute such amounts to the Participant or Beneficiary in a lump sum within
thirty (30) days of the Plan's termination.
7.3. Change in Control. In the event of a Change in Control, the Plan
-----------------
shall terminate and the provisions of Section 7.2 shall control.
8. Benefits Not Funded. Participants and Beneficiaries have the status
-------------------
of unsecured creditors of the Company, and the Plan constitutes a mere promise
by the Company to make benefit payments in the future. A Participant's or
Beneficiary's interest in the Plan is an unsecured claim against the general
assets of the Company, and neither the Participant nor a Beneficiary has any
right against the account until the Plan has distributed the benefit. All
amounts credited to an account are the general assets of the Company and may be
disposed of or used by the Company in such manner as it determines.
Notwithstanding the first paragraph of this Article VIII, the Company will
transfer sufficient cash to a trust pursuant to a Trust Agreement, a copy of
which is attached. Such Trust Agreement created by the Company is intended to
be a grantor trust, and any assets held by such trust to assist the Company in
meeting its obligations under the Plan will conform to the terms of the model
trust, as described in Revenue Procedure 92-64, 1992-2 C.B. 422, promulgated by
the Internal Revenue Service. The Company will make a transfer of cash to the
trust annually in the amount necessary to pay the deferred compensation
required.
It is the intention of the parties that this Plan and the accompanying
Trust Agreement shall constitute an unfunded arrangement maintained for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees for purposes of Title I of the Employment
Retirement Income Security Act of 1974.
9. Miscellaneous.
-------------
9.1. Designated of Beneficiary. Each Participant shall designate, in
-------------------------
writing, prior to the date he first becomes a Participant in the Plan, one or
more beneficiaries to receive his benefit under the provisions of Section 5.5.
The Participant may revoke a previous beneficiary designation by filing a new
written beneficiary designation with the Plan Committee.
In any event, if a Participant or Beneficiary who has designated another
Beneficiary is divorced, all beneficiary designations executed prior to the
effective date of the dissolution of marriage (or other decree or order entered
under applicable state law) are automatically revoked under the terms of this
Section 9.1. In such event, the Participant or Beneficiary may designate one or
more Beneficiaries in accordance with the terms of this Section 9.1. If none is
made following the effective date of the dissolution of the marriage, the
individual's benefit shall pass under the laws of intestate succession and the
terms of the next following paragraph.
If a Participant fails to file a valid designation of beneficiary with the
Plan Committee under the provisions of this Section 9.1, or if a designated
Beneficiary fails to survive to receive any or all payments due hereunder, then
the death benefit payable under this Plan shall be payable to the Participant's
(or the Beneficiary's) spouse; if no spouse survives, then to the Participant's
(or Beneficiary's ) children, with equal shares among living children and with
the living descendants of a deceased child receiving equal portions of the
deceased child's share; in the absence of spouse or descendants, or parents, to
the Participant's (or Beneficiary's) brothers and sisters, with the living
descendants of a deceased brother and those of a deceased sister receiving equal
portions of the deceased brother's or sister's share; in the absence of any of
the persons named herein, to the Participant's (or Beneficiary's) estate.
PAGE - 33
<PAGE>
For purposes of this Section 9.1, the term "descendant" means all persons
who are descended from the person referred to either by birth to or legal
adoption by such person, and "child" or "children" includes adopted children.
9.2. Benefits Not Assignable. The rights of each Participant are not
-----------------------
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
nor any Beneficiary. Neither the Participant nor Beneficiary may assign,
transfer or pledge the benefits under this Plan. Any attempt to assign,
transfer or pledge a Participant's benefits under this Plan is void.
9.3. Benefit. This Plan constitutes an agreement between the Company and
-------
each of the Participants which is binding upon and inures to the Company, its
successors and assigns and upon the Participant and his heirs and legal
representatives.
9.4. Headings. The headings of the Articles and Sections of this Plan are
--------
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of it provisions.
9.5. Notices. All notices, request, demands, and other communications
-------
under this Plan shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to be
given, or on third day after mailing if mailed to the party to whom notice is to
be given, by first class mail, registered or certified (return receipt
requested), postage prepaid, and properly addressed to the last known address to
each party as set forth on the first page thereof. Any party may change its
address for purposes of this Section by giving the other parties written notice
of the new address in the manner set forth above.
9.6. No Loans. The Plan does not permit any loans to be made to any
--------
Participant or Beneficiary.
9.7. Gender Usage. The use of the masculine gender includes the feminine
------------
gender for all purposes of this Plan.
9.8. Expenses. Costs of administration of the Plan shall be paid by the
--------
Company.
9.9. Claims Review Procedure.
-----------------------
(A) A claim for benefits may be filed, in writing, with the Plan Committee.
A written disposition of a claim shall be furnished to the claimant with a
reasonable time after the claim for benefits is filed. In the event a claim for
benefits is denied, the Plan Committee shall provide the claimant with the
reasons for denial.
(B)
(C) A claimant whose claim for benefits was denied may file for a review of
such denial, with the Plan Committee no later than 60 days after he has received
written notification of the denial.
(D)
(E) The Plan Committee shall give a request for review a full and fair
review. If the claim for benefits is denied upon completion of a full and fair
review, notice of such denial shall be provided to the claimant within 60 days
after the Plan Committee's receipt of such written claim for review. This 60-
day period may be extended in the event of special circumstances. Such special
circumstances shall be communicated to the claimant in writing within the 60-day
period. If there is an extension, a decision shall be made as soon as possible,
but not later than 120 days after receipt by the Plan Committee of such claim
for review.
(F)
PAGE - 34
<PAGE>
(G) If benefits are provided or administered by an insurance company,
insurance service, or other similar organization which is subject to regulation
under the insurance laws, the claims procedure relating to these benefits may
provide for review. If so, that company, service, or organization will be the
entity to which claims are addressed.
9.10 No Other Agreements or Understandings. This Plan represents the sole
-------------------------------------
agreement between the Company and Participants concerning its subject matter and
it supersedes all prior agreements, arrangements, understandings, warranties,
representations, and statements between the parties concerning its subject
matter.
10. Administration.
--------------
10.1. Plan Committee. The Plan shall be administered by the Plan
--------------
Committee. The Plan Committee shall have full authority and power to administer
and construe the Plan, subject to applicable requirements of law. Without
limiting the generality of the foregoing, the Plan Committee shall have the
following powers and duties:
(A) To make and enforce such rules and regulations as it deems necessary or
proper for the administration of the Plan;
(B) To interpret the Plan and to decide all questions concerning the Plan;
(C) To determine the eligibility of any person to participate in the Plan,
and to determine the amount and the recipient of any payments to be made under
the Plan;
(D) To designate and value any investments deemed held in the Participant
Deferral Accounts and the Company Contribution Accounts;
(E) To appoint such agents, counsel, accountants, consultants and other
persons as may be required to assist in administering the Plan; and
(F) To make all other determinations and to take all other steps necessary
or advisable for the administration of the Plan.
All decisions made by the Plan Committee pursuant to the provisions of the
Plan shall be made in its sole discretion and shall be final, conclusive, and
binding upon all parties.
10.2. Delegation of Duties. The Plan Committee may delegate such of its
--------------------
duties and may engage such experts and other persons as it deems appropriate in
connection with administering the Plan. The Plan Committee shall be entitled to
rely conclusively upon, and shall be fully protected in any action taken by the
Plan Committee, in good faith in reliance upon any opinions or reports furnished
them by any such experts or other persons.
10.3. Indemnification of Committee. The company agrees to indemnify and
----------------------------
to defend to the fullest extent permitted by law any person serving as a member
of the Plan Committee, and each employee of the Company or any of its affiliates
appointed by the Plan Committee to carry out duties under this Plan, against all
liabilities, damages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Company) occasioned by any act
or omission to act in connection with the Plan, if such act or omission is in
good faith.
10.4. Liability. To the extent permitted by law, neither the Plan
---------
Committee nor any other person shall incur any liability for any acts or for any
failure to act except for liability arising out of such person's own willful
misconduct or willful breach of the Plan.
PAGE - 35
<PAGE>
IN WITNESS WHEREOF, the Company has adopted the Plan on October 1, 1997.
PEDIATRIC SERVICES OF AMERICA, INC.
By:
--------------------------------
President
By:
--------------------------------
Secretary
PAGE - 36
<PAGE>
Exhibit 10.14
CREDIT AGREEMENT
Dated as of August 13, 1997
among
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation,
as Borrower,
PEDIATRIC SERVICES OF AMERICA, INC.,
a Delaware corporation,
and Certain Subsidiaries and Affiliates,
as Guarantors,
THE LENDERS NAMED HEREIN
AND
NATIONSBANK, N.A.,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 DEFINITIONS............................................................................. 1
-----------
1.1 Definitions.......................................................................... 1
-----------
1.2 Computation of Time Periods......................................................... 21
---------------------------
1.3 Accounting Terms.................................................................... 22
----------------
SECTION 2 CREDIT FACILITIES...................................................................... 22
-----------------
2.1 Revolving Loans..................................................................... 22
---------------
2.2 Letter of Credit Subfacility........................................................ 24
----------------------------
2.3 Swingline Loan Subfacility.......................................................... 28
--------------------------
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES......................................... 30
----------------------------------------------
3.1 Default Rate........................................................................ 30
------------
3.2 Extension and Conversion............................................................ 30
------------------------
3.3 Prepayments......................................................................... 31
-----------
3.4 Termination and Reduction of Commitments............................................ 32
----------------------------------------
3.5 Fees................................................................................ 32
----
3.6 Capital Adequacy.................................................................... 33
----------------
3.7 Inability To Determine Interest Rate................................................ 33
------------------------------------
3.8 Illegality.......................................................................... 33
----------
3.9 Requirements of Law................................................................. 34
-------------------
3.10 Taxes.............................................................................. 35
-----
3.11 Indemnity.......................................................................... 37
---------
3.12 Pro Rata Treatment................................................................. 37
------------------
3.13 Sharing of Payments................................................................ 38
-------------------
3.14 Payments, Computations, Etc. ...................................................... 38
----------------------------
3.15 Evidence of Debt................................................................... 40
----------------
3.16 Replacement Lenders................................................................ 40
-------------------
SECTION 4 GUARANTY............................................................................... 41
--------
4.1 The Guaranty........................................................................ 41
------------
4.2 Obligations Unconditional........................................................... 41
-------------------------
4.3 Reinstatement....................................................................... 42
-------------
4.4 Certain Additional Waivers.......................................................... 43
--------------------------
4.5 Remedies............................................................................ 43
--------
4.6 Rights of Contribution.............................................................. 43
----------------------
4.7 Continuing Guarantee................................................................ 44
--------------------
4.8 Termination......................................................................... 44
-----------
SECTION 5 CONDITIONS............................................................................. 44
----------
5.1 Conditions to Closing............................................................... 44
---------------------
5.2 Conditions to All Extensions of Credit.............................................. 46
--------------------------------------
SECTION 6 REPRESENTATIONS AND WARRANTIES......................................................... 47
------------------------------
6.1 Financial Condition................................................................. 47
-------------------
6.2 No Changes or Restricted Payments................................................... 47
---------------------------------
6.3 Organization; Existence; Compliance with Law........................................ 47
--------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.4 Power; Authorization; Enforceable Obligations....................................... 48
---------------------------------------------
6.5 No Legal Bar........................................................................ 49
------------
6.6 No Material Litigation.............................................................. 49
----------------------
6.7 No Default.......................................................................... 49
----------
6.8 Ownership of Property; Liens........................................................ 49
----------------------------
6.9 Intellectual Property............................................................... 49
---------------------
6.10 No Burdensome Restrictions......................................................... 50
--------------------------
6.11 Taxes.............................................................................. 50
-----
6.12 ERISA.............................................................................. 50
-----
6.13 Governmental Regulations, Etc...................................................... 51
------------------------------
6.14 Subsidiaries....................................................................... 52
------------
6.15 Purpose of Extensions of Credit.................................................... 52
-------------------------------
6.16 Environmental Matters.............................................................. 53
---------------------
SECTION 7 AFFIRMATIVE COVENANTS.................................................................. 53
---------------------
7.1 Financial Statements................................................................ 54
--------------------
7.2 Certificates; Other Information..................................................... 55
-------------------------------
7.3 Notices............................................................................. 55
-------
7.4 Payment of Obligations.............................................................. 57
----------------------
7.5 Conduct of Business and Maintenance of Existence.................................... 57
------------------------------------------------
7.6 Maintenance of Property; Insurance.................................................. 57
----------------------------------
7.7 Inspection of Property; Books and Records; Discussions.............................. 57
------------------------------------------------------
7.8 Environmental Laws.................................................................. 58
------------------
7.9 Financial Covenants................................................................. 58
-------------------
7.10 Agency Fees........................................................................ 59
-----------
7.11 Additional Guaranties and Stock Pledges............................................ 59
---------------------------------------
7.12 Use of Proceeds.................................................................... 59
---------------
SECTION 8 NEGATIVE COVENANTS..................................................................... 60
------------------
8.1 Indebtedness........................................................................ 60
------------
8.2 Liens............................................................................... 61
-----
8.3 Nature of Business.................................................................. 61
------------------
8.4 Consolidation, Merger, Sale or Purchase of Assets, Capital Expenditures, etc. ...... 61
-----------------------------------------------------------------------------
8.5 Advances, Investments and Loans..................................................... 62
-------------------------------
8.6 Transactions with Affiliates........................................................ 63
----------------------------
8.7 Ownership of Equity Interests....................................................... 63
-----------------------------
8.8 Fiscal Year......................................................................... 63
-----------
8.9 Prepayments of Indebtedness, etc. .................................................. 63
---------------------------------
8.10 Restricted Payments................................................................ 64
-------------------
8.11 Sale Leasebacks.................................................................... 64
---------------
8.12 No Further Negative Pledges........................................................ 64
---------------------------
SECTION 9 EVENTS OF DEFAULT...................................................................... 64
-----------------
9.1 Events of Default................................................................... 64
-----------------
9.2 Acceleration; Remedies.............................................................. 67
----------------------
SECTION 10 AGENCY PROVISIONS..................................................................... 67
-----------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.1 Appointment........................................................................ 67
-----------
10.2 Delegation of Duties............................................................... 68
--------------------
10.3 Exculpatory Provisions............................................................. 68
----------------------
10.4 Reliance on Communications......................................................... 69
--------------------------
10.5 Notice of Default.................................................................. 69
-----------------
10.6 Non-Reliance on Administrative Agent and Other Lenders............................. 69
------------------------------------------------------
10.7 Indemnification.................................................................... 70
---------------
10.8 Administrative Agent in its Individual Capacity.................................... 70
-----------------------------------------------
10.9 Successor Administrative Agent..................................................... 71
------------------------------
SECTION 11 MISCELLANEOUS......................................................................... 71
-------------
11.1 Notices............................................................................ 71
-------
11.2 Right of Set-Off................................................................... 73
----------------
11.3 Benefit of Agreement............................................................... 73
--------------------
11.4 No Waiver; Remedies Cumulative..................................................... 75
------------------------------
11.5 Payment of Expenses, etc. ......................................................... 75
------------------------
11.6 Amendments, Waivers and Consents................................................... 76
--------------------------------
11.7 Counterparts....................................................................... 77
------------
11.8 Headings........................................................................... 77
--------
11.9 Survival........................................................................... 78
--------
11.10 Governing Law; Submission to Jurisdiction; Venue.................................. 78
------------------------------------------------
11.11 Severability...................................................................... 78
------------
11.12 Entirety.......................................................................... 79
--------
11.13 Binding Effect; Termination....................................................... 79
---------------------------
11.14 Confidentiality................................................................... 79
---------------
11.15 Source of Funds................................................................... 80
---------------
11.16 Conflict.......................................................................... 80
--------
</TABLE>
iii
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.1(a) Schedule of Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.1(e) Form of Revolving Note
Schedule 2.2(b)-1 Existing Letters of Credit
Schedule 2.2(b)-2 Form of Notice of Request for Letter of Credit
Schedule 2.3(e) Form of Swingline Note
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 5.1(i)(v) Secretary's Certificate
Schedule 6.6 Description of Legal Proceedings
Schedule 6.8 Liens
Schedule 6.9 Intellectual Property
Schedule 6.12 Qualified Plan
Schedule 6.14 Subsidiaries
Schedule 7.2(b) Form of Officer's Compliance Certificate
Schedule 7.11-1 Form of Joinder Agreement
Schedule 7.11-2 Pledge Joinder Agreement
Schedule 8.1 Indebtedness
Schedule 8.5 Existing Investments
Schedule 11.1 Schedule of Lenders' Addresses
Schedule 11.3(b) Form of Assignment and Acceptance
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of August 13, 1997 (the "Credit Agreement"),
----------------
is by and among PEDIATRIC SERVICES OF AMERICA, INC., a Georgia corporation (the
"Borrower"), PEDIATRIC SERVICES OF AMERICA, INC., a Delaware corporation (the
--------
"Company") and the subsidiaries and affiliates identified on the signature pages
-------
hereto and such other subsidiaries and affiliates as may from time to time
become Guarantors hereunder in accordance with the provisions hereof
(collectively with the Company, the "Guarantors"), the lenders named herein and
----------
such other lenders as may become a party hereto (the "Lenders"), and
-------
NATIONSBANK, N.A., as Administrative Agent (in such capacity, the
"Administrative Agent").
--------------------
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a $100 million
credit facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1 Definitions.
-----------
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Additional Credit Party" means each Person that becomes a Guarantor
-----------------------
after the Closing Date by execution of a Joinder Agreement.
"Administrative Agent" shall have the meaning assigned to such term
--------------------
in the heading hereof, together with any successors or assigns.
"Administrative Agent's Fee Letter" means that certain letter
---------------------------------
agreement, dated as of June __, 1997, between the Agent and the Borrower,
as amended, modified, supplemented or replaced from time to time.
"Affiliate" means, with respect to any Person, any other Person (i)
---------
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person or (ii) directly or indirectly
owning or holding five percent (5%) or more of the equity interest in such
Person. For purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or
1
<PAGE>
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agency Services Address" means NationsBank, N.A., NC1-001-15-04, 101
-----------------------
North Tryon Street, Charlotte, North Carolina 28255, Attn: Agency
Services, or such other address as may be identified by written notice from
the Administrative Agent to the Borrower.
"Agent's Fees" shall have the meaning assigned to such term in
------------
Section 3.5(d).
"Aggregate Revolving Committed Amount" means the aggregate amount of
------------------------------------
Revolving Commitments in effect from time to time, being initially ONE
HUNDRED MILLION DOLLARS ($100,000,000.00).
"Applicable Percentage" means for any day, the rate per annum set
---------------------
forth below opposite the applicable Consolidated Leverage Ratio then in
effect, it being understood that the Applicable Percentage for (i) Base
Rate Loans shall be the percentage set forth under the column "Base Rate
Margin", (ii) Eurodollar Loans shall be the percentage set forth under the
column "Eurodollar Margin and Letter of Credit Fee", (iii) the Letter of
Credit Fee shall be the percentage set forth under the column "Eurodollar
Margin and Letter of Credit Fee" and (iv) the Commitment Fee shall be the
percentage set forth under the column "Commitment Fee":
<TABLE>
<CAPTION>
Eurodollar
Margin
Consolidated and
Pricing Leverage Base Rate Letter of Commitment
Level Ratio Margin Credit Fee Fee
- ------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
I greater than or equal to 3.0 0% 1.625% .375%
II greater than or equal to 2.5 but less than 3.0 0% 1.375% .325%
III greater than or equal to 2.0 but less than 2.5 0% 1.250% .275%
IV greater than or equal to 1.5 but less than 2.0 0% 1.125% .250%
V less than 1.5 0% .875% .225%
</TABLE>
The Applicable Percentage shall be determined and adjusted quarterly on the
date (each a "Rate Determination Date") five (5) Business Days after the
-----------------------
date by which the annual and quarterly compliance certificates and related
financial statements and information are required in accordance with the
provisions of Sections 7.1(a) and (b) and Section 7.2(b), as appropriate;
provided that:
--------
(i) the initial Applicable Percentages shall be based on
Pricing Level III and shall remain in effect at such Pricing Level
until the first Rate Determination Date to occur after the Closing
Date, and
(ii) in the event an annual or quarterly compliance
certificate and related financial statements and information are not
delivered timely to the Agency Services Address by the date required
by Sections 7.1(a) and (b) and Section 7.2(b), as appropriate, the
Applicable Percentages shall be based on Pricing Level I until such
time as an appropriate compliance certificate and related
2
<PAGE>
financial statements and information are delivered, whereupon the
applicable Pricing Level shall be adjusted based on the information
contained in such compliance certificate and related financial
statements and information.
Each Applicable Percentage shall be effective from a Rate Determination
Date until the next such Rate Determination Date. The Administrative Agent
shall determine the appropriate Applicable Percentages in the pricing
matrix promptly upon receipt of the quarterly or annual compliance
certificate and related financial information and shall promptly notify the
Borrower and the Lenders of any change thereof. Such determinations by the
Administrative Agent shall be conclusive absent manifest error.
Adjustments in the Applicable Percentages shall be effective as to existing
Extensions of Credit as well as new Extensions of Credit made thereafter.
"Attributed Principal Amount" means, on any day, with respect to any
---------------------------
Securitization Transaction entered into by any member of the Consolidated
Group, the aggregate amount (with respect to any such transaction, the
"Invested Amount") paid to, or borrowed by, such Person as of such date
----------------
under such Securitization Transaction, minus the aggregate amount received
-----
by the applicable Receivables Financier and applied to the reduction of the
Invested Amount under such Securitization Transaction.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United
---------------
States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Event" means, with respect to any Person, the occurrence
----------------
of any of the following with respect to such Person: (i) a court or
governmental agency having jurisdiction in the premises shall enter a
decree or order for relief in respect of such Person in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or ordering the winding up or
liquidation of its affairs; or (ii) there shall be commenced against such
Person an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or any case, proceeding or
other action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or for the winding up or
liquidation of its affairs, and such involuntary case or other case,
proceeding or other action shall remain undismissed, undischarged or
unbonded for a period of sixty (60) consecutive days; or (iii) such Person
shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consent to the entry of
an order for relief in an involuntary case under any such law, or consent
to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such
Person or for any substantial part of its Property or make any general
assignment for the benefit of creditors; or (iv) such Person shall be
unable to, or shall admit in writing its inability to, pay its debts
generally as they become due.
"Base Rate" means, for any day, the rate per annum (rounded upwards,
---------
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
----
or (b) the Prime Rate in effect on such day. If for any reason the
Administrative Agent shall have determined (which determination shall be
3
<PAGE>
conclusive absent manifest error) that it is unable after due inquiry to
ascertain the Federal Funds Rate for any reason, including the inability or
failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Base Rate shall be determined without
regard to clause (a) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime Rate
or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
--------------
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
--------
together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or other day
------------
on which commercial banks in Charlotte, North Carolina, Atlanta, Georgia or
New York, New York are authorized or required by law to close, except that,
------ ----
when used in connection with a Eurodollar Loan, such day shall also be a
day on which dealings between banks are carried on in U.S. dollar deposits
in London, England.
"Capital Lease" means, as applied to any Person, any lease of any
-------------
Property (whether real, personal or mixed) by that Person as lessee which,
in accordance with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.
"Capital Lease Obligation" means the capital lease obligations
------------------------
relating to a Capital Lease determined in accordance with GAAP.
"Cash Equivalents" means (a) securities issued or directly and fully
----------------
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition, (b) U.S.
dollar denominated time deposits and certificates of deposit of (i) any
Lender, or (ii) any domestic commercial bank of recognized standing (y)
having capital and surplus in excess of $500,000,000 and (z) whose short-
term commercial paper rating from S&P is at least A-1 or the equivalent
thereof or from Moody's is at least P-1 or the equivalent thereof (any such
bank being an "Approved Bank"), in each case with maturities of not more
-------------
than 270 days from the date of acquisition, (c) commercial paper and
variable or fixed rate notes issued by any Approved Bank (or by the parent
company thereof) or any variable rate notes issued by, or guaranteed by,
any domestic corporation rated A-1 (or the equivalent thereof) or better by
S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing
within six months of the date of acquisition, (d) repurchase agreements
entered into by a Person with a bank or trust company (including any of the
Lenders) or recognized securities dealer having capital and surplus in
excess of $500,000,000 for direct obligations issued by or fully guaranteed
by the United States of America in which such Person shall have a perfected
first priority security interest (subject to no other Liens) and having, on
the date of purchase thereof, a fair market value of at least 100% of the
amount of the repurchase obligations, (e) obligations of any State of the
United States or any political subdivision thereof, the interest with
respect to which is exempt from federal income taxation under Section 103
of the Code, having a long
4
<PAGE>
term rating of at least AA- or Aa-3 by S&P or Moody's, respectively, and
maturing within three years from the date of acquisition thereof, (f)
Investments in municipal auction preferred stock (i) rated AAA (or the
equivalent thereof) or better by S&P or Aaa (or the equivalent thereof) or
better by Moody's and (ii) with dividends that reset at least once every
365 days and (g) Investments, classified in accordance with GAAP as current
assets, in money market investment programs registered under the Investment
Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $100,000,000 and the
portfolios of which are limited to Investments of the character described
in the foregoing subdivisions (a) through (f).
"Change of Control" means the occurrence of any of the following
-----------------
events: (i) any Person or two or more Persons acting in concert shall have
acquired beneficial ownership, directly or indirectly, of, or shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their
acquisition of, control over, Voting Stock of the Company (or other
securities convertible into such Voting Stock) representing 35% or more of
the combined voting power of all Voting Stock of the Company, or (ii)
during any period of up to 24 consecutive months, commencing after the
Closing Date, individuals who at the beginning of such 24 month period were
directors of the Company (together with any new director whose election by
the Company's Board of Directors or whose nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the directors
of the Company then in office. As used herein, "beneficial ownership"
shall have the meaning provided in Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
"Closing Date" means the date hereof.
------------
"Code" means the Internal Revenue Code of 1986, as amended, and any
----
successor statute thereto, as interpreted by the rules and regulations
issued thereunder, in each case as in effect from time to time. References
to sections of the Code shall be construed also to refer to any successor
sections.
"Commitment" means the Revolving Commitment, the LOC Commitment and
----------
the Swingline Commitment.
"Commitment Fee" shall have the meaning given such term in Section
--------------
3.5(a).
"Commitment Percentage" means the Revolving Commitment Percentage.
---------------------
"Commitment Period" means the period from and including the Closing
-----------------
Date to but not including the earlier of (i) the Termination Date, or (ii)
the date on which the Commitments terminate in accordance with the
provisions of this Credit Agreement.
"Company" means Pediatric Services of America, Inc., a Delaware
-------
corporation, as referenced in the opening paragraph, its successors and
permitted assigns.
5
<PAGE>
"Consolidated Adjusted EBITDA" means for any period for the
----------------------------
Consolidated Group on a consolidated basis, the sum of EBITDA minus capital
-----
expenditures made or incurred minus cash taxes paid (net of refunds), in
-----
each case determined in accordance with GAAP applied on a consistent basis.
Except as otherwise expressly provided, the applicable period shall be for
the four consecutive fiscal quarters ending as of the date of
determination.
"Consolidated EBITDA" means for any period, the sum of
-------------------
(i) for the Consolidated Group for the two most recent fiscal
quarters, but exclusive of components relating to acquisitions and
dispositions occurring within the two most recent fiscal quarters
(dealt with in subsection (ii) below), EBITDA for the Consolidated
Group on a consolidated basis multiplied by two (2); plus
----
(ii) in the case of acquisitions and dispositions which have
occurred during the two most recent fiscal quarters (and for
determinations on a Pro Forma Basis), EBITDA attributable thereto for
the two most recent fiscal quarters as to which financial information
is available prior to the date of acquisition or disposition,
adjusted (reduced) for excess owner's compensation relating thereto,
multiplied by two (2);
in each case determined in accordance with GAAP applied on a consistent
basis.
"Consolidated Fixed Charge Coverage Ratio" means for any period, the
----------------------------------------
ratio of Consolidated Adjusted EBITDA for the period of four consecutive
fiscal quarters ending as of the date of determination to Consolidated
Fixed Charges for the period of four consecutive fiscal quarters ending as
of the date of determination.
"Consolidated Fixed Charges" means for any period for the
--------------------------
Consolidated Group, the sum of Consolidated Interest Expense plus scheduled
----
maturities of Funded Debt paid (and mandatory commitment reductions,
sinking fund payments and the like relating thereto) plus Restricted
----
Payments, in each case on a consolidated basis determined in accordance
with GAAP applied on an consistent basis. Except as otherwise expressly
provided, the applicable period shall be for the four consecutive fiscal
quarters ending as of the date of determination.
"Consolidated Funded Debt" means Funded Debt of the Consolidated
------------------------
Group determined on a consolidated basis in accordance with GAAP applied on
a consistent basis.
"Consolidated Group" means the Company and its consolidated
------------------
subsidiaries, including the Borrower, as determined in accordance with
GAAP.
"Consolidated Interest Expense" means for any period for the
-----------------------------
Consolidated Group, all interest expense, including the amortization of
debt discount and premium, the interest component under Capital Leases and
the implied interest component under
6
<PAGE>
Securitization Transactions, in each case on a consolidated basis
determined in accordance with GAAP applied on a consolidated basis.
"Consolidated Leverage Ratio" means, as of the last day of any fiscal
---------------------------
quarter, the ratio of Consolidated Funded Debt on such day to Consolidated
EBITDA determined by annualizing Consolidated EBITDA for the two
consecutive fiscal quarters ending as of the date of determination.
"Consolidated Net Income" means for any period for the Consolidated
-----------------------
Group, net income on a consolidated basis determined in accordance with
GAAP applied on a consistent basis, but excluding for purposes of
determining the Consolidated Leverage Ratio and Consolidated Fixed Charge
Coverage Ratio, any extraordinary gains or losses and any taxes on such
excluded gains and any tax deductions or credits on account of any such
excluded gains an any tax deductions or credits on account of any such
excluded losses.
"Consolidated Net Worth" means, as for any date for the Consolidated
----------------------
Group, shareholders' equity or net worth as determined in accordance with
GAAP.
"Contractual Obligation" means, as to any Person, any provision of
----------------------
any security issued by such Person or of any material agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"Credit Documents" means a collective reference to this Credit
----------------
Agreement, the Notes, the LOC Documents, Pledge Agreement, each Joinder
Agreement, the Administrative Agent's Fee Letter, and all other related
agreements and documents issued or delivered hereunder or thereunder or
pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
------------
"Default" means any event, act or condition which with notice or
-------
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such
-----------------
time, (i) has failed to make an Extension of Credit required pursuant to
the terms of this Credit Agreement, (ii) has failed to pay to the
Administrative Agent or any Lender an amount owed by such Lender pursuant
to the terms of the Credit Agreement or any other of the Credit Documents,
or (iii) has been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means dollars in lawful currency of the United
------- -
States of America.
"Domestic Credit Party" means any Credit Party which is incorporated
---------------------
or organized under the laws of any State of the United States or the
District of Columbia.
"Domestic Subsidiary" means any Subsidiary which is incorporated or
-------------------
organized under the laws of any State of the United States or the District
of Columbia.
7
<PAGE>
"EBITDA" means for any period, the sum of net income (exclusive of
------
extraordinary gains and losses and related tax effects on any such excluded
gains and losses) plus interest expense (including amortization of debt
----
discount and premium, the interest component under Capital Leases and the
implied interest component under Securitization Transactions) plus all
----
provisions for Federal, state or other domestic and foreign income taxes
plus depreciation and amortization, in each case determined in accordance
----
with GAAP applied on a consistent basis.
"Environmental Laws" means any and all lawful and applicable Federal,
------------------
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or other governmental restrictions relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"Equity Transaction" means, with respect to any member of the
------------------
Consolidated Group, any issuance of shares of its capital stock or other
equity interest, other than an issuance (i) to a member of the Consolidated
Group, (ii) in connection with a conversion of debt securities to equity or
(iii) in connection with exercise by a present or former employee, officer
or director under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" means an entity which is under common control with
---------------
any Credit Party within the meaning of Section 4001(a)(14) of ERISA, or is
a member of a group which includes the Borrower and which is treated as a
single employer under Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence of a
-----------
Reportable Event or the substantial cessation of operations (within the
meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year in which it was a substantial employer (as
such term is defined in Section 4001(a)(2) of ERISA), or the termination of
a Multiple Employer Plan; (iii) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to Section
4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section
4042 of ERISA; (v) any event or condition which could reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan;
(vi) the complete or partial withdrawal of the Borrower, any Subsidiary of
the Borrower or any ERISA Affiliate from a Multiemployer Plan; (vii) the
conditions for imposition of a lien under Section 302(f) of ERISA exist
with respect to any
8
<PAGE>
Plan; or (vii) the adoption of an amendment to any Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA.
"Eurodollar Loan" means any Loan bearing interest at a rate
---------------
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
---------------
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant to
the following formula:
Eurodollar Rate = Interbank Offered Rate
-----------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
-----------------------------
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar Loans is determined), whether or not Lender has any
Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" means such term as defined in Section 9.1.
----------------
"Exclusion Event" means an event or events where (i) one or more
---------------
members of the Consolidated Group are excluded from participation in the
Medicare or Medicaid programs or in any other health care program operated
by or financed in whole or in part by any foreign or domestic federal,
state or local government and (ii) where in the prior fiscal year revenues
from such excluded programs generated by the members of the Consolidated
Group excluded from such programs represented more than seven and one-half
percent (7.5%) of consolidated revenues for the Consolidated Group.
"Existing Letters of Credit" means those Letters of Credit
--------------------------
outstanding on the Closing Date and identified on Schedule 2.2(a).
---------------
"Extension of Credit" means, as to any Lender, the making of, or
-------------------
participation in, a Loan by such Lender or the issuance or extension of, or
participation in, a Letter of Credit.
"Fees" means all fees payable pursuant to Section 3.5.
----
"Federal Funds Rate" means, for any day, the rate of interest per
------------------
annum (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the weighted
9
<PAGE>
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that if such day is not a Business
--------
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day.
"Foreign Credit Party" means a Credit Party which is not a Domestic
--------------------
Credit Party.
"Foreign Subsidiary" means a Subsidiary which is not a Domestic
------------------
Subsidiary.
"Funded Debt" means, with respect to any Person, without duplication
-----------
for such Person or within a consolidated group, (i) all Indebtedness of
such Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, or upon which
interest payments are customarily made, (iii) all purchase money
Indebtedness (including for purposes hereof, indebtedness and obligations
described in clauses (iii) and (iv) of the definition of "Indebtedness") of
such Person, including without limitation the principal portion of all
obligations of such Person under Capital Leases, (iv) all Support
Obligations of such Person with respect to Funded Indebtedness of another
Person, (v) the maximum available amount of all standby letters of credit
or acceptances issued or created for the account of such Person, (vi) all
Funded Debt of another Person secured by a Lien on any Property of such
Person, whether or not such Funded Indebtedness has been assumed, provided
--------
that for purposes hereof the amount of such Funded Debt shall be limited to
the greater of (A) the amount of such Funded Debt as to which there is
recourse to such Person and (B) the fair market value of the property which
is subject to the Lien, (vii) the outstanding Attributed Principal Amount
under any Securitization Transaction, and (viii) the principal balance
outstanding under any synthetic lease, tax retention operating lease, off-
balance sheet loan or similar off-balance sheet financing product to which
such Person is a party, where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease in
accordance with GAAP. The Funded Debt of any Person shall include the
Funded Debt of any partnership or joint venture in which such Person is a
general partner or joint venturer, but only to the extent to which there is
recourse to such Person for the payment of such Funded Debt.
"GAAP" means generally accepted accounting principles in the United
----
States applied on a consistent basis and subject to the terms of Section
1.3 hereof.
"Governmental Authority" means any Federal, state, local or foreign
----------------------
court or governmental agency, authority, instrumentality or regulatory
body.
"Guarantor" means the Company and each of those other Persons
---------
identified as a "Guarantor" on the signature pages hereto, and each other
Person which may hereafter become a Guarantor by execution of a Joinder
Agreement, together with their successors and permitted assigns.
"Guaranteed Obligations" means, as to each Guarantor, without
----------------------
duplication, (i) all obligations of the Borrower to the Lenders and the
Administrative Agent, whenever arising, under this Credit Agreement, the
Notes or the Credit Documents relating to the
10
<PAGE>
Obligations hereunder (including interest accruing after a Bankruptcy
Event, regardless of whether such interest is allowed as a claim under the
Bankruptcy Code), and (ii) all liabilities and obligations, whenever
arising, owing from the Borrower to any Lender, or any Affiliate of a
Lender, arising under any Hedging Agreement relating to Loans or
Obligations hereunder.
"Hedging Agreements" means any interest rate protection agreement or
------------------
foreign currency exchange agreement between the Borrower and any Lender, or
any Affiliate of a Lender.
"Indebtedness" of any Person means (i) all obligations of such Person
------------
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, or upon which interest payments
are customarily made, (iii) all obligations of such Person under
conditional sale or other title retention agreements relating to Property
purchased by such Person (other than customary reservations or retentions
of title under agreements with suppliers entered into in the ordinary
course of business), (iv) all obligations of such Person issued or assumed
as the deferred purchase price of Property or services purchased by such
Person (other than trade debt incurred in the ordinary course of business
and due within six months of the incurrence thereof) which would appear as
liabilities on a balance sheet of such Person, (v) all obligations of such
Person under take-or-pay or similar arrangements or under commodities
agreements, (vi) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on, or payable out of the proceeds of production
from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, provided that for purposes
--------
hereof the amount of such Indebtedness shall be limited to the greater of
(A) the amount of such Indebtedness as to which there is recourse to such
Person and (B) the fair market value of the property which is subject to
the Lien, (vii) all Support Obligations of such Person, (viii) the
principal portion of all obligations of such Person under Capital Leases,
(ix) all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements, commodity purchase or
option agreements or other interest or exchange rate or commodity price
hedging agreements (including, but not limited to, the Hedging Agreements),
(x) the maximum amount of all standby letters of credit issued or bankers'
acceptances facilities created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed), (xi)
all preferred stock issued by such Person and required by the terms thereof
to be redeemed, or for which mandatory sinking fund payments are due, by a
fixed date, (xii) the outstanding Attributed Principal Amount under any
Securitization Financing and (xiii) the principal balance outstanding under
any synthetic lease, tax retention operating lease, off-balance sheet loan
or similar off-balance sheet financing product to which such Person is a
party, where such transaction is considered borrowed money indebtedness for
tax purposes but is classified as an operating lease in accordance with
GAAP. The Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner or a
joint venturer, but only to the extent to which there is recourse to such
Person for payment of such Indebtedness.
"Interbank Offered Rate" means, for the Interest Period for each
----------------------
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate (rounded
upwards, if necessary, to the nearest whole multiple of 1/100
11
<PAGE>
of 1%) equal to the rate of interest, determined by the Administrative
Agent on the basis of the offered rates for deposits in dollars for a
period of time corresponding to such Interest Period (and commencing on the
first day of such Interest Period), appearing on Telerate Page 3750 (or,
if, for any reason, Dow Jones Markets, Inc. Page 3750 is not available, the
Reuters Screen LIBO Page) as of approximately 11:00 A.M. (London time) two
(2) Business Days before the first day of such Interest Period. As used
herein, "Telerate Page 3750" means the display designated as page 3750 by
Dow Jones Markets, Inc. (or such other page as may replace such page on
that service for the purpose of displaying the British Bankers Association
London interbank offered rates) and "Reuters Screen LIBO Page" means the
display designated as page "LIBO" on the Reuters Monitor Money Rates
Service (or such other page as may replace the LIBO page on that service
for the purpose of displaying London interbank offered rates of major
banks).
"Interest Payment Date" means (i) as to any Base Rate Loan, the last
---------------------
day of each March, June, September and December and the Termination Date,
(ii) as to any Swingline Loans, such dates as to which the Borrower and
Swingline Lender may agree (not less frequently than quarterly) and on the
Termination Date, and (iii) as to any Eurodollar Loan, the last day of each
Interest Period for such Loan, the date of repayment of principal of such
Loan and on the Termination Date, and in addition where the applicable
Interest Period is more than three months, then also on the date three
months from the beginning of the Interest Period, and each three months
thereafter. If an Interest Payment Date falls on a date which is not a
Business Day, such Interest Payment Date shall be deemed to be the next
succeeding Business Day.
"Interest Period" means, as to any Eurodollar Loan, a period of one,
--------------- ---
two, three or six month's duration, as the Borrower may elect, commencing
--- ----- --------------------
in each case, on the date of the borrowing (including conversions,
extensions and renewals); provided, however, (A) if any Interest Period
-------- -------
would end on a day which is not a Business Day, such Interest Period shall
be extended to the next succeeding Business Day (except that in the case of
Eurodollar Loans where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day), (B) no
Interest Period shall extend beyond the Termination Date, and (C) in the
case of Eurodollar Loans, where an Interest Period begins on a day for
which there is no numerically corresponding day in the calendar month in
which the Interest Period is to end, such Interest Period shall end on the
last day of such calendar month.
"Invested Amount" shall have the meaning given such term in the
---------------
definition of Attributed Principal Amount.
"Investment", in any Person, means any loan or advance to such
----------
Person, any purchase or other acquisition of any capital stock, warrants,
rights, options, obligations or other securities of, or equity interest in,
such Person, any capital contribution to such Person or any other
investment in such Person, including, without limitation, any Support
Obligation incurred for the benefit of such Person.
"Issuing Lender" means NationsBank.
--------------
"Issuing Lender Fees" shall have the meaning assigned to such term in
-------------------
Section 3.5(b)(ii).
12
<PAGE>
"Joinder Agreement" means a Joinder Agreement substantially in the
-----------------
form of Schedule 7.11 hereto, executed and delivered by an Additional
-------------
Credit Party in accordance with the provisions of Section 7.11.
"Lenders" means each of the Persons identified as a "Lender" on the
-------
signature pages hereto, and their successors and assigns (including each
Person which may become a Lender by way of assignment in accordance with
the terms hereof).
"Letter of Credit" means the Existing Letters of Credit and any letter
----------------
of credit issued by the Issuing Lender for the account of the Borrower in
accordance with the terms of Section 2.2.
"Letter of Credit Fee" shall have the meaning given such term in
--------------------
Section 3.5(b)(i).
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the
Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction or other similar recording or notice statute, and any lease in
the nature thereof).
"Loan" or "Loans" means the Revolving Loans and the Swingline Loans.
---- -----
"LOC Commitment" means the commitment of the Issuing Lender to issue,
--------------
and to honor payment obligations under, Letters of Credit hereunder and
with respect to each Lender, the commitment of each Lender to purchase
participation interests in the Letters of Credit up to such Lender's
Revolving Commitment Percentage of the LOC Committed Amount as specified in
Schedule 2.1(a), as such amount may be reduced from time to time in
---------------
accordance with the provisions hereof.
"LOC Committed Amount" means, collectively, the aggregate amount of
--------------------
all of the LOC Commitments of the Lenders to issue and participate in
Letters of Credit as referenced in Section 2.2(a) and, individually, the
amount of each Lender's LOC Commitment as specified in Schedule 2.1(a).
---------------
"LOC Documents" means, with respect to any Letter of Credit, such
-------------
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application
or applicable only to such Letter of Credit) governing or providing for (i)
the rights and obligations of the parties concerned or at risk or (ii) any
collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the maximum
---------------
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance with
all requirements for drawings referred to in such Letters of Credit plus
----
(ii) the aggregate amount of all drawings under Letters of Credit honored
by the Issuing Lender but not theretofore reimbursed.
13
<PAGE>
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Consolidated Group taken as a whole, (ii)
the ability of the Credit Parties taken as a whole to perform any material
obligation under the Credit Documents to which it is a party or (iii) the
rights and remedies of the Lenders under the Credit Documents (other than
on account of action or inaction of the Lenders).
"Materials of Environmental Concern" means any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Laws, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Medicaid" means that means-tested entitlement program under Title XIX
--------
of the Social Security Act that provides federal grants to states for
medical assistance based on specific eligibility criteria. (Social
Security Act of 1965, Title XIX, P.L. 89-87, as amended; 42 U.S.C. 1936 et
seq.).
"Medical Reimbursement Programs" means the Medicare, Medicaid and
------------------------------
CHAMPUS programs and any other health care program operated by or financed
in whole or in part by any foreign or domestic federal, state or local
government.
"Medicare" means that government-sponsored entitlement program under
--------
Title XVIII of the Social Security Act that provides for a health insurance
system for eligible elderly and disabled individuals (Social Security Act
of 1965, Title XVIII, P.L. 89-87 as amended; 42 U.S.C. 1395 et seq.).
"Moody's" means Moody's Investors Service, Inc., or any successor or
-------
assignee of the business of such company in the business of rating
securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
------------------
defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which the Borrower, any
----------------------
Subsidiary of the Borrower or any ERISA Affiliate and at least one employer
other than the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N.A. and its successors.
-----------
"Necessary Authorizations" shall mean, with respect to any Person, all
------------------------
certificates of need, and all material authorizations, certificates,
consents, approvals, permits, licenses, accreditations and exemptions,
filings and registrations, and reports required by any Requirement of Law,
including, without limitation, any Requirement of Law relating to the sale
and leasing of durable medical equipment and related services provided by
such Person and "Necessary Authorization" shall mean any one of the
-----------------------
Necessary Authorizations.
"Non-Excluded Taxes" means such term as is defined in Section 3.10.
------------------
14
<PAGE>
"Non-Qualified Plan" means that certain consolidated employee benefit
------------------
plan established by the Borrower and its Subsidiaries for the benefit of
their respective highly compensated employees, which plan in owned by the
Borrower and is covered by ERISA only for limited purposes.
"Note" or "Notes" means any Revolving Note and/or Swingline Note.
---- -----
"Notice of Borrowing" means a written notice of borrowing in
-------------------
substantially the form of Schedule 2.1(b)(i), as required by Section
------------------
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of extension
------------------------------
or conversion in substantially the form of Schedule 3.2, as required by
------------
Section 3.2.
"Obligations" means, collectively, the Revolving Loans, Swingline
-----------
Loans and the LOC Obligations.
"Operating Lease" means, as applied to any Person, any lease
---------------
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed) which
is not a Capital Lease other than any such lease in which that Person is
the lessor.
"Participation Interest" means the purchase by a Lender of a
----------------------
participation in Letters of Credit, in LOC Obligations as provided in
Section 2.2(c) and in Swingline Loans as provided in Section 2.3(b)(iii),
and in Loans as provided in Section 3.13.
"PBGC" means the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Investments" means Investments which are either (i) cash
---------------------
and Cash Equivalents; (ii) accounts receivable created, acquired or made in
the ordinary course of business (or acquired in a transaction permitted
under Section 8.4) and payable or dischargeable in accordance with
customary trade terms; (iii) Investments consisting of stock, obligations,
securities or other property received in settlement of accounts receivable
(created in the ordinary course of business) from bankrupt obligors; (iv)
Investments existing as of the Closing Date and set forth in Schedule 8.5,
------------
(v) Support Obligations permitted by Section 8.1; (vi) acquisitions
permitted by Section 8.4(c); (vii) transactions permitted by Section 8.6,
(viii) loans to employees, directors or officers in connection with the
award of convertible bonds or stock under a stock incentive plan, stock
option plan or other equity-based compensation plan or arrangement in the
aggregate not to exceed $500,000 (calculated on the exercise price for any
such shares) in the aggregate at any time outstanding; (ix) other advances
or loans to employees, directors, officers or agents not to exceed $100,000
in the aggregate at any time outstanding; (x) Investments by a member of
the Consolidated Group or an Affiliate of a member of the Consolidated
Group in connection with a Permitted Securitization Transaction, (xi)
Investments by members of the Consolidated Group in their Subsidiaries and
Affiliates existing on the Closing Date, (xii) Investments by one Credit
Party in and to another Credit Party, (xiii) Investments made under and in
connection with the Non-Qualified Plan, and (xiv)
15
<PAGE>
other loans, advances and investments of a nature not contemplated in the
foregoing subsections in an amount not to exceed $15,000,000 in the
aggregate at any time outstanding.
"Permitted Liens" means:
---------------
(i) Liens in favor of the Administrative Agent on behalf of the
Lenders;
(ii) Liens in favor of a Lender or an Affiliate of a Lender
pursuant to a Hedging Agreement permitted hereunder, but only (A) to
the extent such Liens secure obligations under such agreements
permitted under Section 8.1, (B) to the extent such Liens are on the
same collateral as to which the Lenders also have a Lien and (C) if
such provider and the Lender shall share pari passu in the collateral
---- -----
subject to such Liens;
(iii) Liens (other than Liens created or imposed under ERISA) for
taxes, assessments or governmental charges or levies not yet due or
Liens for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to
any such Lien is not yet subject to foreclosure, sale or loss on
account thereof);
(iv) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other Liens
imposed by law or pursuant to customary reservations or retentions of
title arising in the ordinary course of business, provided that such
--------
Liens secure only amounts not yet due and payable or, if due and
payable, are unfiled and no other action has been taken to enforce the
same or are being contested in good faith by appropriate proceedings
for which adequate reserves determined in accordance with GAAP have
been established (and as to which the Property subject to any such
Lien is not yet subject to foreclosure, sale or loss on account
thereof);
(v) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of
tenders, statutory obligations, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(vi) Liens in connection with attachments or judgments (including
judgment or appeal bonds) provided that the judgments secured shall,
--------
within 45 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall have been discharged
within 45 days after the expiration of any such stay;
(vii) easements, rights-of-way, restrictions (including zoning
restrictions), minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered Property for its intended
purposes;
16
<PAGE>
(viii) Liens securing purchase money and sale/leaseback
Indebtedness (including Capital Leases) to the extent permitted under
Section 8.1(c), provided that any such Lien attaches only to the
--------
Property financed or leased and such Lien attaches thereto
concurrently with or within 90 days after the acquisition thereof in
connection with the purchase money transactions and within 45 days
after the closing of any sale/leaseback transaction;
(ix) leases or subleases granted to others not interfering in any
material respect with the business of any member of the Consolidated
Group;
(x) any interest of title of a lessor under, and Liens arising
from UCC financing statements (or equivalent filings, registrations or
agreements in foreign jurisdictions) relating to, leases permitted by
this Credit Agreement;
(xi) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with
the importation of goods;
(xii) Liens deemed to exist in connection with Investments in
repurchase agreements permitted under Section 8.5;
(xiii) normal and customary rights of setoff upon deposits of
cash in favor of banks or other depository institutions;
(xiv) Liens existing in connection with Investments relating to
the Non-Qualified Plan as permitted hereunder; and
(xv) Liens existing as of the Closing Date and set forth on
Schedule 6.8; provided that no such Lien shall at any time be extended to
------------ --------
or cover any Property other than the Property subject thereto on the
Closing Date.
"Person" means any individual, partnership, joint venture, firm,
------
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3) of
----
ERISA) which is covered by ERISA and with respect to which the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate is (or, if such plan
were terminated at such time, would under Section 4069 of ERISA be deemed
to be) an "employer" within the meaning of Section 3(5) of ERISA.
"Pledge Agreement" means that Pledge Agreement dated as of the date
----------------
hereof given by the Company and certain of its Subsidiaries, as pledgors,
to the Administrative Agent for the benefit of the Lenders to secure the
Obligations hereunder of the capital stock and equity interests in certain
Subsidiaries, as amended and modified.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by NationsBank as its prime rate in effect at its
principal office in Charlotte, North Carolina, with each change in the
Prime Rate being effective on the date such change is
17
<PAGE>
publicly announced as effective (it being understood and agreed that the
Prime Rate is a reference rate used by NationsBank in determining interest
rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit by NationsBank to any debtor).
"Pro Forma Basis" means, with respect to any transaction, that such
---------------
transaction shall be deemed to have occurred as of the first day of the
four fiscal-quarter period ending as of the most recent fiscal quarter end
preceding the date of such transaction with respect to which the
Administrative Agent and the Lenders have received the officer's
certificate in accordance with the provisions of Section 7.2(b). For
purposes hereof in determining compliance with the financial covenants in
Section 7.9 on a Pro Forma Basis, only the Consolidated Leverage Ratio in
Section 7.9(a) and the Consolidated Net Worth in Section 7.9(c) shall be
considered. As used herein, "Transaction" means (i), any corporate merger
or consolidation as referred to in Section 8.4(a) and 8.4(c)), (ii) any
acquisition of capital stock or securities or any purchase, lease or other
acquisition of property as referred to in Section 8.4(c) or (iii) the
making of any Restricted Payment as referred to in Section 8.10.
"Property" means any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Quoted Rate" means, with respect to a Quoted Rate Swingline Loan, the
-----------
fixed percentage rate per annum offered by the Swingline Lender and
accepted by the Borrower with respect to such Quoted Swingline Loan in
accordance with the provisions of Section 2.3.
"Quoted Rate Swingline Loan" means a Swingline Loan bearing interest
--------------------------
at a Quoted Rate.
"Receivables" means any right of payment from or on behalf of any
-----------
obligor, whether constituting an account, chattel paper, instrument,
general intangible or otherwise, arising from the sale or financing by a
member of the Consolidated Group or merchandise or services, and monies due
thereunder, security in the merchandise and services financed thereby,
records related thereto, and the right to payment of any interest or
finance charges and other obligations with respect thereto, proceeds from
claims on insurance policies related thereto, any other proceeds related
thereto, and any other related rights.
"Receivables Financier" means, in connection with a Securitization
---------------------
Transaction, the Person which provides financing for such transaction
whether by purchase, loan or otherwise in respect of Receivables.
"Register" shall have the meaning given such term in Section 11.3(c).
--------
"Regulation G, T, U, or X" means Regulation G, T, U or X,
------------------------
respectively, of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor to all or a portion thereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment
18
<PAGE>
(including the abandonment or discarding of barrels, containers and other
closed receptacles containing any Materials of Environmental Concern).
"Reportable Event" means any of the events set forth in Section
----------------
4043(c) of ERISA, other than those events as to which the notice
requirement has been waived by regulation.
"Required Lenders" means, at any time, Lenders having more than fifty
----------------
percent (50%) of the Commitments, or if the Commitments have been
terminated, Lenders having more than fifty percent (50%) of the aggregate
principal amount of the Obligations outstanding (taking into account in
each case Participation Interests or obligation to participate therein);
provided that the Commitments of, and outstanding principal amount of
--------
Obligations (taking into account Participation Interests therein) owing to,
a Defaulting Lender shall be excluded for purposes hereof in making a
determination of Required Lenders.
"Requirement of Law" means, as to any Person, the certificate of
------------------
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its material property
is subject.
"Responsible Officer" means the Chief Executive Officer, the Chief
-------------------
Financial Officer and the Chief Accounting Officer.
"Restricted Payment" means (i) any dividend or other distribution,
------------------
direct or indirect, on account of any shares of any class of stock now or
hereafter outstanding, except (A) a dividend payable solely in shares of
that class to the holders of that class and (B) dividends and other
distributions payable to a Credit Party, (ii) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of stock now or hereafter
outstanding, and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock now or hereafter outstanding.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment of such Lender to make Revolving Loans in an aggregate principal
amount at any time outstanding of up to such Lender's Commitment Percentage
of the Aggregate Revolving Committed Amount as specified in Schedule
--------
2.1(a), as such amount may be reduced from time to time in accordance with
------
the provisions hereof.
"Revolving Commitment Percentage" means, for each Lender, a fraction
-------------------------------
(expressed as a decimal) the numerator of which is the Revolving Commitment
of such Lender at such time and the denominator of which is the Aggregate
Revolving Committed Amount at such time. The initial Revolving Commitment
Percentages are set out on Schedule 2.1(a).
---------------
"Revolving Committed Amount" means, collectively, the aggregate amount
--------------------------
of all of the Revolving Commitments and, individually, the amount of each
Lender's Revolving Commitment as specified in Schedule 2.1(a).
---------------
19
<PAGE>
"Revolving Loans" shall have the meaning assigned to such term in
---------------
Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
-------------- ---------------
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
in substantially the form attached as Schedule 2.1(e), individually or
---------------
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
---
Hill, Inc., or any successor or assignee of the business of such division
in the business of rating securities.
"Securitization Transaction" means any financing transaction or series
--------------------------
of financing transactions that have been or may be entered into by a member
of the Consolidated Group pursuant to which such member of the Consolidated
Group may sell, convey or otherwise transfer to (i) a Subsidiary or
affiliate (a "Securitization Subsidiary"), or (ii) any other Person, or may
-------------------------
grant a security interest in, any Receivables or interests therein secured
by merchandise or services financed thereby (whether such Receivables are
then existing or arising in the future) of such member of the Consolidated
Group, and any assets related thereto, including without limitation, all
security interests in merchandise or services financed thereby, the
proceeds of such Receivables, and other assets which are customarily sold
or in respect of which security interests are customarily granted in
connection with securitization transactions involving such assets.
"Single Employer Plan" means any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Stark I" means that federal statute set forth at 42 U.S.C. 1395nn;
-------
13951(q).
"Stark II" means that federal statute set forth at 42 U.S.C. 1395nn;
--------
13951(q).
"Subsidiary" means, as to any Person, (a) any corporation more than
----------
50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such Person
directly or indirectly through Subsidiaries, and (b) any partnership,
association, joint venture or other entity in which such Person directly or
indirectly through Subsidiaries has more than 50% of the voting interests
at any time. Unless otherwise identified, "Subsidiary" or "Subsidiaries"
shall mean Subsidiaries of the Company.
"Support Obligations" means, with respect to any Person, without
-------------------
duplication for such Person or within a consolidated group, any obligations
of such Person (other than endorsements in the ordinary course of business
of negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any Indebtedness of any other Person in any manner,
whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such
Indebtedness or any Property constituting security therefor, (ii) to
advance or provide funds or other support for the payment or purchase of
any
20
<PAGE>
such Indebtedness or to maintain working capital, solvency or other
balance sheet condition of such other Person (including without limitation
keep well agreements, maintenance agreements, comfort letters or similar
agreements or arrangements) for the benefit of any holder of Indebtedness
of such other Person, (iii) to lease or purchase Property, securities or
services primarily for the purpose of assuring the holder of such
Indebtedness, or (iv) to otherwise assure or hold harmless the holder of
such Indebtedness against loss in respect thereof. The amount of any
Support Obligation hereunder shall (subject to any limitations set forth
therein) be deemed to be an amount equal to the outstanding principal
amount (or maximum principal amount, if larger) of the Indebtedness in
respect of which such Support Obligation is made.
"Swingline Commitment" means the commitment of the Swingline Lender to make
--------------------
Swingline Loans in an aggregate principal amount at any time outstanding up
to the Swingline Committed Amount and the commitment of the Lenders to
purchase participation interests in the Swingline Loans up to their
respective Revolving Commitment Percentage as provided in Section
2.3(b)(iii), as such amounts may be reduced from time to time in accordance
with the provisions hereof.
"Swingline Committed Amount" means the amount of the Swingline Lender's
--------------------------
Commitment as specified in Section 2.3(a).
"Swingline Lender" means NationsBank or the successor Administrative Agent
----------------
appointed pursuant to the provisions of Section 2.4(a).
"Swingline Loan" means a swingline revolving loan made by the Swingline
--------------
Lender pursuant to the provisions of Section 2.3.
"Swingline Note" means the promissory note of the Borrower in favor of the
--------------
Swingline Lender evidencing the Swingline Loans in substantially the form
attached as Schedule 2.3(d), as such promissory note may be amended,
---------------
modified, supplemented, extended, renewed or replaced from time to time.
"Termination Date" means August 13, 2002, or if extended with the written
----------------
consent of each of the Lenders, such later date as to which the Termination
Date may be extended.
"Voting Stock" means, with respect to any Person, capital stock issued by
------------
such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to
vote has been suspended by the happening of such a contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100% of whose
-----------------------
Voting Stock or other equity interests is at the time owned by such Person
directly or indirectly through other Wholly Owned Subsidiaries.
1.2 Computation of Time Periods.
---------------------------
21
<PAGE>
For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding."
1.3 Accounting Terms.
----------------
Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1
hereof (or, prior to the delivery of the first financial statements pursuant to
Section 7.1 hereof, consistent with the annual audited financial statements
referenced in Section 6.1(i) hereof); provided, however, if (a) the Company
-------- -------
shall object to determining such compliance on such basis at the time of
delivery of such financial statements due to any change in GAAP or the rules
promulgated with respect thereto or (b) the Administrative Agent or the Required
Lenders shall so object in writing within 30 days after delivery of such
financial statements, then such calculations shall be made on a basis consistent
with the most recent financial statements delivered by the Borrower to the
Lenders as to which no such objection shall have been made.
It is further acknowledged and agreed that, except as expressly provided
otherwise, for purposes of determining the Applicable Percentage and compliance
with the financial covenants in Section 7.9 (and Pro Forma compliance
therewith), in the case of acquisitions and dispositions which have occurred
during the applicable period to the extent permitted hereunder, adjustments
shall be made to take into account historical performance relating thereto
during such applicable period prior to the date of such acquisition or
disposition, and the effect of any Indebtedness paid with proceeds from a
disposition.
SECTION 2
CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
---------------
(a) Revolving Commitment. During the Commitment Period, subject to the
--------------------
terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (the "Revolving Loans") to the Borrower from time to time in the
---------------
amount of such Lender's Revolving Commitment Percentage of such Revolving Loans
for the purposes hereinafter set forth; provided that (i) with regard to the
--------
Lenders collectively, the aggregate principal amount of Obligations outstanding
at any time shall not exceed the Aggregate Revolving Committed Amount, and (ii)
with regard to each Lender individually, such Lender's Revolving Commitment
Percentage of Obligations outstanding at any time shall not exceed such Lender's
Revolving Committed Amount. Revolving Loans may consist of Base Rate Loans or
Eurodollar Loans, or a combination thereof, as the Borrower may request, and may
be repaid and reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
-------------------------
22
<PAGE>
(i) Notice of Borrowing. The Borrower shall request a Revolving
-------------------
Loan borrowing by written notice (or telephone notice promptly confirmed in
writing) to the Administrative Agent not later than 11:00 A.M. (Charlotte,
North Carolina time) on the Business Day of the requested borrowing in the
case of Base Rate Loans, and on the third Business Day prior to the date of
the requested borrowing in the case of Eurodollar Loans. Each such request
for borrowing shall be irrevocable and shall specify (A) that a Revolving
Loan is requested, (B) the date of the requested borrowing (which shall be
a Business Day), (C) the aggregate principal amount to be borrowed, and (D)
whether the borrowing shall be comprised of Base Rate Loans, Eurodollar
Loans or a combination thereof, and if Eurodollar Loans are requested, the
Interest Period(s) therefor. If the Borrower shall fail to specify in any
such Notice of Borrowing (I) an applicable Interest Period in the case of a
Eurodollar Loan, then such notice shall be deemed to be a request for an
Interest Period of one month, or (II) the type of Revolving Loan requested,
then such notice shall be deemed to be a request for a Base Rate Loan
hereunder. The Administrative Agent shall give notice to each Lender
promptly upon receipt of each Notice of Borrowing pursuant to this Section
2.1(b)(i), the contents thereof and each such Lender's share of any
borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan shall be in a minimum
---------------
aggregate principal amount of, in the case of Eurodollar Loans, $2,000,000
and integral multiples of $1,000,000 in excess thereof, and, in the case of
Base Rate Loans, $1,000,000 and integral multiples of $500,000 (or the
remaining Revolving Committed Amount, if less) in excess thereof.
(iii) Advances. Each Lender will make its Revolving Commitment
--------
Percentage of each Revolving Loan borrowing available to the Administrative
Agent for the account of the Borrower, or in such other manner as the
Administrative Agent may specify in writing, by 1:00 P.M. (Charlotte,
North Carolina time) on the date specified in the applicable Notice of
Borrowing in Dollars and in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower by the Administrative Agent by crediting the account of the
Borrower on the books of such office with the aggregate of the amounts made
available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
---------
and payable in full on the Termination Date.
(d) Interest. Subject to the provisions of Section 3.1,
--------
(i) Base Rate Loans. During such periods as Revolving Loans shall be
---------------
comprised in whole or in part of Base Rate Loans, such Base Rate Loans
shall bear interest at a per annum rate equal to the Base Rate plus the
----
Applicable Percentage;
(ii) Eurodollar Loans. During such periods as Revolving Loans shall be
----------------
comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans
shall bear interest at a per annum rate equal to the Eurodollar Rate plus
----
the Applicable Percentage.
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
23
<PAGE>
(e) Revolving Notes. The Revolving Loans shall be evidenced by a duly
---------------
executed Revolving Note in favor of each Lender in the amount of such Lender's
Revolving Committed Amount.
(f) Maximum Number of Eurodollar Loans. The Borrower will be limited to a
----------------------------------
maximum number of seven (7) Eurodollar Loans outstanding at any time. For
purposes hereof, Eurodollar Loans with separate or different Interest Periods
will be considered as separate Eurodollar Loans even if their Interest Periods
expire on the same date.
2.2 Letter of Credit Subfacility.
----------------------------
(a) Issuance. During the Commitment Period, subject to the terms and
--------
conditions hereof and of the LOC Documents, if any, and such other terms and
conditions which the Issuing Lender may reasonably require, the Issuing Lender
shall issue such Letters of Credit as the Borrower may request for its own
account or for the account of another Credit Party as provided herein, in a form
acceptable to the Issuing Lender, for the purposes hereinafter set forth;
provided that (i) the aggregate amount of LOC Obligations shall not exceed TEN
- --------
MILLION DOLLARS ($10,000,000) at any time (the "LOC Committed Amount"), (ii)
--------------------
with regard to the Lenders collectively, the aggregate principal amount of
Obligations outstanding at any time shall not exceed the Aggregate Revolving
Committed Amount, and (iii) with regard to each Lender individually, such
Lender's Revolving Commitment Percentage of Obligations outstanding at any time
shall not exceed such Lender's Revolving Committed Amount. Letters of Credit
issued hereunder shall not have an original expiry date more than one year from
the date of issuance or extension, nor an expiry date, whether as originally
issued or by extension, extending beyond the Termination Date. Each Letter of
Credit shall comply with the related LOC Documents. The issuance date of each
Letter of Credit shall be a Business Day.
(b) Notice and Reports. Except for those Letters of Credit described on
------------------
Schedule 2.2(b)-1 which shall be issued on the Closing Date, the request for the
- -----------------
issuance of a Letter of Credit shall be submitted by the Borrower to the Issuing
Lender at least three (3) Business Days prior to the requested date of issuance
(or such shorter period as may be agreed by the Issuing Lender. A form of
Notice of Request for Letter of Credit is attached as Schedule 2.2(b)-2. The
-----------------
Issuing Lender will provide to the Administrative Agent and the Lenders at least
monthly, and more frequently upon request, a detailed summary report on its
Letters of Credit and the activity thereon, in form and substance acceptable to
the Administrative Agent. In addition, the Issuing Lender will provide to the
Administrative Agent for dissemination to the Lenders at least quarterly, and
more frequently upon request, a detailed summary report on its Letters of Credit
and the activity thereon, including, among other things, the Credit Party for
whose account the Letter of Credit is issued, the beneficiary, the face amount,
and the expiry date. The Issuing Lender will provide copies of the Letters of
Credit to the Administrative Agent and the Lenders promptly upon request.
(c) Participation. Each Lender, with respect to the Existing Letters of
-------------
Credit, hereby purchases a participation interest in such Existing Letters of
Credit, and with respect to Letters of Credit issued on or after the Closing
Date, upon issuance of a Letter of Credit, shall be deemed to have purchased
without recourse a participation from the applicable Issuing Lender in such
Letter of Credit and the obligations arising thereunder (and the related LOC
Documents), in each case in an amount equal to its pro rata share of the
obligations under such Letter of Credit (based on the
24
<PAGE>
respective Commitment Percentages of the Lenders) and shall absolutely,
unconditionally and irrevocably be obligated to pay to the Issuing Lender when
due, its pro rata share (based upon the Revolving Commitment Percentages of such
Lender) under such Letter of Credit. Without limiting the scope and nature of
each Lender's participation in any Letter of Credit, to the extent that the
Issuing Lender has not been reimbursed as required hereunder or under any such
Letter of Credit, each such Lender shall pay to the Issuing Lender its pro rata
share of such unreimbursed drawing pursuant to the provisions of subsection (d)
hereof. The obligation of each Lender to so reimburse the Issuing Lender shall
be absolute and unconditional and shall not be affected by the occurrence of a
Default, an Event of Default or any other occurrence or event. Any such
reimbursement shall not relieve or otherwise impair the obligation of the
Borrower to reimburse the Issuing Lender under any Letter of Credit, together
with interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any Letter of Credit,
-------------
the Issuing Lender will promptly notify the Borrower. Unless the Borrower shall
immediately notify the Issuing Lender that the Borrower intends to otherwise
reimburse the Issuing Lender for such drawing, the Borrower shall be deemed to
have requested that the Lenders make a Revolving Loan in the amount of the
drawing as provided in subsection (e) hereof on the related Letter of Credit,
the proceeds of which will be used to satisfy the related reimbursement
obligations. The Borrower promises to reimburse the Issuing Lender on the day
of drawing under any Letter of Credit (either with the proceeds of a Revolving
Loan obtained hereunder or otherwise) in same day funds. If the Borrower shall
fail to reimburse the Issuing Lender as provided hereinabove, the unreimbursed
amount of such drawing shall bear interest at a per annum rate equal to the Base
Rate plus the sum of (i) the Applicable Percentage and (ii) two percent (2%).
The Borrower's reimbursement obligations hereunder shall be absolute and
unconditional under all circumstances irrespective of any rights of setoff,
counterclaim or defense to payment the Borrower may claim or have against the
Issuing Lender, the Administrative Agent, the Lenders, the beneficiary of the
Letter of Credit drawn upon or any other Person, including without limitation
any defense based on any failure of the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or unenforceability
of the Letter of Credit. The Issuing Lender will promptly notify the other
Lenders of the amount of any unreimbursed drawing and each Lender shall promptly
pay to the Administrative Agent for the account of the Issuing Lender in Dollars
and in immediately available funds, the amount of such Lender's pro rata share
(based upon the Revolving Commitment Percentages of such Lender) of such
unreimbursed drawing. Such payment shall be made on the day such notice is
received by such Lender from the Issuing Lender if such notice is received at or
before 2:00 P.M. (Charlotte, North Carolina time) otherwise such payment shall
be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business
Day next succeeding the day such notice is received. If such Lender does not pay
such amount to the Issuing Lender in full upon such request, such Lender shall,
on demand, pay to the Administrative Agent for the account of the Issuing Lender
interest on the unpaid amount during the period from the date such payment was
due until such Lender pays such amount to the Issuing Lender in full at a rate
per annum equal to, if paid within two (2) Business Days of the date that such
Lender is required to make payments of such amount pursuant to the preceding
sentence, the Federal Funds Rate and thereafter at a rate equal to the Base
Rate. Each Lender's obligation to make such payment to the Issuing Lender, and
the right of the Issuing Lender to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and without
regard to the termination of this Credit Agreement or the Commitments hereunder,
the existence of a Default or Event of Default or the acceleration of the
obligations of the Borrower hereunder and shall be made without any offset,
abatement, withholding or reduction whatsoever. Simultaneously with the making
of each such payment by a Lender to the Issuing Lender, such Lender shall,
automatically
25
<PAGE>
and without any further action on the part of the Issuing Lender or such Lender,
acquire a participation in an amount equal to such payment (excluding the
portion of such payment constituting interest owing to the Issuing Lender) in
the related unreimbursed drawing portion of the LOC Obligation and in the
interest thereon and in the related LOC Documents, and shall have a claim
against the Borrower with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the Borrower shall
------------------------------
have requested, or been deemed to have requested, first, a Swingline Loan
advance, and then, to the extent a Swingline Loan advance is not available, a
Revolving Loan advance to reimburse a drawing under a Letter of Credit, the
Administrative Agent shall give notice to the Lenders that a Revolving Loan has
been requested or deemed requested by the Borrower to be made in connection with
a drawing under a Letter of Credit, in which case a Revolving Loan advance
comprised of Base Rate Loans (or Eurodollar Loans to the extent the Borrower has
complied with the procedures of Section 2.1(b)(i) with respect thereto) shall be
immediately made to the Borrower by all Lenders (notwithstanding any termination
of the Commitments pursuant to Section 9.2) pro rata based on the respective
--- ----
Commitment Percentages of the Lenders (determined before giving effect to any
termination of the Commitments pursuant to Section 9.2) and the proceeds thereof
shall be paid directly to the Issuing Lender for application to the respective
LOC Obligations. Each such Lender hereby irrevocably agrees to make its pro
rata share of each such Revolving Loan immediately upon any such request or
deemed request in the amount, in the manner and on the date specified in the
preceding sentence notwithstanding (i) the amount of such borrowing may not
---------------
comply with the minimum amount for advances of Revolving Loans otherwise
required hereunder, (ii) whether any conditions specified in Section 5.2 are
then satisfied, (iii) whether a Default or an Event of Default then exists, (iv)
failure for any such request or deemed request for Revolving Loan to be made by
the time otherwise required hereunder, (v) whether the date of such borrowing is
a date on which Revolving Loans are otherwise permitted to be made hereunder or
(vi) any termination of the Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any Revolving Loan
cannot for any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding under the
Bankruptcy Code with respect to the Borrower or any Credit Party), then each
such Lender hereby agrees that it shall, upon written notice of the
unavailability of Revolving Loans and request for participation, purchase (as of
the date such borrowing would otherwise have occurred, but adjusted for any
payments received from the Borrower on or after such date and prior to such
purchase) from the Issuing Lender such participation in the outstanding LOC
Obligations as shall be necessary to cause each such Lender to share in such LOC
Obligations ratably (based upon the respective Commitment Percentages of the
Lenders (determined before giving effect to any termination of the Commitments
pursuant to Section 9.2)), provided that in the event such payment is not made
--------
on the day of such purchase, such Lender shall pay in addition to the Issuing
Lender interest on the amount of its unfunded Participation Interest at a rate
equal to, if paid within two (2) Business Days of the date of drawing, the
Federal Funds Rate, and thereafter at the Base Rate.
(f) Designation of other Credit Parties as Account Parties.
------------------------------------------------------
Notwithstanding anything to the contrary set forth in this Credit Agreement,
including without limitation Section 2.2(a) hereof, a Letter of Credit issued
hereunder may contain a statement to the effect that such Letter of Credit is
issued for the account of a Credit Party, provided that notwithstanding such
statement, the Borrower shall be the actual account party for all purposes of
this Credit Agreement for such Letter of Credit and such statement shall not
affect the Borrower's reimbursement obligations hereunder with respect to such
Letter of Credit.
26
<PAGE>
(g) Renewal, Extension. The renewal or extension of any Letter of Credit
------------------
shall, for purposes hereof, be treated in all respects the same as the issuance
of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have the Letters
-----------------------------
of Credit be subject to The Uniform Customs and Practice for Documentary
Credits, as published as of the date of issue by the International Chamber of
Commerce (the "UCP"), in which case the UCP may be incorporated therein and
---
deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
--------------------------------------------------
(i) In addition to its other obligations under this Section 2.2, the
Borrower hereby agrees to protect, indemnify, pay and save the Issuing
Lender harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) that the Issuing Lender may incur or be subject to as a
consequence, direct or indirect, of (A) the issuance of any Letter of
Credit or (B) the failure of the Issuing Lender to honor a drawing under a
Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein called
"Government Acts").
----------------
(ii) As between the Borrower and the Issuing Lender, the Borrower
shall assume all risks of the acts, omissions or misuse of any Letter of
Credit by the beneficiary thereof. The Issuing Lender shall not be
responsible: (A) for the form, validity, sufficiency, accuracy, genuineness
or legal effect of any document submitted by any party in connection with
the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) for the validity 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, that may prove to be invalid or
ineffective for any reason; (C) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher; (D) for
any loss or delay in the transmission or otherwise of any document required
in order to make a drawing under a Letter of Credit or of the proceeds
thereof; and (E) for any consequences arising from causes beyond the
control of the Issuing Lender, including, without limitation, any
Government Acts. None of the above shall affect, impair, or prevent the
vesting of the Issuing Lender's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by
the Issuing Lender, under or in connection with any Letter of Credit or the
related certificates, if taken or omitted in good faith, shall not put such
Issuing Lender under any resulting liability to the Borrower or any other
Credit Party. It is the intention of the parties that this Credit
Agreement shall be construed and applied to protect and indemnify the
Issuing Lender against any and all risks involved in the issuance of the
Letters of Credit, all of which risks are hereby assumed by the Borrower
(on behalf of itself and each of the other Credit Parties), including,
without limitation, any and all Government Acts. The Issuing Lender shall
not, in any way, be liable
27
<PAGE>
for any failure by the Issuing Lender or anyone else to pay any drawing
under any Letter of Credit as a result of any Government Acts or any other
cause beyond the control of the Issuing Lender.
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d)
above. The obligations of the Borrower under this subsection (i) shall
survive the termination of this Credit Agreement. No act or omissions of
any current or prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Issuing Lender to enforce any right,
power or benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (i), the Borrower shall have no obligation to indemnify the
Issuing Lender in respect of any liability incurred by the Issuing Lender
(A) arising solely out of the gross negligence or willful misconduct of the
Issuing Lender, as determined by a court of competent jurisdiction, or (B)
caused by the Issuing Lender's failure to pay under any Letter of Credit
after presentation to it of a request strictly complying with the terms and
conditions of such Letter of Credit, as determined by a court of competent
jurisdiction, unless such payment is prohibited by any law, regulation,
court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood and agreed
--------------------------------
that the obligations of the Issuing Lender hereunder to the Lenders are only
those expressly set forth in this Credit Agreement and that the Issuing Lender
shall be entitled to assume that the conditions precedent set forth in Section
5.2 have been satisfied unless it shall have acquired actual knowledge that any
such condition precedent has not been satisfied; provided, however, that nothing
-------- -------
set forth in this Section 2.2 shall be deemed to prejudice the right of any
Lender to recover from the Issuing Lender any amounts made available by such
Lender to the Issuing Lender pursuant to this Section 2.2 in the event that it
is determined by a court of competent jurisdiction that (A) the payment with
respect to a Letter of Credit constituted gross negligence or willful misconduct
on the part of the Issuing Lender or (B) the Issuing Lender failed to pay under
any Letter of Credit after presentation to it of a request strictly complying
with the terms of such Letter of Credit, except insofar as such payment is
prohibited by any law, regulation, court order or decree.
(k) Conflict with LOC Documents. In the event of any conflict between this
---------------------------
Credit Agreement and any LOC Document (including any letter of credit
application), this Credit Agreement shall control.
2.3 Swingline Loan Subfacility.
--------------------------
(a) Swingline Commitment. Subject to the terms and conditions hereof and
--------------------
in reliance upon the representations and warranties set forth herein, the
Swingline Lender, in its individual capacity, agrees to make certain revolving
credit loans requested by the Borrower in Dollars to the Borrower (each a
"Swingline Loan" and, collectively, the "Swingline Loans") from time to time
-------------- ---------------
from the Closing Date until the Termination Date for the purposes hereinafter
set forth; provided, however, (i) the aggregate principal amount of Swingline
Loans outstanding at any time shall not exceed FIVE MILLION DOLLARS ($5,000,000)
(the "Swingline Committed Amount"), and (ii) with regard to the Lenders
--------------------------
collectively, the aggregate principal amount of Obligations outstanding at any
time shall not exceed the Aggregate Revolving Committed Amount. Swingline Loans
hereunder
28
<PAGE>
shall be made as Base Rate Loans or Quoted Rate Swingline Loans, as the Borrower
may request in accordance with the provisions hereof, and may be repaid and
reborrowed in accordance with the provisions hereof.
(b) Swingline Loan Advances.
-----------------------
(i) Notices; Disbursement. Whenever the Borrower desires a
---------------------
Swingline Loan advance hereunder it shall give written notice (or
telephonic notice promptly confirmed in writing) to the Swingline Lender
not later than 11:00 A.M. (Charlotte, North Carolina time) on the Business
Day of the requested Swingline Loan advance. Each such notice shall be
irrevocable and shall specify (A) that a Swingline Loan advance is
requested, (B) the date of the requested Swingline Loan advance (which
shall be a Business Day) and (C) the principal amount of and Interest
Period for the Swingline Loan advance requested. Each Swingline Loan shall
have such maturity date as the Swingline Lender and the Borrower shall
agree upon receipt by the Swingline Lender of any such notice from the
Borrower. The Swingline Lender shall initiate the transfer of funds
representing the Swingline Loan advance to the Borrower by 3:00 P.M.
(Charlotte, North Carolina time) on the Business Day of the requested
borrowing.
(ii) Minimum Amounts. Each Swingline Loan advance shall be in a
minimum principal amount of $500,000 and in integral multiples of $100,000
in excess thereof (or the remaining amount of the Swingline Committed
Amount, if less).
(iii) Repayment of Swingline Loans. The principal amount of all
----------------------------
Swingline Loans shall be due and payable in full on the Termination
Date. The Swingline Lender may, at any time after the occurrence of a
Default or Event of Default, by written notice to the Borrower and the
Lenders, demand repayment of its Swingline Loans by way of a Revolving Loan
advance, in which case the Borrower shall be deemed to have requested a
Revolving Loan advance comprised solely of Base Rate Loans in the amount of
such Swingline Loans; provided, however, that any such demand shall be
-------- -------
deemed to have been given one Business Day prior to the Termination Date
and on the date of the occurrence of any Event of Default described in
Section 9.1 and upon acceleration of the indebtedness hereunder and the
exercise of remedies in accordance with the provisions of Section 9.2.
Each Lender, if so directed by the Administrative Agent in writing, hereby
irrevocably agrees to make its pro rata share of each such Revolving Loan
in the amount, in the manner and on the date specified in the preceding
sentence notwithstanding (I) the amount of such borrowing may not comply
---------------
with the minimum amount for advances of Revolving Loans otherwise required
hereunder, (II) whether any conditions specified in Section 5.2 are then
satisfied, (III) whether a Default or an Event of Default then exists, (IV)
failure of any such request or deemed request for Revolving Loan to be made
by the time otherwise required hereunder, (V) whether the date of such
borrowing is a date on which Revolving Loans are otherwise permitted to be
made hereunder or (VI) any termination of the Commitments relating thereto
immediately prior to or contemporaneously with or after such borrowing. In
the event that any Revolving Loan cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to the
Borrower or any other Credit Party), then each Lender hereby agrees that it
shall, upon written notice of the unavailability of a Revolving Loan and
request for a participation, purchase (as of the date such borrowing would
otherwise have occurred, but
29
<PAGE>
adjusted for any payments received from the Borrower on or after such
date and prior to such purchase) from the Swingline Lender such
Participations Interest in the outstanding Swingline Loans as shall be
necessary to cause each such Lender to share in such Swingline Loans
ratably based upon its Commitment Percentage of the Revolving Committed
Amount (determined before giving effect to any termination of the
Commitments pursuant to Section 3.4), provided that all interest payable
--------
on the Swingline Loans shall be for the account of the Swingline Lender
until the date as of which the respective Participation Interest is
purchased from which time interest in respect of the Participation Interest
shall accrue at a rate equal to the Base Rate plus any greater amount
charged under Section 3.1 hereof.
(c) Interest on Swingline Loans.
---------------------------
Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Swingline Loans
---------------
shall be comprised of Base Rate Loans, such Swingline Loans shall bear
interest at a per annum rate (computed on the basis of the actual number of
days elapsed over a year of 365 days) equal to the Base Rate.
(ii) Quoted Rate Swingline Loans. During such periods as
---------------------------
Swingline Loans shall be comprised of Quoted Rate Swingline Loans, such
Swingline Loans shall bear interest at a per annum rate (computed on the
basis of the actual number of days elapsed over a year of 360 days) equal
to the Quoted Rate.
Interest on Swingline Loans shall be payable in arrears on each applicable
Interest Payment Date.
(d) Swingline Note. The Swingline Loans shall be evidenced by a duly
--------------
executed promissory note of the Borrower to the Swingline Lender in an original
principal amount equal to the Swingline Committed Amount substantially in the
form of Exhibit 2.3(d).
--------------
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
----------------------------------------------
3.1 Default Rate.
------------
Upon the occurrence, and during the continuance, of an Event of
Default, the principal of and, to the extent permitted by law, interest on the
Loans and any other amounts owing hereunder or under the other Credit Documents
shall bear interest, payable on demand, at a per annum rate 2% greater than the
rate which would otherwise be applicable (or if no rate is applicable, whether
in respect of interest, fees or other amounts, then 2% greater than the Base
Rate).
3.2 Extension and Conversion.
------------------------
Subject to the terms of Section 5.2, the Borrower shall have the
option, on any Business Day, to extend existing Loans into a subsequent
permissible Interest Period or to convert Loans into Loans of another interest
rate type; provided, however, that (i) except as provided in Section 3.8,
-------- -------
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
the
30
<PAGE>
Interest Period applicable thereto, (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar Loans, only if no Default
or Event of Default is in existence on the date of extension or conversion,
(iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to
the terms of the definition of "Interest Period" set forth in Section 1.1 and
---------------
shall be in such minimum amounts as provided in Section 2.1(b)(ii) , and (iv)
any request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion (or telephone notice
promptly confirmed in writing) to the Administrative Agent prior to 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day of, in the case of the
conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business
Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (a) through (e) of Section 5.2.
In the event the Borrower fails to request extension or conversion of any
Eurodollar Loan in accordance with this Section, or any such conversion or
extension is not permitted or required by this Section, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Administrative Agent shall give each
Lender notice as promptly as practicable of any such proposed extension or
conversion affecting any Loan.
3.3 Prepayments.
-----------
(a) Voluntary Prepayments. Revolving Loans may be repaid in whole
---------------------
or in part without premium or penalty; provided that (i) Eurodollar Loans may be
prepaid only upon three (3) Business Days' prior written notice to the
Administrative Agent and must be accompanied by payment of any amounts owing
under Section 3.11, and (ii) partial prepayments shall be minimum principal
amounts of, in the case of Eurodollar Loans, $2,000,000 and integral multiples
of $1,000,000 in excess thereof, and, in the case of Base Rate Loans, $1,000,000
and integral multiples of $500,000 (or the remaining Revolving Loans, if less)
in excess thereof.
(b) Mandatory Prepayments. If at any time, (A) the aggregate
---------------------
principal amount of Obligations shall exceed the Aggregate Revolving Committed
Amount, (B) the aggregate amount of LOC Obligations shall exceed the LOC
Committed Amount, or (C) the aggregate amount of Swingline Loans shall exceed
the Swingline Committed Amount, the Borrower shall immediately make payment on
the Revolving Loans and/or to a cash collateral account in respect of the LOC
Obligations, in an amount sufficient to eliminate the excess. Unless otherwise
specified by the Borrower, prepayments made hereunder shall be applied first to
Swingline Loans, then to Revolving Loans which are Base Rate Loans, then to
Revolving Loans which are Eurodollar Loans in direct order of Interest Period
maturities, and then to a cash collateral account to secure LOC Obligations.
Amounts prepaid hereunder may be reborrowed in accordance with the provisions
hereof.
3.4 Termination and Reduction of Commitments
----------------------------------------
(a) Voluntary Reductions. The Revolving Commitments may be
--------------------
terminated or permanently reduced in whole or in part upon three (3) Business
Days' prior written notice to the
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Administrative Agent, provided that (i) after giving effect to any voluntary
--------
reduction the aggregate amount of Obligations shall not exceed the Aggregate
Revolving Committed Amount, as reduced, and (ii) partial reductions shall be
minimum principal amount of $2,000,000, and in integral multiples of $1,000,000
in excess thereof.
(b) Mandatory Reduction. The Commitments hereunder shall terminate
-------------------
on the Termination Date.
3.5 Fees.
----
(a) Commitment Fee. In consideration of the Revolving Commitments
--------------
hereunder, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a commitment fee (the "Commitment Fee") equal to
--------------
the Applicable Percentage per annum on the average daily unused amount of the
Revolving Committed Amount for the applicable period. The Commitment Fee shall
be payable quarterly in arrears on the 15th day following the last day of each
calendar quarter for the immediately preceding quarter (or portion thereof)
beginning with the first such date to occur after the Closing Date.
(b) Letter of Credit Fees.
---------------------
(i) Letter of Credit Fee. In consideration of the LOC
--------------------
Commitment hereunder, the Borrower agrees to pay to the Administrative
Agent for the ratable benefit of the Lenders a fee (the "Letter of Credit
----------------
Fee") equal to the Applicable Percentage per annum on the average daily
---
maximum amount available to be drawn under Letters of Credit from the date
of issuance to the date of expiration. The Letter of Credit Fee shall be
payable quarterly in arrears on the 15th day following the last day of each
calendar quarter for the immediately preceding quarter (or portion thereof)
beginning with the first such date to occur after the Closing Date.
(ii) Issuing Lender Fee. In addition to the Letter of
------------------
Credit Fee, the Borrower agrees to pay to the Issuing Lender for its own
account without sharing by the other Lenders (A) such fronting and
negotiation fees as may be mutually agreed upon by the Issuing Lender and
the Borrower from time to time and (B) customary charges of the Issuing
Lender with respect to the issuance, amendment, transfer, administration,
cancellation and conversion of, and drawings under, such Letters of Credit
(collectively, the "Issuing Lender Fees").
-------------------
(c) Administrative Fees. The Borrower agrees to pay to the
-------------------
Administrative Agent, for its own account, an annual administrative fee and such
other fees, if any, referred to in the Administrative Agent's Fee Letter
(collectively, the "Administrative Agent Fees").
-------------------------
3.6 Capital Adequacy.
----------------
If any Lender has determined, after the date hereof, that the
adoption or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force
32
<PAGE>
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on such Lender's capital or
assets as a consequence of its commitments or obligations hereunder to a level
below that which such Lender could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy), then, upon notice from such Lender
to the Borrower, the Borrower shall be obligated to pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction,
provided that the Borrower shall not be obligated to pay amounts owing
- --------
hereunder for any period which is more than six (6) months prior to the date of
delivery of any request for payment under this Section. Each determination by
any such Lender of amounts owing under this Section shall, absent manifest
error, be conclusive and binding on the parties hereto.
3.7 Inability To Determine Interest Rate.
------------------------------------
If prior to the first day of any Interest Period, the Administrative Agent
shall have determined (which determination shall be conclusive and binding upon
the Borrower) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for such Interest Period, the Administrative Agent shall give telecopy or
telephonic notice thereof to the Borrower and the Lenders as soon as practicable
thereafter. If such notice is given (a) any Eurodollar Loans requested to be
made on the first day of such Interest Period shall be made as Base Rate Loans
and (b) any Loans that were to have been converted on the first day of such
Interest Period to or continued as Eurodollar Loans shall be converted to or
continued as Base Rate Loans. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans shall be made or continued as
such, nor shall the Borrower have the right to convert Base Rate Loans to
Eurodollar Loans.
3.8 Illegality.
----------
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate
Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it
shall no longer be unlawful for such Lender to make or maintain Eurodollar
Loans, such Lender shall then have a commitment only to make a Base Rate Loan
when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.11.
3.9 Requirements of Law.
-------------------
If, after the date hereof, the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof applicable to
any Lender, or compliance by any Lender with any request or directive (whether
or not having the force of law) from any central bank or other
33
<PAGE>
Governmental Authority, in each case made subsequent to the Closing Date (or, if
later, the date on which such Lender becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever with
respect to any Letter of Credit, any Eurodollar Loans made by it or its
obligation to make Eurodollar Loans, or change the basis of taxation of
payments to such Lender in respect thereof (except for (i) Non-Excluded
Taxes covered by Section 3.10 (including Non-Excluded Taxes imposed solely
by reason of any failure of such Lender to comply with its obligations
under Section 3.10(b)) and (ii) changes in taxes measured by or imposed
upon the overall net income, or franchise tax (imposed in lieu of such net
income tax), of such Lender or its applicable lending office, branch, or
any affiliate thereof)); or
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding any
tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, upon notice to the Borrower from such Lender,
through the Administrative Agent, in accordance herewith, the Borrower shall be
obligated to promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable, provided that, in any such case, the Borrower may elect to convert
--------
the Eurodollar Loans made by such Lender hereunder to Base Rate Loans by giving
the Administrative Agent at least one Business Day's notice of such election, in
which case the Borrower shall promptly pay to such Lender, upon demand, without
duplication, such amounts, if any, as may be required pursuant to Section 3.11,
and provided further that the Borrower shall not be obligated to pay amounts
-------- -------
owing hereunder for any period which is more than six (6) months prior to the
date of delivery of any request for payment under this Section. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall provide prompt notice thereof to the Borrower, through the Administrative
Agent, certifying (x) that one of the events described in this paragraph (a) has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Lender and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this subsection submitted by such Lender, through the
Administrative Agent, to the Borrower shall be conclusive and binding on the
parties hereto in the absence of manifest error. This covenant shall survive
the termination of this Credit Agreement and the payment of the Loans and all
other amounts payable hereunder.
3.10 Taxes.
-----
(a) Except as provided below in this subsection, all payments made by the
Borrower under this Credit Agreement and any Notes shall be made free and
clear of, and without deduction or
34
<PAGE>
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any court, or
governmental body, agency or other official, excluding taxes measured by or
imposed upon the overall net income of any Lender or its applicable lending
office, or any branch or affiliate thereof, and all franchise taxes, branch
taxes, taxes on doing business or taxes on the overall capital or net worth of
any Lender or its applicable lending office, or any branch or affiliate thereof,
in each case imposed in lieu of net income taxes, imposed: (i) by the
jurisdiction under the laws of which such Lender, applicable lending office,
branch or affiliate is organized or is located, or in which its principal
executive office is located, or any nation within which such jurisdiction is
located or any political subdivision thereof; or (ii) by reason of any
connection between the jurisdiction imposing such tax and such Lender,
applicable lending office, branch or affiliate other than a connection arising
solely from such Lender having executed, delivered or performed its obligations,
or received payment under or enforced, this Credit Agreement or any Notes. If
any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
or withholdings ("Non-Excluded Taxes") are required to be withheld from any
------------------
amounts payable to the Administrative Agent or any Lender hereunder or under any
Notes, (A) the amounts so payable to the Administrative Agent or such Lender
shall be increased to the extent necessary to yield to the Administrative Agent
or such Lender (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Credit Agreement and any Notes, provided, however, that the Borrower shall be
-------- -------
entitled to deduct and withhold any Non-Excluded Taxes and shall not be required
to increase any such amounts payable to any Lender that is not organized under
the laws of the United States of America or a state thereof if such Lender fails
to comply with the requirements of paragraph (b) of this subsection whenever any
Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as possible
thereafter the Borrower shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this subsection shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(X)(i) on or before the date of any payment by the Borrower under
this Credit Agreement or Notes to such Lender, deliver to the Borrower and
the Administrative Agent (A) two (2) duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, or successor applicable form,
as the case may be, certifying that it is entitled to receive payments
under this Credit Agreement and any Notes without deduction or withholding
of any United States federal income taxes and (B) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form, as the case may be,
certifying that it is entitled to an exemption from United States backup
withholding tax;
(ii) deliver to the Borrower and the Administrative Agent two (2)
further copies of any such form or certification on or before the date
that any such form or certification
35
<PAGE>
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the
Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower
or the Administrative Agent; or
(Y) in the case of any such Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (i) represent
to the Borrower (for the benefit of the Borrower and the Administrative
Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of
the Internal Revenue Code, (ii) agree to furnish to the Borrower on or
before the date of any payment by the Borrower, with a copy to the
Administrative Agent two (2) accurate and complete original signed copies
of Internal Revenue Service Form W-8, or successor applicable form
certifying to such Lender's legal entitlement at the date of such
certificate to an exemption from U.S. withholding tax under the provisions
of Section 881(c) of the Internal Revenue Code with respect to payments to
be made under this Credit Agreement and any Notes (and to deliver to the
Borrower and the Administrative Agent two (2) further copies of such form
on or before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recently provided
form and, if necessary, obtain any extensions of time reasonably requested
by the Borrower or the Administrative Agent for filing and completing such
forms), and (iii) agree, to the extent legally entitled to do so, upon
reasonable request by the Borrower, to provide to the Borrower (for the
benefit of the Borrower and the Administrative Agent) such other forms as
may be reasonably required in order to establish the legal entitlement of
such Lender to an exemption from withholding with respect to payments under
this Credit Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has occurred
after the date such Person becomes a Lender hereunder which renders all such
forms inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender so advises the
Borrower and the Administrative Agent. Each Person that shall become a Lender
or a participant of a Lender pursuant to subsection 11.3 shall, upon the
effectiveness of the related transfer, be required to provide all of the forms,
certifications and statements required pursuant to this subsection, provided
--------
that in the case of a participant of a Lender the obligations of such
participant of a Lender pursuant to this subsection (b) shall be determined as
if the participant of a Lender were a Lender except that such participant of a
Lender shall furnish all such required forms, certifications and statements to
the Lender from which the related participation shall have been purchased.
3.11 Indemnity.
---------
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than through such Lender's gross negligence or willful misconduct) as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a
day which is not the last day of an Interest Period with respect thereto. The
36
<PAGE>
covenants of the Borrower set forth in this Section 3.11 shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
3.12 Pro Rata Treatment.
------------------
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or prepayment of principal of any Loan
-----
(other than Swingline Loans) or reimbursement obligations arising from drawings
under Letters of Credit, each payment of interest on the Loans or reimbursement
obligations arising from drawings under Letters of Credit, each payment of
Commitment Fees, each payment of the Letter of Credit Fee, each reduction of the
Revolving Committed Amount and each conversion or extension of any Loan (other
than Swingline Loans), shall be allocated pro rata among the Lenders in
accordance with the respective principal amounts of their outstanding Loans and
Participation Interests.
(b) Advances. No Lender shall be responsible for the failure or delay
--------
by any other Lender in its obligation to make its ratable share of a borrowing
hereunder; provided, however, that the failure of any Lender to fulfill its
-------- -------
obligations hereunder shall not relieve any other Lender of its obligations
hereunder. Unless the Administrative Agent shall have been notified in writing
by any Lender prior to a borrowing that such Lender will not make the amount
that would constitute its ratable share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by such Lender within the time period specified therefor hereunder, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the Federal Funds Rate for a period of two
(2) Business Days, and thereafter at the Base Rate, for the period until such
Lender makes such amount immediately available to the Administrative Agent. If
such Lender does not pay such amounts to the Administrative Agent forthwith upon
demand, the Administrative Agent may notify the Borrower and request the
Borrower to immediately pay such amount to the Administrative Agent with
interest at the Base Rate. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
3.13 Sharing of Payments.
-------------------
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan, LOC Obligations or any other obligation
owing to such Lender under this Credit Agreement through the exercise of a right
of setoff, banker's lien or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly purchase from the other
Lenders a participation in such Loans, LOC Obligations and other obligations in
such amounts, and make such other adjustments from time to time, as shall be
equitable to the end that all Lenders share such payment in accordance with
their respective ratable shares as provided for in this Credit Agreement. The
Lenders further agree among themselves that if payment to a Lender obtained by
such Lender through the exercise of a right of setoff, banker's lien,
counterclaim or other event as aforesaid shall be rescinded or must otherwise be
restored, each Lender which shall have
37
<PAGE>
shared the benefit of such payment shall, by repurchase of a participation
theretofore sold, return its share of that benefit (together with its share of
any accrued interest payable with respect thereto) to each Lender whose payment
shall have been rescinded or otherwise restored. The Borrower agrees that any
Lender so purchasing such a participation may, to the fullest extent permitted
by law, exercise all rights of payment, including setoff, banker's lien or
counterclaim, with respect to such participation as fully as if such Lender were
a holder of such Loan, LOC Obligations or other obligation in the amount of such
participation. Except as otherwise expressly provided in this Credit Agreement,
if any Lender or the Administrative Agent shall fail to remit to the
Administrative Agent or any other Lender an amount payable by such Lender or the
Administrative Agent to the Administrative Agent or such other Lender pursuant
to this Credit Agreement on the date when such amount is due, such payments
shall be made together with interest thereon for each date from the date such
amount is due until the date such amount is paid to the Administrative Agent or
such other Lender at a rate per annum equal to the Federal Funds Rate. If under
any applicable bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a setoff to which this Section 3.13 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.13 to share in the benefits of any recovery on such secured claim.
3.14 Payments, Computations, Etc.
----------------------------
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Administrative Agent in dollars in immediately
available funds, without offset, deduction, counterclaim or withholding of any
kind, at the Administrative Agent's office specified in Section 11.1 not later
than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments
received after such time shall be deemed to have been received on the next
succeeding Business Day. The Borrower shall, at the time it makes any payment
under this Credit Agreement, specify to the Administrative Agent the Loans, LOC
Obligations, Fees, interest or other amounts payable by the Borrower hereunder
to which such payment is to be applied (and in the event that it fails so to
specify, or if such application would be inconsistent with the terms hereof, the
Administrative Agent shall distribute such payment to the Lenders in such manner
as the Administrative Agent may determine to be appropriate in respect of
obligations owing by the Borrower hereunder, subject to the terms of Section
3.12(a)). The Administrative Agent will distribute such payments to such
Lenders, if any such payment is received prior to 12:00 Noon (Charlotte, North
Carolina time) on a Business Day in like funds as received prior to the end of
such Business Day and otherwise the Administrative Agent will distribute such
payment to such Lenders on the next succeeding Business Day. Whenever any
payment hereunder shall be stated to be due on a day which is not a Business
Day, the due date thereof shall be extended to the next succeeding Business Day
(subject to accrual of interest and Fees for the period of such extension),
except that in the case of Eurodollar Loans, if the extension would cause the
payment to be made in the next following calendar month, then such payment shall
instead be made on the next preceding Business Day. Except as expressly provided
otherwise herein, all computations of interest and fees shall be made on the
basis of actual number of days elapsed over a year of 360 days, except with
respect to computation of interest on Base Rate Loans which (unless the Base
Rate is determined by reference to the Federal Funds Rate) shall be calculated
based on a year of 365 or 366 days, as appropriate. Interest shall accrue from
and include the date of borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
---------------------------------------------
other provisions of this Credit Agreement to the contrary, after the occurrence
and during the continuance of an Event of
38
<PAGE>
Default, all amounts collected or received by the Administrative Agent or any
Lender on account of the Obligations or any other amounts outstanding under any
of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees or
external counsel) incurred by the Administrative Agent in connection with
enforcing the rights of the Lenders under the Credit Documents;
SECOND, to payment of any fees owed to the Administrative Agent;
THIRD, to the payment of all accrued interest and fees on or in
respect of the Obligations;
FOURTH, to the payment of the outstanding principal amount of the
Obligations (including the payment or cash collateralization of the
outstanding LOC Obligations);
FIFTH, to all other Obligations and other obligations which shall
have become due and payable under the Credit Documents or otherwise and not
repaid pursuant to clauses "FIRST" through "FOURTH" above; and
SIXTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Obligations held by such Lender bears to the aggregate then outstanding
Obligations) of amounts available to be applied pursuant to clauses "THIRD",
"FOURTH" and "FIFTH" above; and (iii) to the extent that any amounts available
for distribution pursuant to clause "FOURTH" above are attributable to the
issued but undrawn amount of outstanding Letters of Credit, such amounts shall
be held by the Administrative Agent in a cash collateral account and applied (A)
first, to reimburse the Issuing Lender for any drawings under such Letters of
Credit and (B) then, following the expiration of all Letters of Credit, to all
other obligations of the types described in clauses "FOURTH" and "FIFTH" above
in the manner provided in this Section 3.14(b).
3.15 Evidence of Debt.
----------------
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Credit Agreement. Each Lender will make reasonable efforts to
maintain the accuracy of its account or accounts and to promptly update its
account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to
Section 11.3(c) hereof, and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and Interest
Period of each such Loan hereunder, (ii) the amount of any principal or interest
due and payable or to become due and payable to each Lender hereunder and (iii)
39
<PAGE>
the amount of any sum received by the Administrative Agent hereunder from or for
the account of the Borrower and each Lender's share thereof. The Administrative
Agent will make reasonable efforts to maintain the accuracy of the subaccounts
referred to in the preceding sentence and to promptly update such subaccounts
from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts maintained
pursuant to subsection (b) of this Section 3.15 (and, if consistent with the
entries of the Administrative Agent, subsection (a)) shall be prima facie
evidence of the existence and amounts of the obligations of the Borrower therein
recorded; provided, however, that the failure of any Lender or the
-------- -------
Administrative Agent to maintain any such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms hereof.
3.16 Replacement Lenders.
-------------------
If any Lender either (i) becomes a Defaulting Lender or (ii) delivers a
notice pursuant to Sections 3.6, 3.9 or 3.10, the Borrowers shall have the
right, if no Default or Event of Default then exists, to replace such Lender
(the "Replaced Lender") with one or more assignees eligible under Section
---------------
11.3(b) hereof (collectively, the "Replacement Lender"), provided that (A) at
------------------
the time of any replacement pursuant to this Section, the Replacement Lender
shall enter into one or more assignment agreements substantially in the form of
Schedule 11.3(b) pursuant to, and in accordance with the terms of, Section
-------
11.3(b) pursuant to which the Replacement Lender shall acquire all of the rights
- -------
and obligations of the Replaced Lender hereunder and, in connection therewith,
shall pay to (1) the Replaced Lender in respect thereof an amount equal to the
sum of (x) the principal of, and all accrued interest on, all outstanding Loans
of the Replaced Lender, (y) all unreimbursed drawings under the Letters of
Credit that have been funded by the Replaced Lender, together with all then
unpaid interest with respect thereto at such time and (z) all accrued but
theretofore unpaid, fees and other amounts owing to the Replaced Lender pursuant
to Section 3.5 and (2) each Issuing Lender an amount equal to such Replaced
Lender's Revolving Commitment Percentage of any unreimbursed drawings under
Letters of Credit issued by such Issuing Lender to the extent such amount was
not heretofore funded by Replaced Lender, and (B) all obligations of each
Borrower owing to the Replaced Lender (including all obligations, if any, owing
pursuant to Section 3.6, 3.9 or 3.10, but excluding those obligations
specifically described in clause (A) above in respect of which the assignment
purchase price has been, or is concurrently being paid) shall be paid in full by
the Borrower to such Replaced Lender concurrently with such replacement.
SECTION 4
GUARANTY
--------
4.1 The Guaranty.
------------
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, to each Affiliate of a Lender that enters into a Hedging Agreement and
to the Administrative Agent as hereinafter provided the prompt payment of the
Guaranteed Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, a mandatory cash collateralization or
otherwise) strictly in accordance with the terms thereof. The Guarantors hereby
further agree that if
40
<PAGE>
any of the Guaranteed Obligations are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as mandatory cash
collateralization or otherwise), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any other
of the Credit Documents or Hedging Agreements, to the extent the obligations of
a Guarantor shall be adjudicated to be invalid or unenforceable for any reason
(including, without limitation, because of any applicable state or federal law
relating to fraudulent conveyances or transfers) then the obligations of each
Guarantor hereunder shall be limited to the maximum amount that is permissible
under applicable law (whether federal or state and including, without
limitation, the Bankruptcy Code).
4.2 Obligations Unconditional.
-------------------------
The obligations of the Guarantors under Section 4.1 hereof are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each Guarantor agrees that such Guarantor shall have no right of
subrogation, indemnity, reimbursement or contribution against the Borrower or
any other Guarantor of the Guaranteed Obligations for amounts paid under this
Guaranty until such time as the Lenders (and any Affiliates of Lenders entering
into Hedging Agreements) have been paid in full, all Commitments under the
Credit Agreement have been terminated and no Person or Governmental Authority
shall have any right to request any return or reimbursement of funds from the
Lenders in connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed
that, to the fullest extent permitted by law, the occurrence of any one or more
of the following shall not alter or impair the liability of any Guarantor
hereunder which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to any Guarantor,
the time for any performance of or compliance with any of the Guaranteed
Obligations shall be extended, or such performance or compliance shall be
waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or instrument
referred to in the Credit Documents or Hedging Agreements shall be done or
omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the Credit
Documents, any Hedging Agreement or any other agreement or instrument referred
to in the Credit Documents or Hedging Agreements shall be waived or
41
<PAGE>
any other guarantee of any of the Guaranteed Obligations or any security
therefor shall be released or exchanged in whole or in part or otherwise dealt
with;
(iv) any Lien granted to, or in favor of, the Administrative Agent or any
Lender or Lenders as security for any of the Guaranteed Obligations shall fail
to attach or be perfected; or
(v) any of the Guaranteed Obligations shall be determined to be void or
voidable (including, without limitation, for the benefit of any creditor of
any Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Administrative Agent or any Lender
exhaust any right, power or remedy or proceed against any Person under any of
the Credit Documents, any Hedging Agreement or any other agreement or instrument
referred to in the Credit Documents or Hedging Agreements, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations.
4.3 Reinstatement.
-------------
The obligations of the Guarantors under this Section 4 shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of any Person in respect of the Guaranteed Obligations is rescinded or must be
otherwise restored by any holder of any of the Guaranteed Obligations, whether
as a result of any proceedings in bankruptcy or reorganization or otherwise, and
each Guarantor agrees that it will indemnify the Administrative Agent and each
Lender on demand for all reasonable costs and expenses (including, without
limitation, fees and expenses of counsel) incurred by the Administrative Agent
or such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
--------------------------
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. (S)(S) 26-7
through 26-9, inclusive. Each Guarantor further agrees that such Guarantor
shall have no right of recourse to security for the Guaranteed Obligations,
except through the exercise of the rights of subrogation pursuant to Section
4.2.
4.5 Remedies.
--------
The Guarantors agree that, to the fullest extent permitted by law, as between
the Guarantors, on the one hand, and the Administrative Agent and the Lenders,
on the other hand, the Guaranteed Obligations may be declared to be forthwith
due and payable as provided in Section 9.2 hereof (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Section 9.2) for purposes of Section 4.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing the
Guaranteed Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration
42
<PAGE>
(or the Guaranteed Obligations being deemed to have become automatically due and
payable), the Guaranteed Obligations (whether or not due and payable by any
other Person) shall forthwith become due and payable by the Guarantors for
purposes of said Section 4.1.
4.6 Rights of Contribution.
----------------------
The Guarantors hereby agree, as among themselves, that if any Guarantor shall
become an Excess Funding Guarantor (as defined below), each other Guarantor
shall, on demand of such Excess Funding Guarantor (but subject to the succeeding
provisions of this Section 4.6), pay to such Excess Funding Guarantor an amount
equal to such Guarantor's Pro Rata Share (as defined below and determined, for
this purpose, without reference to the properties, assets, liabilities and debts
of such Excess Funding Guarantor) of such Excess Payment (as defined below).
The payment obligation of any Guarantor to any Excess Funding Guarantor under
this Section 4.6 shall be subordinate and subject in right of payment to the
prior payment in full of the obligations of such Guarantor under the other
provisions of this Section 4, and such Excess Funding Guarantor shall not
exercise any right or remedy with respect to such excess until payment and
satisfaction in full of all of such obligations. For purposes hereof, (i)
"Excess Funding Guarantor" shall mean, in respect of the Guaranteed Obligations
------------------------
hereunder, a Guarantor that has paid an amount in excess of its Pro Rata Share
of the Guaranteed Obligations; (ii) "Excess Payment" shall mean, in respect of
--------------
any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in
excess of its Pro Rata Share of such Guaranteed Obligations; and (iii) "Pro Rata
--------
Share", for the purposes of this Section 4.6, shall mean, for any Guarantor, the
- -----
ratio (expressed as a percentage) of (a) the amount by which the aggregate
present fair saleable value of all of its assets and properties exceeds the
amount of all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) to (b) the amount by which the
aggregate present fair saleable value of all assets and other properties of the
Borrower and all of the Guarantors exceeds the amount of all of the debts and
liabilities (including contingent, subordinated, unmatured, and unliquidated
liabilities, but excluding the obligations of the Borrower and the Guarantors
hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date
(if any Guarantor becomes a party hereto subsequent to the Closing Date, then
for the purposes of this Section 4.6 such subsequent Guarantor shall be deemed
to have been a Guarantor as of the Closing Date and the information pertaining
to, and only pertaining to, such Guarantor as of the date such Guarantor became
a Guarantor shall be deemed true as of the Closing Date).
4.7 Continuing Guarantee.
--------------------
The guarantee in this Section 4 is a continuing guarantee, and shall apply to
all Guaranteed Obligations whenever arising.
4.8 Termination.
-----------
Except as provided in Section 4.3, the guarantee in this Section 4 will
terminate on the first date after the Termination Date on which the Guaranteed
Obligations have been paid in full.
SECTION 5
CONDITIONS
----------
43
<PAGE>
5.1 Conditions to Closing.
---------------------
This Credit Agreement shall become effective, and the initial Extensions of
Credit may be made, upon the satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement and Credit Documents. Receipt of (i)
--------------------------------------------------
multiple counterparts of this Credit Agreement, (ii) a Revolving Note for each
Lender and a Swingline Note for the Swingline Lender, (iii) multiple
counterparts of the Pledge Agreement, in each case executed by a duly authorized
officer of each party thereto and in each case conforming to the requirements of
this Credit Agreement.
(b) Stock Certificates. Receipt of original stock certificates
------------------
evidencing the ownership interests of the Credit Parties pledged pursuant to the
Pledge Agreement, together in each case with original undated stock powers
executed in blank (evidencing, among other things, 100% of the voting stock of
the Borrower).
(c) Financial Information. Receipt of financial information regarding
---------------------
the Company and the Borrower and their subsidiaries, as may be requested by, and
in each case in form and substance satisfactory to the Administrative Agent and
the Lenders.
(d) Absence of Legal Proceedings. The absence of any action, suit,
----------------------------
investigation or proceeding pending in any court or before any arbitrator or
governmental instrumentality which could reasonably be expected to have a
Material Adverse Effect on the Consolidated Group taken as a whole.
(e) Legal Opinions. Receipt of multiple counterparts of opinions of
--------------
counsel for the Credit Parties relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to the
Agent and the Required Lenders.
(f) Corporate Documents. Receipt of the following (or their equivalent)
-------------------
for each of the Credit Parties:
(i) Articles of Incorporation. Copies of the articles of
-------------------------
incorporation or charter documents certified to be true and complete as of a
recent date by the appropriate governmental authority of the state of its
incorporation.
(ii) Resolutions. Copies of resolutions of the Board of
-----------
Directors approving and adopting the respective Credit Documents, the
transactions contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary as of the Closing
Date to be true and correct and in force and effect as of such date.
(iii) Bylaws. Copies of the bylaws certified by a secretary
------
or assistant secretary as of the Closing Date to be true and correct and in
force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of (A)
-------------
certificates of good standing, existence or its equivalent certified as of a
recent date by the appropriate
44
<PAGE>
governmental authorities of the state of incorporation and each other state in
which the failure to so qualify and be in good standing would have a material
adverse effect on the business or operations in such state and (B) a
certificate indicating payment of all corporate franchise taxes certified as
of a recent date by the appropriate governmental taxing authorities.
(v) Secretary's Certificate. A secretary's certificate for
-----------------------
each of the Credit Parties dated as of the Closing Date substantially in the
form of Schedule 5.1(i)(v) with appropriate insertions and attachments.
------------------
(g) Fees. Receipt of all fees, if any, owing pursuant to the
----
Administrative Agent's Fee Letter, Section 3.5 or otherwise.
(h) Subsection 5.2 Conditions. The conditions specified in Section 5.2
-------------------------
shall be satisfied.
(i) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Credit Agreement shall be
reasonably satisfactory in form and substance to the Agent and the Required
Lenders.
5.2 Conditions to All Extensions of Credit.
--------------------------------------
The obligation of each Lender to make any Extension of Credit hereunder
(including the initial Extension of Credit to be made hereunder) is subject to
the satisfaction of the following conditions precedent on the date of making
such Extension of Credit:
(a) Representations and Warranties. The representations and warranties
------------------------------
made by the Credit Parties herein or in any other Credit Documents or which are
contained in any certificate furnished at any time under or in connection
herewith shall be true and correct in all material respects on and as of the
date of such Extension of Credit as if made on and as of such date (except for
those which expressly relate to an earlier date and except as disclosed in
writing and approved by the Required Lenders).
(b) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on such date or after giving effect to the
Extension of Credit to be made on such date unless such Default or Event of
Default shall have been waived in accordance with this Credit Agreement.
(c) Involuntary Bankruptcy or Insolvency. There shall not have been
------------------------------------
commenced against any of the Credit Parties an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any case, proceeding or other action for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or for the
winding up or liquidation of its affairs, and shall remain undismissed,
undischarged or unbonded.
(d) No Material Adverse Effect. No circumstances, events or conditions
--------------------------
shall have occurred since the date of the audited financial statements
referenced in Section 6.1 which would have a Material Adverse Effect.
45
<PAGE>
(e) Additional Conditions to Revolving Loans. If a Revolving Loan is
----------------------------------------
made pursuant to Section 2.1, all conditions set forth therein shall have been
satisfied.
(f) Additional Conditions to Letters of Credit. If such Extension of
------------------------------------------
Credit is made pursuant to Section 2.2, all conditions set forth therein shall
have been satisfied.
(g) Additional Conditions to Swingline Loans. If a Swingline Loan is
----------------------------------------
made pursuant to Section 2.3, all conditions set forth therein shall have been
satisfied.
Each request for Extension of Credit (including extensions and conversions)
and each acceptance by the Borrower of an Extension of Credit (including
extensions and conversions) shall be deemed to constitute a representation and
warranty by the Borrower as of the date of such Extension of Credit that the
applicable conditions in paragraphs (a), (b), (c) and (d), and in (e), (f) or
(g) of this subsection have been satisfied.
SECTION 6
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lenders to enter into this Credit Agreement and to make
Extensions of Credit herein provided for, each of the members of the
Consolidated Group parties hereto (in the case of the Company, for itself and
for each of the other members of the Consolidated Group; and in the case of each
of the other Credit Parties, for itself) hereby represents and warrants to the
Administrative Agent and to each Lender that:
6.1 Financial Condition.
-------------------
Each of the financial statements described below (copies of which have
heretofore been provided to the Administrative Agent for distribution to the
Lenders), have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, are complete and correct in all material
respects and present fairly the financial condition and results from operations
of the entities and for the periods specified, subject in the case of interim
company-prepared statements to normal year-end adjustments:
(i) an audited consolidated balance sheet of the Company and its
consolidated subsidiaries dated as of September 30, 1996, together with
related statements income and cash flows certified by Ernst & Young, LLP,
certified public accountants; and
(ii) a company-prepared consolidated balance sheet of the Company and its
consolidated subsidiaries dated as of March 31, 1997, together with related
consolidated statements of income and cash flows.
6.2 No Changes or Restricted Payments.
---------------------------------
Since the date of the audited financial statements referenced in Section
6.1(i), (a) there has been no circumstance, development or event relating to or
affecting the members of the Consolidated Group which has had or would be
reasonably expected to have a Material Adverse
46
<PAGE>
Effect, and (b) except as permitted herein, no Restricted Payments have been
made or declared or are contemplated by any members of the Consolidated Group.
6.3 Organization; Existence; Compliance with Law.
--------------------------------------------
Each of the members of the Consolidated Group (a) is duly organized, validly
existing in good standing under the laws of the jurisdiction of its
incorporation or organization, (b) has the corporate or other necessary power
and authority, and the legal right to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not, in the aggregate, have a Material
Adverse Effect, and (d) is in compliance with all Requirements of Law, except to
the extent that the failure to comply therewith would not, in the aggregate, be
reasonably expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, with respect to each of the members of the
Consolidated Group:
(i) Current billing policies, arrangements, protocols and instructions
comply with requirements of Medical Reimbursement Programs and are
administered by properly trained personnel except where any such failure to
comply could not reasonably be expected to result in an Exclusion Event; and
(ii) Current medical director compensation arrangements comply with state
and federal anti-kick back/fraud and abuse, and Stark I and II requirements
except where any such failure to comply could not reasonably be expected to
result in an Exclusion Event.
6.4 Power; Authorization; Enforceable Obligations.
---------------------------------------------
Each of the Credit Parties has the corporate or other necessary power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party and has taken all necessary corporate or other
action to authorize the execution, delivery and performance by it of the Credit
Documents to which it is a party. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with acceptance of extensions of credit
or the making of the guaranties hereunder or with the execution, delivery or
performance of any Credit Documents by the Credit Parties (other than those
which have been obtained, such filings as are required by the Securities and
Exchange Commission and to fulfill other reporting requirements with
Governmental Authorities) or with the validity or enforceability of any Credit
Document against the Credit parties (except such filings as are necessary in
connection with the perfection of the Liens created by such Credit Documents).
Without limiting the generality of the foregoing, with respect to each of the
members of the Consolidated Group:
(i) the members of the Consolidated Group have obtained Necessary
Authorizations (including certificates of need) as necessary to the lawful
ownership and operation of their business, except to the extent that failure
thereof would not have a Material Adverse Effect; and
47
<PAGE>
(ii) the members of the Consolidated Group are properly enrolled in, have
the necessary authorizations and consents, and are otherwise authorized to
receive reimbursement under the Medical Reimbursement Programs and private
insurance reimbursement programs in which they participate, except to the
extent that failure thereof would not have a Material Adverse Effect;
Each Credit Document to which it is a party constitutes a legal, valid and
binding obligation of such Credit Party enforceable against such Credit Party in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law.
6.5 No Legal Bar.
------------
The execution, delivery and performance of the Credit Documents, the
borrowings hereunder and the use of the Extensions of Credit will not violate
any Requirement of Law or any Contractual Obligation of any member of the
Consolidated Group (except those as to which waivers or consents have been
obtained), and will not result in, or require, the creation or imposition of any
Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or Contractual Obligation other than the Liens arising under
or contemplated in connection with the Credit Documents. No member of the
Consolidated Group is in default under or with respect to any of its Contractual
Obligations in any respect which would reasonably be expected to have a Material
Adverse Effect.
6.6 No Material Litigation.
----------------------
No claim, litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority is pending or, to the best knowledge of the Credit
Parties, threatened by or against, any members of the Consolidated Group or
against any of their respective properties or revenues which (a) relate to the
Credit Documents or any of the transactions contemplated hereby or thereby, (b)
if adversely determined, would reasonably be expected to have a Material Adverse
Effect. Set forth on Schedule 6.6 is a summary of all claims, litigation,
------------
investigations and proceedings pending or, to the best knowledge of the Credit
Parties, threatened by or against the members of the Consolidated Group or
against any of their respective properties or revenues, and none of such
actions, individually or in the aggregate, is reasonably expected to have a
Material Adverse Effect.
6.7 No Default.
----------
No Default or Event of Default has occurred and is continuing.
6.8 Ownership of Property; Liens.
----------------------------
Each of members of the Consolidated Group has good record and marketable title
in fee simple to, or a valid leasehold interest in, all its material real
property, and good title to, or a valid leasehold interest in or license for,
all its other material property, and none of such property is subject to any
Lien, except for Permitted Liens.
48
<PAGE>
6.9 Intellectual Property.
---------------------
Each of the members of the Consolidated Group owns, or has the legal right to
use, all United States trademarks, tradenames, copyrights, technology, know-how
and processes, if any, necessary for each of them to conduct its business as
currently conducted (the "Intellectual Property") except for those the failure
---------------------
to own or have such legal right to use would not be reasonably expected to have
a Material Adverse Effect. No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does any
Credit Party know of any such claim, and the use of such Intellectual Property
by the members of the Consolidated Group does not infringe on the rights of any
Person, except for such claims and infringements that in the aggregate, would
not be reasonably expected to have a Material Adverse Effect.
6.10 No Burdensome Restrictions.
--------------------------
No Requirement of Law or Contractual Obligation of the members of the
Consolidated Group the Borrower or any of its Subsidiaries would be reasonably
expected to have a Material Adverse Effect.
6.11 Taxes.
-----
Each of the members of the Consolidated Group has filed or caused to be filed
all United States federal income tax returns and all other material tax returns
which, to the best knowledge of the Credit Parties, are required to be filed and
has paid (a) all taxes shown to be due and payable on said returns or (b) all
taxes shown to be due and payable on any assessments of which it has received
notice made against it or any of its property and all other taxes, fees or other
charges imposed on it or any of its property by any Governmental Authority
(other than any (i) taxes, fees or other charges with respect to which the
failure to pay, in the aggregate, would not have a Material Adverse Effect or
(ii) taxes, fees or other charges the amount or validity of which are currently
being contested and with respect to which reserves in conformity with GAAP have
been provided on the books of such Person), and no tax Lien has been filed, and,
to the best knowledge of the Credit Parties, no claim is being asserted, with
respect to any such tax, fee or other charge.
6.12 ERISA
-----
Except (i) as set out in Schedule 6.12 or (ii) as would not reasonably be
-------------
expected to have a Material Adverse Effect:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred, and, to
the best knowledge of the Credit Parties, no event or condition has occurred or
exists as a result of which any ERISA Event could reasonably be expected to
occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as
such term is defined in Section 302 of ERISA and Section 412 of the Code,
whether or not waived, has occurred with respect to any Plan; (iii) each Plan
has been maintained, operated, and funded in compliance with its own terms and
in material compliance with the provisions of ERISA, the Code, and any other
applicable federal or state laws; and (iv) no lien in favor of the PBGC or a
Plan has arisen or is reasonably likely to arise on account of any Plan.
49
<PAGE>
(b) The actuarial present value of all "benefit liabilities" (as defined in
Section 4001(a)(16) of ERISA), whether or not vested, under each Single Employer
Plan, as of the last annual valuation date prior to the date on which this
representation is made or deemed made (determined, in each case, in accordance
with Financial Accounting Standards Board Statement 87, utilizing the actuarial
assumptions used in such Plan's most recent actuarial valuation report), did not
exceed as of such valuation date the fair market value of the assets of such
Plan.
(c) No member of the Consolidated Group nor any ERISA Affiliate has incurred,
or, to the best knowledge of the Credit Parties, could be reasonably expected to
incur, any withdrawal liability under ERISA to any Multiemployer Plan or
Multiple Employer Plan. No member of the Consolidated Group nor any ERISA
Affiliate would become subject to any withdrawal liability under ERISA if any
member of the Consolidated Group or any ERISA Affiliate were to withdraw
completely from all Multiemployer Plans and Multiple Employer Plans as of the
valuation date most closely preceding the date on which this representation is
made or deemed made. No member of the Consolidated Group nor any ERISA Affiliate
has received any notification that any Multiemployer Plan is in reorganization
(within the meaning of Section 4241 of ERISA), is insolvent (within the meaning
of Section 4245 of ERISA), or has been terminated (within the meaning of Title
IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit
Parties, reasonably expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of ERISA or
Section 4975 of the Code) or breach of fiduciary responsibility has occurred
with respect to a Plan which has subjected or may subject any member of the
Consolidated Group or any ERISA Affiliate to any liability under Sections 406,
409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any
agreement or other instrument pursuant to which any member of the Consolidated
Group or any ERISA Affiliate has agreed or is required to indemnify any person
against any such liability.
(e) No member of the Consolidated Group nor any ERISA Affiliates has any
material liability with respect to "expected post-retirement benefit
obligations" within the meaning of the Financial Accounting Standards Board
Statement 106. Each Plan which is a welfare plan (as defined in Section 3(1) of
ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply
has been administered in compliance in all material respects of such sections.
6.13 Governmental Regulations, Etc.
-----------------------------
(a) No part of the proceeds of the Extensions of Credit hereunder will be
used, directly or indirectly, for the purpose of purchasing or carrying any
"margin stock" within the meaning of Regulation G or Regulation U, or for the
purpose of purchasing or carrying or trading in any securities. If requested by
any Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U. No indebtedness being reduced or retired out of the proceeds of the
Extensions of Credit hereunder was or will be incurred for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U or
any "margin security" within the meaning of Regulation T. "Margin stock" within
the meanings of Regulation U does not constitute more than 25% of the value of
the consolidated assets of the Borrower and its Subsidiaries. None of the
transactions contemplated by this Credit Agreement (including, without
limitation, the direct or indirect use of the proceeds of the Loans) will
violate or
50
<PAGE>
result in a violation of the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or regulations issued pursuant
thereto, or Regulation G, T, U or X.
(b) None of the members of the Consolidated Group is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act or
the Investment Company Act of 1940, each as amended. In addition, none of the
members of the Consolidated Group is (i) an "investment company" registered or
required to be registered under the Investment Company Act of 1940, as amended,
and is not controlled by such a company, or (ii) a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(c) No director, executive officer or principal shareholder of any member of
the Consolidated Group is a director, executive officer or principal shareholder
of any Lender. For the purposes hereof the terms "director", "executive officer"
and "principal shareholder" (when used with reference to any Lender) have the
respective meanings assigned thereto in Regulation O issued by the Board of
Governors of the Federal Reserve System.
(d) Each of the members of the Consolidated Group has obtained all material
licenses, permits, franchises or other governmental authorizations necessary to
the ownership of its respective Property and to the conduct of its business.
(e) To our knowledge, none of the members of the Consolidated Group is in
violation of any applicable statute, regulation or ordinance of the United
States of America, or of any state, city, town, municipality, county or any
other jurisdiction, or of any agency thereof (including without limitation,
environmental laws and regulations), which violation would have a Material
Adverse Effect.
(f) Each of the members of the Consolidated Group is current with all
material reports and documents, if any, required to be filed with any state or
federal securities commission or similar agency and is in full compliance in all
material respects with all applicable rules and regulations of such commissions.
6.14 Subsidiaries.
------------
Set forth on Schedule 6.14 are all the Subsidiaries of the Company at the
-------------
Closing Date, the jurisdiction of their incorporation and the direct or indirect
ownership interest of the Company or the Borrower therein.
6.15 Purpose of Extensions of Credit.
-------------------------------
The Extensions of Credit will be used to refinance existing Funded Debt, and
to finance working capital and other corporate purposes including acquisitions.
The Letters of Credit shall be used only for or in connection with appeal bonds,
reimbursement obligations arising in connection with surety and reclamation
bonds, reinsurance, domestic or international trade transactions and obligations
not otherwise aforementioned relating to transactions entered into by the
applicable account party in the ordinary course of business.
51
<PAGE>
6.16 Environmental Matters.
---------------------
Except as would not reasonably be expected to have a Material Adverse Effect:
(a) Each of the facilities and properties owned, leased or operated by the
members of the Consolidated Group (the "Properties") and all operations at the
----------
Properties are in compliance with all applicable Environmental Laws, and there
is no violation of any Environmental Law with respect to the Properties or the
businesses operated by the members of the Consolidated Group (the "Businesses"),
----------
and there are no conditions relating to the Businesses or Properties that could
give rise to liability under any applicable Environmental Laws.
(b) None of the Properties contains, or has previously contained, any
Materials of Environmental Concern at, on or under the Properties in amounts or
concentrations that constitute or constituted a violation of, or could give rise
to liability under, Environmental Laws.
(c) None of the members of the Consolidated Group has received any written or
verbal notice of, or inquiry from any Governmental Authority regarding, any
violation, alleged violation, non-compliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws with
regard to any of the Properties or the Businesses, nor does any member of the
Consolidated Group have knowledge or reason to believe that any such notice will
be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or disposed
of from the Properties, or generated, treated, stored or disposed of at, on or
under any of the Properties or any other location, in each case by or on behalf
any members of the Consolidated Group in violation of, or in a manner that would
be reasonably likely to give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative action is
pending or, to the best knowledge of any Credit Party, threatened, under any
Environmental Law to which any member of the Consolidated Group is or will be
named as a party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other administrative or
judicial requirements outstanding under any Environmental Law with respect to
any member of the Consolidated Group, the Properties or the Businesses.
(f) To our knowledge, there has been no release or, threat of release of
Materials of Environmental Concern at or from the Properties, or arising from or
related to the operations (including, without limitation, disposal) of any
member of the Consolidated Group in connection with the Properties or otherwise
in connection with the Businesses, in violation of or in amounts or in a manner
that could give rise to liability under Environmental Laws.
SECTION 7
AFFIRMATIVE COVENANTS
---------------------
Each of the Credit Parties covenants and agrees that on the Closing Date, and
so long as this Credit Agreement is in effect and until the Commitments have
been terminated, no
52
<PAGE>
Obligations remain outstanding and all amounts owing hereunder or in connection
herewith have been paid in full, each of the members of the Consolidated Group
party hereto shall:
7.1 Financial Statements.
--------------------
Furnish, or cause to be furnished, to the Administrative Agent for
distribution to the Lenders:
(a) Audited Financial Statements. As soon as available, but in any
----------------------------
event within 90 days after the end of each fiscal year, an audited
consolidated balance sheet of the Company and its subsidiaries as of the end
of the fiscal year and the related consolidated statements of income, retained
earnings, shareholders' equity and cash flows for the year, audited by Ernst &
Young, LLP, or other firm of independent certified public accountants of
nationally recognized standing reasonably acceptable to the Required Lenders,
setting forth in each case in comparative form the figures for the previous
year, reported without a "going concern" or like qualification or exception,
or qualification indicating that the scope of the audit was inadequate to
permit such independent certified public accountants to certify such financial
statements without such qualification.
(b) Company-Prepared Financial Statements. As soon as available, but in
-------------------------------------
any event
(i) within 45 days after the end of each of the first three
fiscal quarters, a company-prepared consolidated balance sheet of the
Company and its subsidiaries as of the end of the quarter and related
company-prepared consolidated statements of income, retained earnings,
shareholders' equity and cash flows for such quarterly period and for the
fiscal year to date;
(ii) within 60 days after the end of each fiscal year, an annual
business plan and budget for the Consolidated Group as is customarily
prepared by the Company, containing, among other things, pro forma
financial statements for the next fiscal year,
in each case setting forth in comparative form the consolidated figures for
the corresponding period or periods of the preceding fiscal year or the
portion of the fiscal year ending with such period, as applicable, in each
case subject to normal recurring year-end audit adjustments.
All such financial statements shall be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring year-
end audit adjustments) and shall be prepared in reasonable detail and, in the
case of the annual and quarterly financial statements provided in accordance
with subsections (a) and (b) above, in accordance with GAAP applied consistently
throughout the periods reflected therein and further accompanied by a
description of, and an estimation of the effect on the financial statements on
account of, a change in the application of accounting principles as provided in
Section 1.3.
7.2 Certificates; Other Information.
-------------------------------
53
<PAGE>
Furnish, or cause to be furnished, to the Administrative Agent for
distribution to the Lenders:
(a) Accountant's Certificate and Reports. Concurrently with the
------------------------------------
delivery of the financial statements referred to in subsection 7.1(a) above, a
certificate of the independent certified public accountants reporting on such
financial statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except as
specified in such certificate.
(b) Officer's Certificate. Concurrently with the delivery of the
---------------------
financial statements referred to in Sections 7.1(a) and 7.1(b) above, a
certificate of a Responsible Officer stating that, to the best of such
Responsible Officer's knowledge and belief, (i) the financial statements
fairly present in all material respects the financial condition of the parties
covered by such financial statements, (ii) during such period the members of
the Consolidated Group have observed or performed in all material respects the
covenants and other agreements hereunder and under the other Credit Documents
relating to them, and satisfied in all material respects the conditions,
contained in this Credit Agreement to be observed, performed or satisfied by
them, and (iii) such Responsible Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate. Such
certificate shall include the calculations required to indicate compliance
with Section 7.9. A form of Officer's Certificate is attached as Schedule
--------
7.2(b).
------
(c) Accountants' Reports. Promptly upon receipt, a copy of any final
--------------------
(as distinguished from a preliminary or discussion draft) "management letter"
or other similar report submitted by independent accountants or financial
consultants to the members of the Consolidated Group in connection with any
annual, interim or special audit.
(d) Public Information. Within thirty days after the same are sent,
------------------
copies of all reports (other than those otherwise provided pursuant to
subsection 7.1) and other financial information which any member of the
Consolidated Group sends to its public stockholders, and within thirty days
after the same are filed, copies of all financial statements and non-
confidential reports which any member of the Consolidated Group may make to,
or file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority.
(e) Other Information. Promptly, such additional financial and other
-----------------
information as the Administrative Agent, at the request of any Lender, may
from time to time reasonably request.
7.3 Notices.
-------
Give notice to the Administrative Agent (which shall promptly transmit such
notice to each Lender) of:
(a) Defaults. Immediately (and in any event within two (2) Business
--------
Days) after any Responsible Officer of a Credit Party knows or has reason to
know thereof, the occurrence of any Default or Event of Default.
54
<PAGE>
(b) Contractual Obligations. Promptly upon knowledge of a Responsible
-----------------------
Officer of a Credit Party, the occurrence of any default or event of
default under any Contractual Obligation of any member of the Consolidated
Group which would have a Material Adverse Effect on the Consolidated Group.
(c) Legal Proceedings. Promptly upon knowledge of a Responsible
-----------------
Officer of a Credit Party, any litigation, or any investigation or
proceeding (including without limitation, any environmental proceeding)
known to any member of the Consolidated Group, or any material development
in respect thereof, affecting any member of the Consolidated Group which,
if adversely determined, would reasonably be expected to have a Material
Adverse Effect on the Consolidated Group.
(d) ERISA. Promptly, after any Responsible Officer of the Company
-----
knows or has reason to know of (i) any event or condition, including, but
not limited to, any Reportable Event, that constitutes, or might reasonably
lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the
receipt of notice as prescribed in ERISA or otherwise of any withdrawal
liability assessed against any of their ERISA Affiliates, or of a
determination that any Multiemployer Plan is in reorganization or insolvent
(both within the meaning of Title IV of ERISA); (iii) the failure to make
full payment on or before the due date (including extensions) thereof of
all amounts which the members of the Consolidated Group or any ERISA
Affiliate are required to contribute to each Plan pursuant to its terms and
as required to meet the minimum funding standard set forth in ERISA and the
Code with respect; or (iv) any change in the funding status of any Plan
that reasonably could be expected to have a Material Adverse Effect;
together with a description of any such event or condition or a copy of any
such notice and a statement by the chief financial officer of the Company
briefly setting forth the details regarding such event, condition, or
notice, and the action, if any, which has been or is being taken or is
proposed to be taken by the Credit Parties with respect thereto. Promptly
upon request, the members of the Consolidated Group shall furnish the
Administrative Agent and the Lenders with such additional information
concerning any Plan as may be reasonably requested, including, but not
limited to, copies of each annual report/return (Form 5500 series), as well
as all schedules and attachments thereto required to be filed with the
Department of Labor and/or the Internal Revenue Service pursuant to ERISA
and the Code, respectively, for each "plan year" (within the meaning of
Section 3(39) of ERISA).
(e) Other. Promptly, any other development or event which a
-----
Responsible Officer of the Company determines could reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the relevant Credit Parties propose
to take with respect thereto.
7.4 Payment of Obligations.
----------------------
55
<PAGE>
Pay, discharge or otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, in accordance with prudent business
practice (subject, where applicable, to specified grace periods) all material
obligations of each member of the Consolidated Group of whatever nature and any
additional costs that are imposed as a result of any failure to so pay,
discharge or otherwise satisfy such obligations, except when the amount or
validity of such obligations and costs is currently being contested in good
faith by appropriate proceedings and reserves, if applicable, in conformity with
GAAP with respect thereto have been provided on the books of the Consolidated
Group, as the case may be.
7.5 Conduct of Business and Maintenance of Existence.
------------------------------------------------
(a) Continue to engage in business of the same general type as now
conducted by it on the Closing Date and similar or related businesses;
(b) Preserve, renew and keep in full force and effect its corporate
existence, except as otherwise permitted hereunder and except to the extent that
failure to comply therewith would not, in the aggregate, have a Material Adverse
Effect;
(c) Take all reasonable action to maintain all rights, privileges,
licenses and franchises necessary or desirable in the normal conduct of its
business, except to the extent that any failure would not have a Material
Adverse Effect; and
(d) Comply with all Contractual Obligations and Requirements of Law
applicable to it, except to the extent that failure to comply therewith would
not, in the aggregate, have a Material Adverse Effect.
7.6 Maintenance of Property; Insurance.
----------------------------------
Keep all material property useful and necessary in its business in
reasonably good working order and condition (ordinary wear and tear excepted);
maintain with financially sound and reputable insurance companies casualty,
liability and such other insurance (which may include plans of self-insurance)
with such coverage and deductibles, and in such amounts as may be consistent
with prudent business practice and in any event consistent with normal industry
practice (except to any greater extent as may be required by the terms of any of
the other Credit Documents); and furnish to the Administrative Agent, upon
written request, full information as to the insurance carried.
7.7 Inspection of Property; Books and Records; Discussions.
------------------------------------------------------
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its businesses and activities; and
permit, during regular business hours and upon reasonable notice, the
Administrative Agent and each of the Lenders to visit and inspect any of its
properties and examine and make abstracts (including photocopies) from any of
its books and records (other than materials protected by the attorney-client
privilege and materials which the Credit Parties may not disclose without
violation of a confidentiality obligation binding upon them) at any reasonable
time, and to discuss the business, operations, properties and financial and
other condition of the members of the Consolidated Group with
56
<PAGE>
officers of the members of the Consolidated Group and with their independent
certified public accountants. The cost of the inspection referred to in the
preceding sentence shall be for the account of the Lenders unless an Event of
Default has occurred and is continuing, in which case the cost of such
inspection shall be for the account of the Credit Parties.
7.8 Environmental Laws.
------------------
(a) Comply in all material respects with, and take reasonable actions to
ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and take reasonable actions to ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws except to the extent that
failure to do so would not reasonably be expected to have a Material Adverse
Effect;
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws except to the extent that the same are being contested in good faith by
appropriate proceedings and the failure to do or the pendency of such
proceedings would not reasonably be expected to have a Material Adverse Effect;
and
(c) Defend, indemnify and hold harmless the Administrative Agent and the
Lenders, and their respective employees, agents, officers and directors, from
and against any and all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under, any Environmental Law
applicable to the operations of the members of the Consolidated Group or the
Properties, or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, reasonable attorney's fees of
external counsel and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses actually incurred, except to
the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The agreements
in this paragraph shall survive repayment of the Loans and all other amounts
payable hereunder, and termination of the Commitments.
7.9 Financial Covenants.
-------------------
(a) Consolidated Leverage Ratio. As of the end of each fiscal quarter,
---------------------------
the Consolidated Leverage Ratio shall be not greater than 3.5:1.0.
(b) Consolidated Fixed Charge Coverage Ratio. As of the end of each
----------------------------------------
fiscal quarter, the Consolidated Fixed Charge Coverage Ratio shall be not less
than 1.6:1.0.
(c) Consolidated Net Worth. As of the end of each fiscal quarter,
----------------------
Consolidated Net Worth shall be not less than the sum of 85% of Consolidated Net
Worth as of the Closing Date plus on the last day of each fiscal quarter to
----
occur after the Closing Date, 50% of Consolidated Net Income for the fiscal
quarter then ended (but not less than zero), such increases to be
57
<PAGE>
cumulative, plus 75% of the net proceeds from Equity Transactions occurring
----
after the Closing Date.
7.10 Agency Fees.
-----------
Pay to the Administrative Agent the annual agency fee and comply with the
other agreements provided for in the Administrative Agent's Fee Letter.
7.11 Additional Guaranties and Stock Pledges.
---------------------------------------
(a) Domestic Subsidiaries. Where Domestic Subsidiaries of the Company
---------------------
which are not Credit Parties hereunder (the "Non-Guarantor Subsidiaries") shall
--------------------------
at any time constitute more than (the "Threshold Requirement"):
---------------------
(i) in any instance for any such Non-Guarantor Subsidiary, five
percent (5%) of consolidated assets for the Consolidated Group or five
percent (5%) of consolidated revenues for the Consolidated Group, or
(ii) in the aggregate for all such Non-Guarantor Subsidiaries, ten
percent (10%) of consolidated assets for the Consolidated Group or ten
percent (10%) of consolidated revenues for the Consolidated Group,
then the Company shall (i) promptly notify the Administrative Agent thereof, and
promptly cause such Domestic Subsidiary or Subsidiaries to become a Guarantor by
execution of a Joinder Agreement, such that immediately after joinder as a
Guarantor, the remaining Non-Guarantor Subsidiaries shall not in any instance,
or collectively, exceed the Threshold Requirement, (ii) deliver with the Joinder
Agreement, supporting resolutions, incumbency certificates, corporate formation
and organizational documentation and opinions of counsel as the Administrative
Agent may reasonably request, and (iii) deliver stock certificates and related
pledge agreements or pledge joinder agreements evidencing the pledge of 100% of
the Voting Stock of all Domestic Subsidiaries (whether or not they are
Guarantors) and 66% of the Voting Stock of all Foreign Subsidiaries, together
with undated stock transfer powers executed in blank.
(b) Foreign Subsidiaries. The Company will not form, acquire or permit to
--------------------
exist Foreign Subsidiaries without the prior written consent of the Required
Lenders.
7.12 Use of Proceeds.
---------------
Extensions of Credit will be used solely for the purposes provided in
Section 6.15.
SECTION 8
NEGATIVE COVENANTS
Each of the Credit Parties covenants and agrees that on the Closing Date, and
so long as this Credit Agreement is in effect and until the Commitments have
been terminated, no Obligations remain outstanding and all amounts owing
hereunder or in connection herewith, have been paid in full, no member of the
Consolidated Group shall:
58
<PAGE>
8.1 Indebtedness.
------------
Contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising or existing under this Credit Agreement and
the other Credit Documents;
(b) Indebtedness set forth in Schedule 8.1, and renewals,
------------
refinancings and extensions thereof on terms and conditions no less
favorable than for such existing Indebtedness;
(c) Capital Lease Obligations and Indebtedness incurred, in each
case, to provide all or a portion of the purchase price or costs of
construction of a tangible asset or, in the case of a sale/leaseback
transaction as described in Section 8.11, to finance the value of such asset
owned by a member of the Consolidated Group, provided that (i) such
--------
Indebtedness when incurred shall not exceed the purchase price or hard and
soft costs of construction of such asset or, in the case of a sale/leaseback
transaction, the fair market value of such asset, (ii) no such Indebtedness
shall be refinanced for a principal amount in excess of the principal
balance outstanding thereon at the time of such refinancing, and (iii) the
total amount of all such Indebtedness shall not exceed $5,000,000 in the
aggregate at any time outstanding;
(d) Indebtedness and obligations owing under interest rate protection
agreements relating to the Obligations hereunder and under interest rate,
commodities and foreign currency exchange protection agreements entered
into in the ordinary course of business to manage existing or anticipated
risks and not for speculative purposes;
(e) unsecured intercompany Indebtedness owing by a member of the
Consolidated Group to another member of the Consolidated Group (subject,
however, to the limitations of Section 8.5 in the case of the member of the
Consolidated Group extending the intercompany loan, advance or credit);
(f) permitted distributions and permitted loans to participants under
the Non-Qualified Plan;
(g) other unsecured Indebtedness of the Company and/or the Borrower
of up to $20,000,000 in the aggregate at any time outstanding; and
(h) Support Obligations of Indebtedness permitted under this Section
8.1.
8.2 Liens.
-----
Contract, create, incur, assume or permit to exist any Lien with respect to
any of their respective property or assets of any kind (whether real or
personal, tangible or intangible), whether now owned or hereafter acquired,
except for Permitted Liens.
8.3 Nature of Business.
------------------
59
<PAGE>
Alter the character of their business in any material respect from that
conducted as of the Closing Date and similar or related businesses without the
prior written consent of the Required Lenders.
8.4 Consolidation, Merger, Sale or Purchase of Assets, Capital
----------------------------------------------------------
Expenditures, etc.
-----------------
(a) Enter into a transaction of merger or consolidation, except
------
(i) a member of the Consolidated Group may be a party to a
transaction of merger or consolidation with another member of the
Consolidated Group, provided that (A) if the Company is a party thereto, it
--------
is the surviving corporation, (B) if the Borrower is a party thereto, the
Borrower shall be the surviving corporation (unless the Company is also a
party thereto, in which case the Company shall be the surviving
corporation), and (C) if a Guarantor is a party thereto, either (I) the
Company or the Borrower shall be the surviving corporation, or (II) a
Guarantor shall be the surviving corporation or the surviving corporation
shall be a Domestic Subsidiary and shall become a Guarantor hereunder as an
Additional Credit Party pursuant to Section 7.11 concurrently therewith,
and (D) no Default or Event of Default shall exist either immediately prior
to or immediately after giving effect thereto; and
(ii) a member of the Consolidated Group (other than the Company)
may be a party to a transaction of merger or consolidation with any other
Person, provided that (A) the provisions of Section 7.11 regarding joinder
of certain Subsidiaries as Additional Credit Parties hereunder shall be
complied with, (B) no Default or Event of Default shall exist either
immediately prior to or immediately after giving effect thereto, and (C)
the provisions of subsection (c) of this Section shall be complied with.
(b) Other than as between Credit Parties or with respect to the
Non-Qualified Plan, sell, lease, transfer or otherwise dispose of assets,
property and/or operations (including any sale-leaseback transaction, but
excluding the sale of inventory in the ordinary course of business (regardless
of how recorded), the sale or disposition of plant, property and equipment which
is no longer useful in the business or as to which the proceeds therefrom are
reinvested in plant, property and equipment within six months thereof) which
(i) (A) in the case of sale-leaseback transactions, shall
exceed $5,000,000 in the aggregate from the Closing Date, and (B) in all
other cases, shall exceed $500,000 in the aggregate in any fiscal year; and
(ii) no Default or Event of Default would exist after giving
effect thereto,
without the prior written consent of the Required Lenders (which consent shall
not be unreasonably withheld or delayed).
(c) Other than in connection with the Non-Qualified Plan, acquire
all or any portion of the capital stock or other ownership interest in any
Person which is not a Subsidiary or all or any substantial portion of the
assets, property and/or operations of a Person which is not a
60
<PAGE>
Subsidiary, without the prior written consent of the Required Lenders (which
consent shall not be unreasonably withheld or delayed), unless
------
(i) in the case of an acquisition of capital stock or other
ownership interest after giving effect thereto, such Person will not be a
Subsidiary, then such acquisition will not cause a violation of Section
8.5;
(ii) in the case of an acquisition of capital stock or other
ownership interest after giving effect thereto, such Person will be a
Subsidiary, or in the case of an acquisition of assets, property and/or
operations then
(A) the cost of any such acquisition (or series of related
acquisitions) shall not exceed $10,000,000 in any instance;
(B) the Board of Directors of the Person which is the
subject of the acquisition shall have approved the acquisition; and
(C) no Default or Event of Default would exist after
giving effect thereto on a Pro Forma Basis.
(d) Neither the Company, the Borrower nor any Subsidiary which is not
wholly-owned will liquidate, wind-up or dissolve, whether voluntarily or
involuntarily (or suffer to permit any such liquidation or dissolution) without
the prior written consent of the Required Lenders, unless in the case of any
such Subsidiary (other than the Borrower), such Subsidiary together with other
such Subsidiaries hereunder in any fiscal year shall constitute less than five
percent (5%) of Consolidated EBITDA for the fiscal year most recently ended.
(e) Alter the character of their business in any material respect
from that permitted by Section 8.3, except with the prior written consent of the
Required Lenders.
8.5 Advances, Investments and Loans.
-------------------------------
Lend money or extend credit or make advances to any Person, or purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, or otherwise make an Investment in, any Person
except for Permitted Investments.
8.6 Transactions with Affiliates.
----------------------------
Enter into or permit to exist any transaction or series of transactions,
whether or not in the ordinary course of business, with any officer, director,
shareholder or Affiliate other than (i) transactions permitted by Section 8.1,
Section 8.4(b), Section 8.5 or Section 8.10, (ii) transactions relating to the
Non-Qualified Plan, (iii) customary fees and expenses paid to directors and (iv)
where such transactions are on terms and conditions substantially as favorable
as would be obtainable in a comparable arm's-length transaction with a Person
other than an officer, director, shareholder or Affiliate.
8.7 Ownership of Equity Interests.
-----------------------------
61
<PAGE>
Issue, sell, transfer, pledge or otherwise dispose of any partnership
interests, shares of capital stock or other equity or ownership interests
("Equity Interests") in any member of the Consolidated Group, except (i)
----------------
issuance, sale or transfer of Equity Interest in the Company, (ii) issuance,
sale or transfer of Equity Interests to a Credit Party by a Subsidiary of such
Credit Party, (iii) in connection with a transaction permitted by Section 8.4,
and (iv) as needed to qualify directors under applicable law.
8.8 Fiscal Year.
-----------
Change its fiscal year.
8.9 Prepayments of Indebtedness, etc.
---------------------------------
Other than with respect to the Non-Qualified Plan,
(a) After the issuance thereof, amend or modify (or permit the amendment
or modification of), the terms of any other Indebtedness in a manner adverse to
the interests of the Lenders (including specifically shortening any maturity or
average life to maturity or requiring any payment sooner than previously
scheduled or increasing the interest rate or fees applicable thereto);
(b) Make any prepayment, redemption, defeasance or acquisition for value
of (including without limitation, by way of depositing money or securities with
the trustee with respect thereto before due for the purpose of paying when due),
or refund, refinance or exchange of any Funded Debt (other than intercompany
Indebtedness permitted hereunder) other than regularly scheduled payments of
principal and interest on such Funded Debt, except to the extent permitted by
Section 8.10.
8.10 Restricted Payments.
-------------------
Other than with respect to the Non-Qualified Plan, make or permit any
Restricted Payments, unless and to the extent that no Default or Event of
Default shall exist immediately prior or after giving effect thereto on a Pro
Forma Basis.
8.11 Sale Leasebacks.
---------------
Except as permitted pursuant to Sections 8.1(c) and 8.4(b) hereof,
directly or indirectly, become or remain liable as lessee or as guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any Property (whether real or personal or mixed), whether now owned or
hereafter acquired, (i) which such Person has sold or transferred or is to sell
or transfer to any other Person other than a Credit Party or (ii) which such
Person intends to use for substantially the same purpose as any other Property
which has been sold or is to be sold or transferred by such Person to any other
Person in connection with such lease.
8.12 No Further Negative Pledges.
---------------------------
Except with respect to prohibitions against other encumbrances on specific
Property encumbered to secure payment of particular Indebtedness (which
Indebtedness relates solely to
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such specific Property, and improvements and accretions thereto, and is
otherwise permitted hereby), no member of the Consolidated Group will enter
into, assume or become subject to any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of any
security for such obligation if security is given for some other obligation.
SECTION 9
EVENTS OF DEFAULT
-----------------
9.1 Events of Default.
-----------------
An Event of Default shall exist upon the occurrence of any of the following
specified events (each an "Event of Default"):
----------------
(a) Payment. Any Credit Party shall
-------
(i) default in the payment when due of any principal of any of the
Loans or of any reimbursement obligations arising from drawings under
Letters of Credit, or
(ii) default, and such defaults shall continue for five (5) or more
Business Days, in the payment when due of any interest on the Loans or on
any reimbursement obligations arising from drawings under Letters of
Credit, or
(iii) default, and such defaults shall continue for fifteen
(15) or more days, in the payment of any Fees or other amounts owing
hereunder, under any of the other Credit Documents or in connection herewith
or therewith; or
(b) Representations. Any representation, warranty or statement made or
---------------
deemed to be made herein, in any of the other Credit Documents, or in any
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove untrue in any material respect on the date as of which it
was deemed to have been made; or
(c) Covenants.
---------
(i) Default in the due performance or observance of any term,
covenant or agreement contained in Section 7.3(a), 7.5(b), 7.9, 7.11, 7.12
or 8.1 through 8.12 (except in the case of negative covenants contained in
Section 8.1 through 8.12, those Defaults which may occur or arise other
than on account of or by affirmative or intentional act of the Credit
Parties or event or condition which the Borrower shall with knowledge
permit to exist, all of which shall be subject to the provisions of clause
(ii) hereof), inclusive, or
(ii) Default in the due performance or observance by it of any term,
covenant or agreement (other than those referred to in subsections (a), (b)
or (c)(i) of this Section 9.1) contained in this Credit Agreement and such
default shall continue unremedied for a
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period of at least 30 days after the earlier of a responsible officer of a
Credit Party becoming aware of such default or notice thereof by the
Administrative Agent; or
(d) Other Credit Documents. (i) Any Credit Party shall default in the due
----------------------
performance or observance of any material term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) except as to the Credit Party which is dissolved, released or
merged or consolidated out of existence as the result of or in connection with a
dissolution, merger or disposition permitted by Section 8.4(a), Section 8.4(b)
or Section 8.4(c), any Credit Document shall fail to be in full force and effect
or to give the Administrative Agent and/or the Lenders any material part of the
Liens, rights, powers and privileges purported to be created thereby; or
(e) Guaranties. Except as to the Credit Party which is dissolved,
----------
released or merged or consolidated out of existence as the result of or in
connection with a dissolution, merger or disposition permitted by Section
8.4(a), Section 8.4(b) or Section 8.4(c), the guaranty given by any Guarantor
hereunder or any material provision thereof shall cease to be in full force and
effect, or any Guarantor hereunder or any Person acting by or on behalf of such
Guarantor shall deny or disaffirm such Guarantor's obligations under such
guaranty, or any Guarantor shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any
---------------
member of the Consolidated Group; or
(g) Defaults under Other Agreements.
-------------------------------
(i) Any member of the Consolidated Group shall default in the
performance or observance (beyond the applicable grace period with respect
thereto, if any) of any material obligation or condition of any contract or
lease which would have a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than Indebtedness
outstanding under this Credit Agreement) in excess of $5,000,000 in the
aggregate for the Consolidated Group taken as a whole, (A) (1) any member
of the Consolidated Group shall default in any payment (beyond the
applicable grace period with respect thereto, if any) with respect to any
such Indebtedness, or (2) the occurrence and continuance of a default in
the observance or performance relating to such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or
other event or condition shall occur or condition exist, in any case the
effect of which default or other event or condition is to cause, or permit,
the holder or holders of such Indebtedness (or trustee or agent on behalf
of such holders) to cause (determined without regard to whether any notice
or lapse of time is required), any such Indebtedness to become due prior to
its stated maturity; or (B) any such Indebtedness shall be declared due and
payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof; or
(h) Judgments. Any member of the Consolidated Group shall fail within
---------
60 days of the date due and payable to pay, bond or otherwise discharge any
judgment, settlement or order for the payment of money which judgment,
settlement or order, when aggregated with all other
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such judgments, settlements or orders due and unpaid at such time, exceeds
$500,000, and which is not stayed on appeal (or for which no motion for stay is
pending) or is not otherwise being executed; or
(i) ERISA. Any of the following events or conditions, if such event or
-----
condition could reasonably be expected to have a Material Adverse Effect: (1)
any "accumulated funding deficiency," as such term is defined in Section 302 of
ERISA and Section 412 of the Code, whether or not waived, shall exist with
respect to any Plan, or any lien shall arise on the assets of a member of the
Consolidated Group or any ERISA Affiliate in favor of the PBGC or a Plan; (2) an
ERISA Event shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Administrative Agent, likely to result in the
termination of such Plan for purposes of Title IV of ERISA; (3) an ERISA Event
shall occur with respect to a Multiemployer Plan or Multiple Employer Plan,
which is, in the reasonable opinion of the Administrative Agent, likely to
result in (i) the termination of such Plan for purposes of Title IV of ERISA, or
(ii) a member of the Consolidated Group or any ERISA Affiliate incurring any
liability in connection with a withdrawal from, reorganization of (within the
meaning of Section 4241 of ERISA), or insolvency of (within the meaning of
Section 4245 of ERISA) such Plan; or (4) any prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility shall occur which may subject a member of the
Consolidated Group or any ERISA Affiliate to any liability under Sections 406,
409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any
agreement or other instrument pursuant to which a member of the Consolidated
Group or any ERISA Affiliate has agreed or is required to indemnify any person
against any such liability; or
(j) Ownership. There shall occur a Change of Control.
---------
9.2 Acceleration; Remedies.
----------------------
Upon the occurrence of an Event of Default, and at any time thereafter, the
Administrative Agent shall, upon the request and direction of the Required
Lenders, by written notice to the Credit Parties take any of the following
actions:
(i) Termination of Commitments. Declare the Commitments
--------------------------
terminated whereupon the Commitments shall be immediately terminated.
(ii) Acceleration. Declare the unpaid principal of and any accrued
------------
interest in respect of all Loans, any reimbursement obligations arising
from drawings under Letters of Credit and any and all other indebtedness or
obligations of any and every kind owing by the Credit Parties to the
Administrative Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each of the Credit Parties.
(iii) Cash Collateral. Direct the Borrowers to pay (and each
---------------
Borrower agrees that upon receipt of such notice, or upon the occurrence of
an Event of Default under Section 9.1(f), it will immediately pay) to the
Administrative Agent additional cash, to be held by the Administrative
Agent, for the benefit of the Lenders, in a cash collateral account as
additional security for the LOC Obligations
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in respect of subsequent drawings under all then outstanding Letters of
Credit in an amount equal to the maximum aggregate amount which may be
drawn under all Letters of Credits then outstanding.
(iv) Enforcement of Rights. Enforce any and all rights and interests
---------------------
created and existing under the Credit Documents and all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations arising from drawings under Letters of
Credit, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Administrative Agent and/or any
of the Lenders hereunder automatically shall immediately become due and payable
without presentment, demand, protest or the giving of any notice or other action
by the Administrative Agent or the Lenders, all of which are hereby waived by
the Credit Parties.
SECTION 10
AGENCY PROVISIONS
-----------------
10.1 Appointment.
-----------
Each Lender hereby designates and appoints NationsBank, N.A. as
administrative agent (in such capacity, the "Administrative Agent") of such
--------------------
Lender to act as specified herein and the other Credit Documents, and each such
Lender hereby authorizes the Administrative Agent as the Administrative Agent
for such Lender, to take such action on its behalf under the provisions of this
Credit Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated by the terms hereof and of the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. Each Lenders further directs and authorizes the
Administrative Agent to execute releases (or similar agreements) to give effect
to the provisions of this Credit Agreement and the other Credit Documents,
including specifically without limitation the provisions of Section 8.4 hereof.
Notwithstanding any provision to the contrary elsewhere herein and in the other
Credit Documents, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein and therein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Credit Agreement or any of the other Credit Documents, or shall otherwise exist
against the Administrative Agent. The provisions of this Section are solely for
the benefit of the Administrative Agent and the Lenders and none of the Credit
Parties shall have any rights as a third party beneficiary of the provisions
hereof. In performing its functions and duties under this Credit Agreement and
the other Credit Documents, the Administrative Agent shall act solely as
Administrative Agent of the Lenders and does not assume and shall not be deemed
to have assumed any obligation or relationship of agency or trust with or for
any Credit Party or any of their respective Affiliates.
10.2 Delegation of Duties.
--------------------
The Administrative Agent may execute any of its duties hereunder or under
the other Credit Documents by or through Administrative Agents or attorneys-in-
fact and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Administrative Agent shall not be
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<PAGE>
responsible for the negligence or misconduct of any Administrative Agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions.
----------------------
The Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report, document,
financial statement or other written or oral statement referred to or provided
for in, or received by the Administrative Agent under or in connection herewith
or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of
any Credit Party to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Credit Agreement, or any of the other Credit Documents or
for any representations, warranties, recitals or statements made herein or
therein or made by the Borrower or any Credit Party in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Lenders or by or on behalf
of the Credit Parties to the Administrative Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or the use of the Letters of Credit
or of the existence or possible existence of any Default or Event of Default or
to inspect the properties, books or records of the Credit Parties or any of
their respective Affiliates.
10.4 Reliance on Communications.
--------------------------
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Administrative Agent with reasonable care). The
Administrative Agent may deem and treat the Lenders as the owners of their
respective interests hereunder for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent in accordance with Section 11.3(b) hereof. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Credit Agreement or under any of the other Credit Documents
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or under any of the other Credit Documents in accordance with
a request of the Required Lenders (or to the extent specifically provided in
Section 11.6, all the Lenders) and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Lenders (including their
successors and assigns).
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10.5 Notice of Default.
-----------------
The Administrative Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
prompt notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders.
10.6 Non-Reliance on Administrative Agent and Other Lenders.
------------------------------------------------------
Each Lender expressly acknowledges that each of the Administrative Agent and
its officers, directors, employees, Administrative Agents, attorneys-in-fact or
affiliates has not made any representations or warranties to it and that no act
by the Administrative Agent or any affiliate thereof hereinafter taken,
including any review of the affairs of any Credit Party or any of their
respective Affiliates, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of the Borrower, the other
Credit Parties or their respective Affiliates and made its own decision to make
its Loans hereunder and enter into this Credit Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Credit Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of the Borrower, the other
Credit Parties and their respective Affiliates. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial or other
conditions, prospects or creditworthiness of the Borrower, the other Credit
Parties or any of their respective Affiliates which may come into the possession
of the Administrative Agent or any of its officers, directors, employees,
Administrative Agents, attorneys-in-fact or affiliates.
10.7 Indemnification.
---------------
The Lenders agree to indemnify the Administrative Agent in its capacity as
such (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitments (or if the Commitments have expired or been terminated, in
accordance with the respective principal amounts of outstanding Loans and
Participation Interests of the Lenders), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including without limitation at any time following the final payment of all of
the obligations of the Borrower hereunder and under the other Credit Documents)
be imposed on, incurred by or asserted against the Administrative Agent in its
capacity as such in any way relating to or arising out of this Credit Agreement
or the other Credit Documents or any documents contemplated by or referred to
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herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Administrative Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
--------
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
gross negligence or willful misconduct of the Administrative Agent. If any
indemnity furnished to the Administrative Agent for any purpose shall, in the
opinion of the Administrative Agent, be insufficient or become impaired, the
Administrative Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
10.8 Administrative Agent in its Individual Capacity.
-----------------------------------------------
The Administrative Agent and its affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower, its
Subsidiaries or their respective Affiliates as though the Administrative Agent
were not the Administrative Agent hereunder. With respect to the Loans made by
and all obligations of the Borrower hereunder and under the other Credit
Documents, the Administrative Agent shall have the same rights and powers under
this Credit Agreement as any Lender and may exercise the same as though it were
not the Administrative Agent, and the terms "Lender" and "Lenders" shall include
the Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent.
------------------------------
The Administrative Agent may, at any time, resign upon 20 days' written notice
to the Lenders, and may be removed, upon show of cause, by the Required Lenders
upon 30 days' written notice to the Administrative Agent. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the notice of resignation or notice of
removal, as appropriate, then the retiring Administrative Agent shall select a
successor Administrative Agent provided such successor is a Lender hereunder or
a commercial bank organized under the laws of the United States of America or of
any State thereof and has a combined capital and surplus of at least
$400,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations as Administrative Agent, as
appropriate, under this Credit Agreement and the other Credit Documents and the
provisions of this Section 10.9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Credit Agreement.
SECTION 11
MISCELLANEOUS
-------------
11.1 Notices.
-------
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Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (i) when
delivered, (ii) when transmitted via telecopy (or other facsimile device) to the
number set out below, (iii) the day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (iv)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case to the respective parties at
the address, in the case of the Borrower, Guarantors and the Administrative
Agent, set forth below, and, in the case of the Lenders, set forth on Schedule
--------
11.1, or at such other address as such party may specify by written notice to
- ----
the other parties hereto:
if to the Borrower or the Guarantors:
Pediatric Services of America, Inc.
3159 Campus Drive
Norcross, Georgia 30071
Attn: Steven M. Mengert, Chief Financial Officer
Telephone: (770) 440-1580
Telecopy: (770) 263-9340
with copies to:
Pediatric Services of America, Inc.
3159 Campus Drive
Norcross, Georgia 30071
Attn: Susan E. Dignan
Telephone: (770) 840-3234
Telecopy: (770) 263-9340
Long Aldridge & Norman LLP
Suite 5300, One Peachtree Center
303 Peachtree Street
Atlanta, Georgia 30308
Attn: Thomas Wardell
Telephone:
if to the Administrative Agent:
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-11
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 388-3916
Telecopy: (704) 386-9923
with copies to:
NationsBank, N.A.
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One NationsBank Plaza
5th Floor
Nashville, Tennessee 37239
Attn: Ashley Crabtree
Telephone: (615) 749-3524
Telecopy: (615) 749-4640
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street, 8th Floor
Charlotte, North Carolina 28255
Attn: Michael Sylvester
Telephone: (704) 388-6003
Telecopy: (704) 388-6002
11.2 Right of Set-Off.
----------------
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default and acceleration of the Obligations hereunder, each
Lender is authorized at any time and from time to time, without presentment,
demand, protest or other notice of any kind (all of which rights being hereby
expressly waived), to set-off and to appropriate and apply any and all deposits
(general or special) and any other indebtedness at any time held or owing by
such Lender (including, without limitation branches, agencies or Affiliates of
such Lender wherever located) to or for the credit or the account of any Credit
Party against obligations and liabilities of such Person to such Lender
hereunder, under the Notes, the other Credit Documents or otherwise,
irrespective of whether such Lender shall have made any demand hereunder and
although such obligations, liabilities or claims, or any of them, may be
contingent or unmatured, and any such set-off shall be deemed to have been made
immediately upon the occurrence of an Event of Default even though such charge
is made or entered on the books of such Lender subsequent thereto. Any Person
purchasing a participation in the Loans and Commitments hereunder pursuant to
Section 3.13 or Section 11.3(d) may exercise all rights of set-off with respect
to its participation interest as fully as if such Person were a Lender
hereunder.
11.3 Benefit of Agreement.
--------------------
(a) Generally. This Credit Agreement shall be binding upon and inure to the
---------
benefit of and be enforceable by the respective successors and assigns of the
parties hereto; provided that none of the Credit Parties may assign or transfer
--------
any of its interests without prior written consent of the Lenders; provided
--------
further that the rights of each Lender to transfer, assign or grant
- -------
participations in its rights and/or obligations hereunder shall be limited as
set forth in this Section 11.3, provided however that nothing herein shall
--------
prevent or prohibit any Lender from (i) pledging its Loans hereunder to a
Federal Reserve Bank in support of borrowings made by such Lender from such
Federal Reserve Bank, or (ii) granting assignments or selling participations in
such Lender's Loans and/or Commitments hereunder to its parent company and/or to
any Affiliate or Subsidiary of such Lender.
(b) Assignments. Each Lender may assign all or a portion of its rights and
-----------
obligations hereunder, pursuant to an assignment agreement substantially in
the form of Schedule 11.3(b), to (i)
----------------
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any Lender or any Affiliate or Subsidiary of a Lender, or (ii) any other
commercial bank, financial institution or "accredited investor" (as defined in
Regulation D of the Securities and Exchange Commission) reasonably acceptable to
the Administrative Agent and, so long as no Default or Event of Default has
occurred and is continuing, the Borrower; provided that (i) any such assignment
--------
(other than any assignment to an existing Lender) shall be in a minimum
aggregate amount of $5,000,000 (or, if less, the remaining amount of the
Commitment being assigned by such Lender) of the Commitments and in integral
multiples of $1,000,000 above such amount and (ii) each such assignment shall be
of a constant, not varying, percentage of all such Lender's rights and
obligations under this Credit Agreement. Any assignment hereunder shall be
effective upon delivery to the Administrative Agent of written notice of the
assignment together with a transfer fee of $3,500 payable to the Administrative
Agent for its own account from and after the later of (i) the effective date
specified in the applicable assignment agreement and (ii) the date of recording
of such assignment in the Register pursuant to the terms of subsection (c)
below. The assigning Lender will give prompt notice to the Administrative Agent
and the Borrower of any such assignment. Upon the effectiveness of any such
assignment (and after notice to, and (to the extent required pursuant to the
terms hereof), with the consent of, the Borrower as provided herein), the
assignee shall become a "Lender" for all purposes of this Credit Agreement and
the other Credit Documents and, to the extent of such assignment, the assigning
Lender shall be relieved of its obligations hereunder to the extent of the Loans
and Commitment components being assigned. Along such lines the Borrower agrees
that upon notice of any such assignment and surrender of the appropriate Note or
Notes, it will promptly provide to the assigning Lender and to the assignee
separate promissory notes in the amount of their respective interests
substantially in the form of the original Note (but with notation thereon that
it is given in substitution for and replacement of the original Note or any
replacement notes thereof). By executing and delivering an assignment agreement
in accordance with this Section 11.3(b), the assigning Lender thereunder and the
assignee thereunder shall be deemed to confirm to and agree with each other and
the other parties hereto as follows: (i) such assigning Lender warrants that it
is the legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim; (ii) except as set forth in clause (i) above,
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant hereto or
thereto, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, any of the other Credit Documents
or any other instrument or document furnished pursuant hereto or thereto or the
financial condition of any Credit Party or any of their respective Affiliates or
the performance or observance by any Credit Party of any of its obligations
under this Credit Agreement, any of the other Credit Documents or any other
instrument or document furnished pursuant hereto or thereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
assignment agreement; (iv) such assignee confirms that it has received a copy of
this Credit Agreement, the other Credit Documents and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such assignment agreement; (v) such assignee will
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Credit Agreement and the other Credit
Documents; (vi) such assignee appoints and authorizes the Administrative Agent
to take such action on its behalf and to exercise such powers under this Credit
Agreement or any other Credit Document as are delegated to the Administrative
Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in
72
<PAGE>
accordance with their terms all the obligations which by the terms of this
Credit Agreement and the other Credit Documents are required to be performed by
it as a Lender.
(c) Maintenance of Register. The Administrative Agent shall maintain at
-----------------------
one of its offices in Charlotte, North Carolina a copy of each Lender assignment
agreement delivered to it in accordance with the terms of subsection (b) above
and a register for the recordation of the identity of the principal amount, type
and Interest Period of each Loan outstanding hereunder, the names, addresses and
the Commitments of the Lenders pursuant to the terms hereof from time to time
(the "Register"). The Administrative Agent will make reasonable efforts to
--------
maintain the accuracy of the Register and to promptly update the Register from
time to time, as necessary. The entries in the Register shall be conclusive in
the absence of manifest error and the Borrower, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Borrower and
each Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Participations. Each Lender may sell, transfer, grant or assign
--------------
participations in all or any part of such Lender's interests and obligations
hereunder; provided that (i) such selling Lender shall remain a "Lender" for all
--------
purposes under this Credit Agreement (such selling Lender's obligations under
the Credit Documents remaining unchanged) and the participant shall not
constitute a Lender hereunder, (ii) no such participant shall have, or be
granted, rights to approve any amendment or waiver relating to this Credit
Agreement or the other Credit Documents except to the extent any such amendment
or waiver would (A) reduce the principal of or rate of interest on or Fees in
respect of any Loans in which the participant is participating, (B) postpone the
date fixed for any payment of principal (including extension of the Termination
Date or the date of any mandatory prepayment), interest or Fees in which the
participant is participating, or (C) except as expressly provided in the Credit
Documents, release any Guarantor from its Support Obligations hereunder, and
(iii) sub-participations by the participant (except to an affiliate, parent
company or affiliate of a parent company of the participant) shall be
prohibited. In the case of any such participation, the participant shall not
have any rights under this Credit Agreement or the other Credit Documents (the
participant's rights against the selling Lender in respect of such participation
to be those set forth in the participation agreement with such Lender creating
such participation) and all amounts payable by the Borrower hereunder shall
be determined as if such Lender had not sold such participation, provided,
--------
however, that such participant shall be entitled to receive additional amounts
under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a Lender.
11.4 No Waiver; Remedies Cumulative.
------------------------------
No failure or delay on the part of the Administrative Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Administrative Agent or any Lender
and any of the Credit Parties shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Administrative Agent or any Lender would otherwise
have. No notice to or demand on any Credit Party in any case shall entitle the
Borrower or any other Credit Party to any other or further notice or demand in
similar or other
73
<PAGE>
circumstances or constitute a waiver of the rights of the Administrative Agent
or the Lenders to any other or further action in any circumstances without
notice or demand.
11.5 Payment of Expenses, etc.
------------------------
The Borrower agrees to: (i) pay regardless of whether this Credit Agreement
is closed, all reasonable out-of-pocket costs and expenses incurred (A) of the
Administrative Agent in connection with the negotiation, preparation, execution
and delivery and administration of this Credit Agreement and the other Credit
Documents and the documents and instruments referred to therein (including,
without limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC,
special counsel to the Administrative Agent) and any amendment, waiver or
consent relating hereto and thereto including, but not limited to, any such
amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Credit Parties
under this Credit Agreement and (B) of the Administrative Agent incurred in
connection with enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, in connection
with any such enforcement, the reasonable fees and disbursements of external
counsel for the Administrative Agent and each of the Lenders); (ii) pay and hold
each of the Lenders harmless from and against any and all present and future
stamp and other similar taxes with respect to the foregoing matters and save
each of the Lenders harmless from and against any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender,
its officers, directors, employees, representatives and Administrative Agents
from and hold each of them harmless against any and all losses, liabilities,
claims, damages or expenses incurred by any of them as a result of, or arising
out of, or in any way related to, or by reason of (A) any investigation,
litigation or other proceeding (whether or not any Lender is a party thereto)
related to the entering into and/or performance of any Credit Document or the
use of proceeds of any Loans (including other extensions of credit) hereunder or
the consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding or (B) the presence or Release of any Materials of Environmental
Concern at, under or from any Property owned, operated or leased by the Borrower
or any of its Subsidiaries, or the failure by the Borrower or any of its
Subsidiaries to comply with any Environmental Law (but excluding, in the case of
either of clause (A) or (B) above, any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of gross negligence or willful
misconduct on the part of the Person to be indemnified).
11.6 Amendments, Waivers and Consents.
--------------------------------
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
-------- -------
(a) without the consent of each Lender affected thereby,
(i) extend the final maturity of any Loan or the time of payment
of any reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit, or any portion thereof, or waive
application of any mandatory prepayment,
74
<PAGE>
(ii) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any increase
in interest rates after the occurrence of an Event of Default or on
account of a failure to deliver financial statements on a timely
basis) thereon or Fees hereunder,
(iii) reduce or waive the principal amount of any Loan or of
any reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(iv) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a waiver of any
Default or Event of Default or mandatory reduction in the Commitments
shall not constitute a change in the terms of any Commitment of any
Lender),
(v) except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under
Section 8.4, release the Borrower or substantially all of the other
Credit Parties from its or their obligations under the Credit
Documents,
(vi) amend, modify or waive any provision of this Section 11.6
or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a),
11.2, 11.3, 11.5 or 11.9,
(vii) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders,
(viii) consent to the assignment or transfer by the Borrower (or
another Credit Party) of any of its rights and obligations under (or
in respect of) the Credit Documents except as permitted thereby, or
(ix) except as expressly provided in the Credit Documents,
release all or substantially all of the collateral securing the
Obligations hereunder, or all or substantially all of the Guarantors
from their guaranty obligations hereunder;
(b) without the consent of the Agent, no provision of Section 10 may
be amended;
(c) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any bankruptcy reorganization plan that affects the
Loans, and each Lender acknowledges that the provisions of Section 1126(c) of
the Bankruptcy Code supersedes the unanimous consent provisions set forth herein
and (y) the Required Lenders may consent to allow a Credit Party to use cash
collateral in the context of a bankruptcy or insolvency proceeding.
11.7 Counterparts.
------------
75
<PAGE>
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart.
11.8 Headings.
--------
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Survival.
--------
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.9, 3.11, 10.7 or 11.5 shall survive the execution and delivery of this
Credit Agreement, the making of the Loans, the issuance of the Letters of
Credit, the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder, and all
representations and warranties made by the Credit Parties herein shall survive
delivery of the Notes and the making of the Loans hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
------------------------------------------------
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. Any legal action or proceeding with respect to this Credit Agreement
or any other Credit Document may be brought in the courts of the State of North
Carolina in Mecklenburg County, or of the United States for the Western District
of North Carolina, and, by execution and delivery of this Credit Agreement, each
of the Credit Parties hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the nonexclusive jurisdiction of
such courts. Each of the Credit Parties further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at the address set out for notices pursuant to Section
11.1, such service to become effective three (3) days after such mailing.
Nothing herein shall affect the right of the Administrative Agent to serve
process in any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement or any other Credit Document brought in the courts referred to
in subsection (a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE AGENT,
THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS CREDIT
76
<PAGE>
AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
11.11 Severability.
------------
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 Entirety.
--------
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
11.13 Binding Effect; Termination.
---------------------------
(a) This Credit Agreement shall become effective at such time on or
after the Closing Date when it shall have been executed by the Borrower, the
Guarantors and the Administrative Agent, and the Administrative Agent shall have
received copies hereof (telefaxed or otherwise) which, when taken together, bear
the signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors, the
Administrative Agent and each Lender and their respective successors and
assigns.
(b) The term of this Credit Agreement shall be until no Loans, LOC
Obligations or any other amounts payable hereunder or under any of the other
Credit Documents shall remain outstanding and until all of the Commitments
hereunder shall have expired or been terminated.
11.14 Confidentiality.
---------------
The Administrative Agent and the Lenders agree to keep confidential (and to
cause their respective affiliates, officers, directors, employees,
Administrative Agents and representatives to keep confidential) all information,
materials and documents furnished to the Administrative Agent or any such Lender
by or on behalf of any Credit Party (whether before or after the Closing Date)
which relates to the Borrower or any of its Subsidiaries (the "Information").
-----------
Notwithstanding the foregoing, the Administrative Agent and each Lender shall be
permitted to disclose Information (i) to its affiliates, officers, directors,
employees, Administrative Agents and representatives in connection with its
participation in any of the transactions evidenced by this Credit Agreement or
any other Credit Documents or the administration of this Credit Agreement or any
other Credit Documents; (ii) to the extent required by applicable laws and
regulations or by any subpoena or similar legal process, or requested by any
Governmental Authority; (iii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this Credit Agreement
or any agreement entered into pursuant to clause (iv) below, (B) becomes
available to the Administrative Agent or such Lender on a non-confidential basis
from a source other than a Credit Party or (C) was available to the
Administrative Agent or such Lender on a non-confidential basis prior to its
disclosure to the Administrative Agent or such Lender by a Credit Party; (iv) to
any assignee or participant (or
77
<PAGE>
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first specifically agrees in a writing
furnished to and for the benefit of the Credit Parties to be bound by the terms
of this Section 11.14; or (v) to the extent that the Borrower shall have
consented in writing to such disclosure. Nothing set forth in this Section 11.14
shall obligate the Administrative Agent or any Lender to return any materials
furnished by the Credit Parties.
11.15 Source of Funds.
---------------
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee benefit
plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets
of an insurance company's general account, such insurance company has
complied with all of the requirements of the regulations issued under
Section 401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit
plans which such Lender has identified in writing to the Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
11.16 Conflict.
--------
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
78
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: PEDIATRIC SERVICES OF AMERICA, INC.
- -------- a Georgia corporation
By:/s/ Stephen M. Mengert
-------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
GUARANTORS: PEDIATRIC SERVICES OF AMERICA, INC.
- ---------- a Delaware corporation
By:/s/ Stephen M. Mengert
-------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
PEDIATRIC SERVICES OF AMERICA (CONNECTICUT), INC.,
a Connecticut corporation
PREMIER MEDICAL SERVICES, INC.
a Nevada corporation
PEDIATRIC PARTNERS, INC.,
a Delaware corporation
INSURANCE MEDICAL REPORTER, INC.,
a California corporation
PREMIER NURSE STAFFING, INC.,
a Nevada corporation
PREMIER CERTIFIED HOME HEALTH SERVICES, INC.,
a Nevada corporation
ARO HEALTH SERVICES, INC.,
a Washington corporation
By:/s/ Stephen M. Mengert
-------------------------
Name: Stephen M. Mengert
Title: Senior Vice President
For each of the foregoing
PEDIATRIC HOME NURSING SERVICES, INC.,
a New York corporation
By:/s/ Joseph D. Sansone
-------------------------
Name: Joseph D. Sansone,
Title: President
<PAGE>
GUARANTORS: PSA LICENSING CORPORATION,
- ---------- a Delaware corporation
(Continued) PSA PROPERTIES CORPORATION.
a Delaware corporation
By:/s/ Susan E. Dignan
----------------------------
Name: Susan E. Dignan
Title: President
for each of the foregoing
<PAGE>
LENDERS: NATIONSBANK, N.A.,
- ------- individually in its capacity as a
Lender and in its capacity as Administrative Agent
By: /s/ Ashley M. Crabtree
------------------------------------
Name: ASHLEY M. CRABTREE
Title: SENIOR VICE PRESIDENT
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
MELLON BANK
By:
------------------------------------
Name:
Title:
<PAGE>
LENDERS: NATIONSBANK, N.A.,
- ------- individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By: /s/ Neva Nesbitt
------------------------------------
Name: NEVA NESBITT
Title: VICE PRESIDENT
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
MELLON BANK
By:
------------------------------------
Name:
Title:
<PAGE>
LENDERS: NATIONSBANK, N.A.,
- ------- individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By: [SIGNATURE APPEARS HERE]
------------------------------------
Name: [NAME APPEARS HERE]
Title: Corporate Banking Officer
SUNTRUST BANK, ATLANTA
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
MELLON BANK
By:
------------------------------------
Name:
Title:
<PAGE>
LENDERS: NATIONSBANK, N.A.,
- ------- individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA
By: /s/ Brenda Zino
------------------------------------
Name: Brenda Zino
Title: Banking Officer
By: [SIGNATURE APPEARS HERE]
------------------------------------
Name: [NAME APPEARS HERE]
Title: Vice President
MELLON BANK
By:
------------------------------------
Name:
Title:
<PAGE>
LENDERS: NATIONSBANK, N.A.,
- ------- individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------
Name:
Title:
SUNTRUST BANK, ATLANTA
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
MELLON BANK
By: [SIGNATURE APPEARS HERE]
------------------------------------
Name:
Title:
<PAGE>
CREDITANSTALT-BANKVEREIN
By: /s/ Carl G. Drake
------------------------------------
Name: Carl G. Drake
Title: Senior Associate
By: /s/ W. Craig Stamm
------------------------------------
Name: W. Craig Stamm
Title: Vice President
<PAGE>
Schedule 2.1(a)
---------------
Schedule of Lenders and Commitments
<TABLE>
<CAPTION>
Revolving Revolving LOC
Lender Committed Amount Commitment Percentage Committed Amount
------ ---------------- ---------------------- ----------------
<S> <C> <C> <C>
NationsBank, N.A. $ 25,000,000 25.000000% $ 2,500,000.00
Creditanstalt-Bankverein $ 25,000,000 25.000000% $ 2,500,000.00
SunTrust Bank, Atlanta $ 15,000,000 15.000000% $ 1,500,000.00
Toronto Dominion (Texas), Inc. $ 15,000,000 15.000000% $ 1,500,000.00
Mellon Bank $ 10,000,000 10.000000% $ 1,000,000.00
PNC Bank, N.A. $ 10,000,000 10.000000% $ 1,000,000.00
------------ ----------- --------------
$100,000,000 100.000000% $10,000,000.00
</TABLE>
<PAGE>
Schedule 2.1(b)(i)
------------------
FORM OF NOTICE OF BORROWING
NationsBank, N.A. NationsBank, N.A.,
ad Administrative Agent for the Lenders as Swingline Lender
101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor
NC1-001-15-04 NC1-001-15-04
Charlotte, North Carolina 28255 Charlotte, North Carolina 28255
Attention: Agency Services Attention: Agency Services
RE: Credit Agreement dated as of August 13, 1997 (as amended and modified,
the "Credit Agreement") among Pediatric Services of America, Inc., the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, Pediatric Services of America, Inc., a Georgia corporation,
being the Borrower under the above-referenced Credit Agreement hereby gives
notice of a request for Revolving Loan pursuant to Section 2.1(b) of the Credit
Agreement or of a request for Swingline Loan pursuant to Section 2.3(b) of the
Credit Agreement as follows:
_________ Revolving Loan
_________ Swingline Loan
(A) Date of Borrowing
(which is a Business Day) _______________________________
(B) Principal Amount of
Borrowing _______________________________
(C) Interest rate basis _______________________________
(D) Interest Period and the
last day thereof _______________________________
In accordance with the requirements of Section 5.2 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly related to an earlier date).
<PAGE>
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) As to any Credit Party, no involuntary action has been commenced
under applicable bankruptcy, insolvency or other similar law in effect, or
any case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) as to any Credit Party or as to any substantial part of the
property of any Credit Party or for the winding up or liquidation of its
affairs, and remains undismissed, undischarged or unbonded.
(d) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Credit Agreement which would have a Material Adverse Effect.
(e) All conditions set forth in Section 2.1 as to the making of
Revolving Loans or in Section 2.3 as to the making of Swingline Loans, as
appropriate, have been satisfied.
Very truly yours,
PEDIATRIC SERVICES OF AMERICA, INC.
By:
------------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Schedule 2.1(e)
---------------
FORM OF REVOLVING NOTE
$_______________ August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of ________________________, and its successors and assigns, on or before
the Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount shown above or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By
---------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Schedule 2.2(b)-1
-----------------
Existing Letters of Credit
<PAGE>
Schedule 2.2(b)-2
-----------------
Form of Notice of Request for Letter of Credit
[Date]
NationsBank, N.A., NationsBank, N.A.,
as Issuing Agent under the as Administrative Agent under the
Credit Agreement referred to below Credit Agreement referred to below
101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor
NC1-001-15-04 NC1-001-15-04
Charlotte, North Carolina 28255 Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of August 13, 1997 (as amended and
modified, the "Credit Agreement") among Pediatric Services of
----------------
America, Inc., the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the meanings provided in the
Credit Agreement.
Ladies and Gentlemen:
The undersigned Pediatric Services of America, Inc., pursuant to Section
2.2(b) of the Credit Agreement, hereby requests that the following Letters of
Credit be made on [date] as follows (the "Proposed Extension"):
------------------
(1) Account Party:
(2) For use by:
(3) Beneficiary:
(4) Face Amount of Letter of Credit:
(5) Date of Issuance
Delivery of Letter of Credit should be made as follows:
In accordance with the requirements of Section 5.2 of the Credit
Agreement, the undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly relate to an earlier date).
<PAGE>
(b) No Default or Event of Default exists, or will exist after
giving effect to the requested Extension of Credit.
(c) As to any Credit Party, no involuntary action has been
commenced under applicable bankruptcy, insolvency or other similar law in
effect, or any case, proceeding or other action for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) as to any Credit Party or as to any substantial part of
the property of any Credit Party or for the winding up or liquidation of
its affairs, and remains undismissed, undischarged or unbonded.
(d) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Credit Agreement which would have a Material Adverse Effect.
(e) All conditions set forth in Section 2.2 as to the issuance of a
Letter of Credit have been satisfied.
Very truly yours,
PEDIATRIC SERVICES OF AMERICA, INC.
By:
-------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Schedule 2.3(e)
---------------
FORM OF SWINGLINE NOTE
$5,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of NATIONSBANK, N.A., and its successors and assigns, on or before the
Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of the
Swingline Committed Amount shown above or, if less, the aggregate unpaid
principal amount of all Swingline Loans in such amounts and on such dates as
provided in the Credit Agreement; together with interest thereon at the rates
and as provided in the Credit Agreement.
This Note is the Swingline Note referred to in the Credit Agreement dated
as of August 13, 1997 (as amended and modified, the "Credit Agreement") among
----------------
PEDIATRIC SERVICES OF AMERICA, INC., a Georgia corporation, the Guarantors and
Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By
---------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Schedule 3.2
------------
Form of Notice of Extension/Conversion
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of August 13, 1997 (as amended and modified,
the "Credit Agreement") among Pediatric Services of America, Inc., the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, PEDIATRIC SERVICES OF AMERICA, INC., hereby gives notice
pursuant to Section 3.2 of the Credit Agreement that it requests an extension or
conversion of a Revolving Loan outstanding under the Credit Agreement, and in
connection therewith sets forth below the terms on which such extension or
conversion is requested to be made:
(A) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) _______________________
(B) Principal Amount of
Extension or Conversion _______________________
(C) Interest rate basis _______________________
(D) Interest Period and the
last day thereof _______________________
In accordance with the requirements of Section 5.2 of the Credit Agreement,
the undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
<PAGE>
(c) As to any Credit Party, no involuntary action has been commenced
under applicable bankruptcy, insolvency or other similar law in effect, or
any case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) as to any Credit Party or as to any substantial part of the
property of any Credit Party or for the winding up or liquidation of its
affairs, and remains undismissed, undischarged or unbonded.
(d) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Credit Agreement which would have a Material Adverse Effect.
(e) All conditions set forth in Section 2.2 as to the issuance of a
Letter of Credit have been satisfied.
Very truly yours,
PEDIATRIC SERVICES OF AMERICA, INC.
By:
---------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Schedule 5.1(i)(v)
------------------
Secretary's Certificate
Pursuant to Section 5.1(i)(v) of the Credit Agreement (the "Credit
------
Agreement"), dated as of August 13, 1997, among PEDIATRIC SERVICES OF AMERICA,
- ---------
INC., a Georgia corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent, the undersigned ____________________
Secretary of _________________________ (the "Corporation") hereby certifies as
-----------
follows:
1. Attached hereto as Annex I is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Corporation on
__________________, 1997. The attached resolutions have not been rescinded or
modified and remain in full force and effect. The attached resolutions are the
only corporate proceedings of the Corporation now in force relating to or
affecting the matters referenced to therein.
2. Attached hereto as Annex II is a true and complete copy of the By-
laws of the Corporation as in effect on the date hereof.
3. Attached hereto as Annex III is a true and complete copy of the
Certificate of Incorporation of the Corporation and all amendments thereto as in
effect on the date hereof.
4. The following persons are now duly elected and qualified officers
of the Corporation, holding the offices indicated, and the signature appearing
opposite his name below is his true and genuine signature, and such officer is
duly authorized to execute and deliver on behalf of the Corporation the Credit
Agreement, the Notes to be issued pursuant thereto and the other Credit
Documents and to act as a Responsible Officer on behalf of the Corporation under
the Credit Agreement:
Name Office Signature
- ---- ------ ---------
________________________
IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and
affixed the corporate seal of the Corporation.
_______________________________,
Secretary
(CORPORATE SEAL)
Date: __________________, 1997
I, ___________________, ___________________ of ________________________,
hereby certify that ______________________, whose genuine signature appears
above, is, and has been at all times since ________________________, a duly
elected, qualified and acting _________________ of
____________________________________.
___________________________________ of
<PAGE>
___________________________________
_________________________, 1997
<PAGE>
Schedule 6.6
------------
Description of Legal Proceedings
<PAGE>
Schedule 6.8
------------
Liens
<PAGE>
Schedule 6.9
------------
Intellectual Property
<PAGE>
Schedule 6.12
-------------
Qualified Plan
The Company has determined that a compliance issue exists with respect to the
Pediatric Services of America 401(k) Savings Plan. The Company intends to make
corrective contributions to the Plan calculated in a manner consistent with the
correction methods described by the Internal Revenue Service in the Voluntary
Compliance Resolution program (VCR) and the Closing Agreement Program (CAP). At
present, the Company cannon predict the total amount of such corrective
contributions and any other liability arising from the correction of this issue
although such amount may exceed the standard of materiality set forth in the
Credit Agreement.
<PAGE>
Schedule 6.14
-------------
Subsidiaries
Pediatric Services of America, Inc.,
a Delaware corporation
- ----------------------
PSA Properties Corporation,
a Delaware corporation
PSA Licensing Corporation,
a Delaware corporation (100%)
Pediatric Services of America, Inc.,
a Georgia corporation (100%)
----------------------------
Pediatric Services of America (Connecticut), Inc.
a Connecticut corporation (100%)
Pediatric Home Nursing Services, Inc.,
a New York corporation (100%)
Pediatric Partners, Inc.,
a Delaware corporation (100%)
Premier Medical Services, Inc.,
a Nevada corporation (100%)
---------------------------
Insurance Medical Reporter, Inc.,
a California corporation (100%)
Premier Nurse Staffing, Inc.,
a Nevada corporation (100%)
Premier Certified Home Health Services, Inc.,
a Nevada corporation (100%)
---------------------------
ARO Health Services, Inc.,
a Washington corporation (100%)
<PAGE>
Schedule 7.2(b)
---------------
Form of Officer's Compliance Certificate
This Certificate is delivered in accordance with the provisions of Section
7.2(b) of that Credit Agreement dated as of August 13, 1997 (as amended,
modified and supplemented, the "Credit Agreement") among PEDIATRIC SERVICES OF
----------------
AMERICA, INC., a Georgia corporation, the Guarantors and Lenders identified
therein, and NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the same meanings provided in the Credit
Agreement.
The undersigned, being a Responsible Officer of PEDIATRIC SERVICES OF
AMERICA, INC., a Georgia corporation, hereby certifies, in my official capacity
and not in my individual capacity, that to the best of my knowledge and belief:
(a) the financial statements accompanying this Certificate fairly
present the financial condition of the parties covered by such financial
statements in all material respects;
(b) during the period the Credit Parties have observed or performed
all of their covenants and other agreements in all material respects,
and satisfied in all material respects every material condition,
contained in this Credit Agreement to be observed, performed or
satisfied by them;
(c) the undersigned has no actual knowledge of any Default or Event of
Default; and
(d) detailed calculations demonstrating compliance with the financial
covenants set out in Section 7.9 of the Credit Agreement accompany this
Certificate.
This the ___________ day of ___________________, 199___.
PEDIATRIC SERVICES OF AMERICA, INC.
By:
---------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Attachment to Officer's Certificate
-----------------------------------
Computation of Financial Covenants
<PAGE>
Schedule 7.11-1
---------------
Form of Joinder Agreement
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________, 19__,
---------
is by and between _____________________, a ___________________ (the "Applicant
---------
Guarantor"), and NATIONSBANK, N.A., in its capacity as Administrative Agent
- ---------
under that certain Credit Agreement dated as of August 13, 1997 (as amended and
modified, the "Credit Agreement") by and among PEDIATRIC SERVICES OF AMERICA,
----------------
INC., a Georgia corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. All of the defined terms in the
Credit Agreement are incorporated herein by reference.
The Applicant Guarantor has indicated its desire to become a Guarantor or
is required by the terms of Section 7.11 of the Credit Agreement to become, a
Guarantor under the Credit Agreement.
Accordingly, the Applicant Guarantor hereby agrees as follows with the
Administrative Agent, for the benefit of the Lenders:
1. The Applicant Guarantor hereby acknowledges, agrees and confirms
that, by its execution of this Agreement, the Applicant Guarantor will be deemed
to be a party to the Credit Agreement and a "Guarantor" for all purposes of the
Credit Agreement and the other Credit Documents, and shall have all of the
obligations of a Guarantor thereunder as if it had executed the Credit Agreement
and the other Credit Documents. The Applicant Guarantor agrees to be bound by,
all of the terms, provisions and conditions contained in the Credit Documents,
including without limitation (i) all of the affirmative and negative covenants
set forth in Sections 7 and 8 of the Credit Agreement and (ii) all of the
undertakings and waivers set forth in Section 4 of the Credit Agreement.
Without limiting the generality of the foregoing terms of this paragraph 1, the
Applicant Guarantor hereby (A) jointly and severally together with the other
Guarantors, guarantees to each Lender, the Administrative Agent and the Issuing
Lender as provided in Section 4 of the Credit Agreement, the prompt payment and
performance of the Guaranteed Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) strictly in accordance with the terms thereof.
and (B) agrees that if any of the Guaranteed Obligations are not paid or
performed in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration, as a mandatory cash collateralization or
otherwise), the Applicant Guarantor will, jointly and severally together with
the other Guarantors, promptly pay and perform the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) in accordance
with the terms of such extension or renewal.
2. The Applicant Guarantor acknowledges and confirms that it has
received a copy of the Credit Agreement and the Schedules and Exhibits thereto.
The information on the Schedules to the Credit Agreement and Pledge Agreement
are amended to provide the information shown on the attached Schedule A.
----------
3. The Applicant Guarantor hereby waives acceptance by the
Administrative Agent and the Lenders of the guaranty by the Applicant Guarantor
under Section 4 of the Credit Agreement upon the execution of this Joinder
Agreement by the Applicant Guarantor.
<PAGE>
4. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
5. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Applicant Guarantor has caused this Joinder
Agreement to be duly executed by its authorized officers, and the Administrative
Agent, for the benefit of the Lenders, has caused the same to be accepted by its
authorized officer, as of the day and year first above written.
APPLICANT GUARANTOR
By:
Name:
Title:
Address for Notices:
Attn:
-------------------------
Telephone:
Telecopy:
Acknowledged and accepted:
NATIONSBANK, N.A., as Administrative Agent
By:
Name:
Title:
<PAGE>
Schedule A
----------
to
Joinder Agreement
Schedule A to Security Agreement
- --------------------------------
<TABLE>
<CAPTION>
Address for Chief Executive Locations of Record
Applicant Guarantor Notices Office Collateral Owner
------------------- ------- ------ ---------- -----
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Schedule 7.11-2
---------------
Pledge Joinder Agreement
THIS PLEDGE AGREEMENT (the "Agreement"), dated as of ______________, 19__,
---------
is by and between _________________, a _______________________ corporation (the
"Pledgor") and NATIONSBANK, N.A., in its capacity as Administrative Agent under
-------
the Pledge Agreement to which the Pledgor is a party as referenced and defined
in that certain Credit Agreement dated as of August 13, 1997 (as amended and
modified, the "Credit Agreement") by and among PEDIATRIC SERVICES OF AMERICA,
----------------
INC., a Georgia corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. All of the defined terms in the
Pledge Agreement are incorporated herein by reference.
The Pledgor is required to pledge certain additional interests under the
Pledge Agreement pursuant to the terms of the Credit Agreement and the other
Credit Documents.
Accordingly, the Pledgor hereby agrees as follows with the Agent under the
Pledge Agreement as follows:
1. The Pledgor hereby pledges, and grants a security interest in, the
Pledged Securities identified on Schedule A attached and all of the Pledged
----------
Collateral relating thereto, to the Paying Agent pursuant to the terms of the
Pledge Agreement. The information on the Schedules to the Pledge Agreement are
amended to provide the information shown on the attached Schedule A.
----------
2. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
3. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Pledgor has caused this Joinder Agreement to be
duly executed by its authorized officer, and the Agent has caused the same to be
accepted by its authorized officer, as of the day and year first above written.
PLEDGOR:
- ------- --------------------------------
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Acknowledged and accepted:
NATIONSBANK, N.A., as Administrative Agent
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
Schedule A
----------
to
Joinder Agreement
Schedule 2(a) to Pledge Agreement
- ---------------------------------
Description of Pledged Shares
<TABLE>
<CAPTION>
No. of Certificate
Pledgor Issuer Shares No. Percentage
------- ------ ------ --- ----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Schedule 8.1
------------
INDEBTEDNESS
<PAGE>
Schedule 8.5
------------
Existing Investments
<PAGE>
Schedule 11.1
-------------
Schedule of Lenders' Addresses
<PAGE>
Schedule 11.3(b)
----------------
Form of Assignment and Acceptance
THIS ASSIGNMENT AND ACCEPTANCE dated as of _________________________, 1997
is entered into between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS THE
"ASSIGNOR" (the "Assignor") and THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES AS
--------
"ASSIGNEES" ("Assignee").
--------
Reference is made to that Credit Agreement dated as of August 13, 1997 (as
amended and modified, the "Credit Agreement") among PEDIATRIC SERVICES OF
----------------
AMERICA, INC., a Georgia corporation (the "Borrower"), the Guarantors and
--------
Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms defined in the Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignees, and the Assignees hereby purchase and assume, without recourse, from
the Assignor, effective as of the Effective Date shown below, those rights and
interests of the Assignor under the Credit Agreement identified below (the
"Assigned Interests"), including the Obligations and Commitments relating
------------------
thereto, together with unpaid interest and fees relating thereto accruing from
the Effective Date. The Assignor represents and warrants that it owns the
interests assigned hereby free and clear of liens, encumbrances or other claims.
Each of the Assignees represents that it is an Eligible Assignee within the
meaning of the term in the Credit Agreement. The Assignor and each of the
Assignees hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 11.3 of the Credit Agreement, a
copy of which has been received by each such party. From and after the
Effective Date (i) each Assignee, if it is not already a Lender under the Credit
Agreement, shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (ii) each
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement (other than the rights of indemnification referenced in Section
11.9 of the Credit Agreement). Schedule 2.1(a) is deemed modified and amended
---------------
to the extent necessary to give effect to this assignment.
2. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
3. Terms of Assignment
(a) Date of Assignment: ___________________, 199__
(b) Legal Name of Assignor: SEE SIGNATURE PAGE
(c) Legal Name of Assignee: SEE SIGNATURE PAGE
(d) Effective Date of Assignment: ___________________, 199__
See Schedule I attached for a description of the Loans and Obligations and
----------
Commitments (and the percentage interests therein and relating thereto) which
are the subject of this Assignment and Acceptance.
4. The fee payable to the Paying Agent in connection with this
Assignment is enclosed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
instrument by their duly authorized officers as of the date first above written.
ASSIGNOR: ASSIGNEE:
-------- --------
By By
--------------------------------- -----------------------------
Name: Name:
Title: Title:
Address for Notices:
-------------------
ACKNOWLEDGMENT AND CONSENT
--------------------------
NATIONSBANK, N.A., PEDIATRIC SERVICES OF AMERICA, INC.
as Administrative Agent
By By
--------------------------------- ------------------------------
Name: Name:
Title: Title:
<PAGE>
SCHEDULE I
----------
TO ASSIGNMENT AND ACCEPTANCE
PEDIATRIC SERVICES OF AMERICA, INC.
REVOLVING LOANS AND LETTERS OF CREDIT PRIOR TO ASSIGNMENT
<TABLE>
<CAPTION>
Revolving Revolving Revolving LOC LOC
Committed Commitment Loans Committed Obligations
Amount Percentage Outstanding Amount Outstanding
------ ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
ASSIGNOR
- --------
ASSIGNEES
- ---------
--------- --------- --------- --------- ---------
$ $ $ $
</TABLE>
REVOLVING LOANS AND LETTERS OF CREDIT INTERESTS SUBJECT OF THIS ASSIGNMENT
<TABLE>
<CAPTION>
Revolving Revolving Revolving LOC LOC
Committed Commitment Loans Committed Obligations
Amount Percentage Outstanding Amount Outstanding
------ ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
ASSIGNOR
- --------
--------- --------- --------- --------- ---------
$ $ $ $
</TABLE>
1
<PAGE>
SCHEDULE I
----------
TO ASSIGNMENT AND ACCEPTANCE
PEDIATRIC SERVICES OF AMERICA, INC.
REVOLVING LOANS AND LETTERS OF CREDIT AFTER ASSIGNMENT
<TABLE>
<CAPTION>
Revolving Revolving Revolving LOC LOC
Committed Commitment Loans Committed Obligations
Amount Percentage Outstanding Amount Outstanding
------ ---------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
ASSIGNOR
- --------
ASSIGNEES
- ---------
--------- --------- --------- --------- ---------
$ $ $ $
</TABLE>
2
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of August 13, 1997 (as amended and modified, the
"Pledge Agreement" or this "Agreement") by those parties identified as
---------------- ---------
"Pledgors" on the signature pages and such other parties as may become Pledgors
hereunder after the date hereof (the "Pledgors") in favor of NATIONSBANK, N.A.,
--------
as Administrative Agent (in such capacity, the "Administrative Agent") for the
--------------------
Lenders under the Credit Agreement described below and any Affiliates of Lenders
which provide interest rate or currency protection agreements as hereafter
provided (collectively, the "Lenders").
-------
W I T N E S S E T H
WHEREAS, the Lenders have severally agreed to make loans and extensions of
credit to Pediatric Services of America, Inc., a Georgia corporation (the
"Borrower") upon the terms and conditions provided in the terms of that Credit
--------
Agreement dated as of the date hereof (as amended and modified, the "Credit
------
Agreement") among the Borrower, the Guarantors and Lenders identified therein
- ---------
and NationsBank, N.A., as Administrative Agent;
WHEREAS, it is a condition precedent to the effectiveness of the Credit
Agreement and the obligations of the Lenders to make their respective loans and
extensions of credit to the Borrower thereunder that the Credit Parties shall
have executed and delivered this Pledge Agreement to the Administrative Agent
for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective loans and extensions of credit
thereunder, the Pledgors hereby agree with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
-------------
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement. For purposes of this Agreement, the term "Lender" shall
------
include any Affiliate of any Lender which has entered into a Hedging Agreement
with a Credit Party to the extent permitted by the Credit Agreement.
(b) The following terms shall have the following meanings:
"Agreement": this Pledge Agreement, as the same may be amended,
---------
modified or otherwise supplemented from time to time.
"Code": the Uniform Commercial Code from time to time in effect in
----
the State of North Carolina.
"Collateral": the Pledged Stock and all Proceeds thereof.
----------
<PAGE>
"Collateral Account": any account established to hold money Proceeds,
------------------
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
as provided in Section 8(a).
"Issuers": the collective reference to the companies identified on
-------
Schedule 1 attached hereto as the issuers of the Pledged Stock; individually,
- ----------
each an "Issuer."
------
"Pledged Stock": the shares of capital stock listed on Schedule 1 hereto,
------------- ----------
together with all stock certificates, options or rights of any nature whatsoever
that may be issued or granted by any Issuer to a Pledgor in respect of the
Pledged Stock while this Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of
--------
the Uniform Commercial Code in effect in the State of North Carolina on the date
hereof and, in any event, shall include, with limitation, all dividends or other
income from the Pledged Stock, collections thereon or distributions with respect
thereto.
"Secured Obligations": the collective reference to the following:
-------------------
(a) All unpaid principal of and interest on (including, without
limitation, interest accruing at the then applicable rate provided in the
Credit Agreement after the maturity of the Loans and other obligations
owing under the Credit Agreement and interest accruing at the then
applicable rate provided in the Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not
a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Agent and the Lenders, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Credit Agreement,
any Notes, the other Credit Documents, any Hedging Agreements with a Lender
or an Affiliate of a Lender to the extent permitted under the Credit
Agreement or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
the Agent or to the Lenders that are required to be paid by the Borrower
pursuant to the terms of the Credit Agreement, any other Credit Document or
any Hedging Agreements with a Lender or an Affiliate of a Lender to the
extent permitted under the Credit Agreement); and
(b) The prompt payment, performance and observance by the
Guarantors under the Credit Agreement of all obligations of the Guarantors
thereunder and under the other Credit Documents to which the Guarantors are
a party (including, without limitation, payment of their guaranty
obligations under
-2-
<PAGE>
the Credit Agreement), or under any Hedging Agreement with a Lender
or an Affiliate of a Lender to the extent permitted under the Credit
Agreement, to which such Guarantor is a party or any guaranty is
given by it in connection therewith; and
(c) All other indebtedness, liabilities and obligations of
any kind or nature, now existing or hereafter arising, owing by the
Pledgors to any Lender or the Administrative Agent, arising under
this Pledge Agreement or any of the other Credit Documents, whether
primary, secondary, direct, contingent, or joint and several; and
(d) All liabilities and obligations, now existing or
hereafter arising, owing by the Borrower to any Lender or any
Affiliate of a Lender arising under Hedging Agreements with a Lender
or an Affiliate of a Lender to the extent permitted under the Credit
Agreement.
"Securities Act": the securities Act of 1933, as amended.
--------------
(c) The words "hereof," and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and
paragraph references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Pledge, Grant of Security Interest. Each of the Pledgors hereby
----------------------------------
delivers to the Administrative Agent, for the ratable benefit of the Lenders,
all the Pledged Stock and hereby grants to the Administrative Agent, for the
ratable benefit of the Lenders, a first security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the Secured
Obligations.
3. Stock Powers. Concurrently with the delivery to the Administrative
------------
Agent of each certification representing one or more shares of Pledged Stock to
the Administrative Agent, each of the Pledgors shall deliver an undated stock
power covering such certificate, duly executed in blank with, if the
Administrative Agent so requests, signature guaranteed.
4. Representations and Warranties. Each of the Pledgors represents and
------------------------------
warrants that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of capital stock of each Issuer.
-3-
<PAGE>
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) The Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Stock free of any and all Liens or
options in favor of, or claims of, any other Person, except the security
interests created by this Agreement.
(d) Upon delivery to the Administrative Agent of the stock
certificates evidencing the Pledged Stock, the security interest created
by this Agreement will constitute a valid, perfected first priority
security interest in the Collateral, enforceable in accordance with its
terms against all creditors of the Pledgor and any Persons purporting to
purchase any Collateral from the Pledgor, except as affected by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
5. Covenants. Each of the Pledgors covenants and agrees with the
---------
Administrative Agent and the Lenders that, from and after the date of this
Agreement until this Agreement is terminated and the security interests created
hereby are released;
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof, the Pledgor shall accept
the same as the agent of the Administrative Agent and the Lenders, hold the
same in trust for the Administrative Agent and the Lenders and deliver the
same forthwith to the Administrative Agent in the exact form received, duly
indorsed by the Pledgor to the Administrative Agent, if required, together
with an undated stock power covering such certificate duly executed in
blank by the Pledgor and with, if the Administrative Agent so requests,
signature guaranteed, to be held by the Administrative Agent, subject to
the terms hereof, as additional collateral security for the Secured
Obligations. Except in connection with any transaction permitted under
subsection 8.5 of the Credit Agreement, any sums paid upon or in respect of
the Pledged Stock upon the liquidation or dissolution of any Issuer shall
be paid over to the Administrative Agent to be held by it hereunder as
additional collateral security for the Secured Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Stock
or any property shall be distributed upon or with respect to the Pledged
Stock pursuant to the recapitalization or reclassification of the capital
of the Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Secured Obligations. If
any sums of money or property so paid or distributed in respect of the
Pledged Stock shall be received by the Pledgor, the Pledgor shall, until
such money or property is paid or delivered to the Administrative Agent,
hold such money or property in
-4-
<PAGE>
trust for the Lenders, segregated from other funds of the Pledgor, as
additional collateral security for the Secured Obligations.
(b) Without the prior written consent of the Administrative Agent,
the Pledgor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any
nature or to issue any other securities convertible into or granting the
right to purchase or exchange for any stock or equity securities of any
nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral, (iii)
create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Collateral, or any
interest therein, except for the security interests created by this
Agreement or (iv) enter into any agreement or undertaking restricting the
right or ability of the Pledgor or the Administrative Agent to sell,
assign or transfer any of the Collateral.
(c) The Pledgor shall maintain the security interest created by
this Agreement as a first, perfected security interest and shall defend
such security interest against claims and demands of all Persons
whomsoever. At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purposes of obtaining
or preserving the full benefits of this Agreement and of the rights and
powers herein granted. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument or chattel paper
shall be immediately delivered to the Administrative Agent, duly endorsed
in a manner satisfactory to the Administrative Agent, to be held as
Collateral pursuant to this Agreement.
(d) The Pledgor shall pay, and save the Administrative Agent and
the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or
other taxes which may be payable or determined to be payable with respect
to any of the Collateral or in connection with any of the transactions
contemplated by this Agreement, except for any such liabilities which
result from the gross negligence or wilful misconduct of the
Administrative Agent.
6. Cash Dividends; Voting Rights. Unless an Event of Default shall
-----------------------------
have occurred and the Administrative Agent shall have given notice to the
Pledgor of the Administrative Agent's intent to exercise its corresponding
rights pursuant to Section 7 below, the Pledgor shall be permitted to receive
all cash dividends paid in the normal course of business of the Issuers and
consistent with past practice or otherwise to enable the partners or
shareholders of the Pledgor to pay taxes, to the extent permitted in the Credit
Agreement, in respect of the Pledged Stock and to exercise all voting and
corporate rights with respect to the Pledged Stock; provided, however, that no
-------- -------
vote shall be cast or corporate right exercised or other action taken which, in
the Administrative Agent's reasonable judgment, would impair the Collateral or
which would be inconsistent with or result in any violation of any provision of
the Credit Agreement, this Agreement or any other Credit Document.
-5-
<PAGE>
7. Rights of the Lenders and the Administrative Agent. (a) All money
--------------------------------------------------
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent for the benefit of the Lenders in a Collateral Account. All
Proceeds while held by the Administrative Agent in a Collateral Account (or by
the Pledgors in trust for the Administrative Agent and the Lenders) shall
continue to be held as collateral security for all the Secured Obligations and
shall not constitute payment thereof until applied as provided in Section 8(a).
(b) At any time after an Event of Default shall have occurred and be
continuing and the Administrative Agent shall give notice of its intent to
exercise such rights to the Pledgor, (i) the Administrative Agent shall have the
right to receive any and all cash dividends paid in respect of the Pledged Stock
and make application thereof to the Secured Obligations in such order as the
Administrative Agent may determine, and (ii) all shares of the Pledged Stock
shall be registered in the name of the Administrative Agent or its nominee, and
the Administrative Agent or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at any
meeting of shareholders of any Issuer or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such shaers of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of any
Issuer, or upon the exercise by the Pledgor or the Administrative Agent of any
right, priviledge or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as the Administrative Agent may
determine), all without liability except to account for property actually
received by it, but the Administrative Agent shall have no duty to the Pledgor
to exercise any such right, priviledge or option and shall not be responsible
for any failure to do so or delay in so doing.
8. Remedies. (a) At any time after an Event of Default shall have
--------
occurred, at the Administrative Agent's election, the Administrative Agent's
election, the Administrative Agent may apply all or any part of the Proceeds
held in any Collateral Account in payment of the Secured Obligations in such
order as the Administrative Agent may elect.
(b) At any time after an Event of Default shall have occurred, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Agreement and in any other instrument
or agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Administrative Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell assign, given and option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing),
-6-
<PAGE>
in one or more parcels at public or private sales, in the over-the-counter
market, at any exchange, broker's board or office of the Administrative Agent or
any Lender or elsewhere upon such terms and conditions as it may deem advisable
and at such prices as it may deem best, for cash or on credit or for future
delivery without such assumption of any credit risk. The Administrative Agent or
any Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity of redemption is hereby waived
or released. The Administrative Agent shall apply any Proceeds from time to time
held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Administrative Agent and the Lenders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements of counsel to
the Administrative Agent, to the payment in whole or in part of the Secured
Obligations, in such order as the Administrative Agent may elect, and only after
such application and after the payment by the Administrative Agent of any other
amount required by any provision of law including, without limitation,
Section 9-504(1)(c) of the Code, need the Administrative Agent account for the
surplus, if any, to the Pledgor. To the extent permitted by applicable law, the
Pledgor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Lender arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 20 days before such sale or other disposition. The
Pledgor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of Collateral are insufficient to pay the Secured Obligations
and the fees and disbursements of any attorneys employed by the Administrative
Agent or any Lender to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the Administrative Agent
----------------------------------
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to Section 8 hereof, and if in the opinion of the Administrative Agent
it is necessary or advisable to have the Pledged Stock, or that portion thereof
to be sold, registered under the provisions of the Securities Act, the Pledgor
will cause the Issuer thereof to (i) execute and deliver, and cause the
directors and officers of such Issuer to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of the Administrative Agent, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) to uses its best efforts to cause the
registration statement relating thereto become effective and to remain effective
for a period of one year from the date of the first public offering of the
Pledged Stock, or that portion thereof to be sold, and (iii) to make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Pledgor acknowledges
and agrees to cause such Issuer to comply with the provisions of the securities
or "Blue Sky" laws of any and all jurisdictions which the Administrative Agent
shall designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
-7-
<PAGE>
(b) The Pledgor recognizes that the Administrative Agent may be unable to
effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obligated to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor agrees that any such private sale may result in prices and other terms
less favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Administrative Agent shall be
under no obligation to delay a sale of any of the Pledged Stock for the period
of time necessary to permit the Issuer thereof to register such securities for
public sale under the Securities Act, or under applicable state securities laws,
even if such Issuer agrees to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause to
be done all such other acts as may be necessary to make such sale or sales of
all or any portion of the Pledged Stock pursuant to this Section valid and
binding and in compliance with any and all other applicable requirements of law.
The Pledgor further agrees that a breach of any of the covenants contained in
this Section will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred under the Credit Agreement.
10. Irrevocable Authorization and Instruction to Issuer. The Pledgor
---------------------------------------------------
hereby authorizes and instructs each Issuer to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Agreement, without any other or further instructions from the Pledgor,
and the Pledgor agrees that each Issuer shall be fully protected in so
complying.
11. Administrative Agent's Appointment as Attorney-in-Fact. (a) The
------------------------------------------------------
Pledgor hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent of the Administrative Agent, with full power of
substitution, as it true and lawful attorney-in-fact with fully irrevocable
power and authority in the place and stead of the Pledgor and in the name of the
Pledgor or in the Administrative Agent's own name, from time to time in the
Administrative Agent's own name, from time to time in the Administrative Agent's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, including, without limitation, any financing statements,
endorsement, assignment or other instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done pursuant to the power of attorney granted in Section 11(a).
All powers, authorizations and
-8-
<PAGE>
agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
12. Duty of Administrative Agent. The Administrative Agent's sole duly
----------------------------
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Administrative Agent deals
with similar securities and property for its own account, except that the
Administrative Agent shall have no obligation to invest funds held in any
Collateral Account and may hold the same as demand deposits. Neither the
Administrative Agent, any Lender nor any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
13. Execution of Financing Statements. Pursuant to Section 9-402 of the
---------------------------------
Code, the Pledgor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of the Pledgor
in such form and in such filing offices as the Administrative Agent reasonably
determines appropriate to perfect the security interests of the Administrative
Agent under this Agreement. A carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
14. Authority of Administrative Agent. The Pledgor acknowledges that the
---------------------------------
rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Pledgor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither the Pledgor nor any
Issuer shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
15. Notices. All notices shall be given or made in accordance with
-------
Section 11.1 of the Credit Agreement.
16. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
17. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of
-----------------------------------------------------
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Pledgor and
the Administrative Agent, provided
--------
-9-
<PAGE>
that any provision of this Agreement may be waived by the Administrative Agent
and the Lenders in a letter or agreement executed by the Administrative Agent or
by facsimile transmission from the Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to Section 17(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising on the part of the Administrative Agent or any Lender,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Lender would
otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
18. Section Headings. The section headings used in this Agreement are for
----------------
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of the Pledgor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns, provided
that the Pledgor may not assign any of its rights or obligations under this
Agreement without the prior written consent of the Agent and any such purported
assignment shall be null and void.
21. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA.
-10-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Stock Pledge Agreement
to be duly executed and delivered as of the date first above written.
PLEDGORS: PEDIATRIC SERVICES OF AMERICA, INC.,
a Delaware corporation
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
PREMIER MEDICAL SERVICES, INC.,
a Nevada corporation
PREMIER CERTIFIED HOME HEALTH SERVICES, INC.,
a Nevada corporation
By: /s/ Stephen M. Mengert
------------------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and Chief
Financial Officer
for each of the foregoing
ADMINISTRATIVE
AGENT: NATIONSBANK, N.A.,
as Administrative Agent
By: /s/ Ashley M. Crabtree
------------------------------------------
Name: ASHLEY M. CRABTREE
Title: SENIOR VICE PRESIDENT
<PAGE>
Schedule 1
----------
Description of Pledged Stock
<TABLE>
<CAPTION>
No. of
Issuer Pledgor Class Description Cert. No. Shares
------ ------- ----------------- --------- ------
<S> <C> <C> <C> <C>
PSA Licensing Corporation, Pediatric Services of America, Inc., a Common 1 100
a Delaware corporation Delaware corporation
PSA Properties Corporation, Pediatric Services of America, Inc., a Common 1 100
a Delaware corporation Delaware corporation
Pediatric Services of America, Inc., a Pediatric Services of America, Inc., a Common 5 1,000
Georgia corporation Delaware corporation
Pediatric Services of America Pediatric Services of America, Inc., a Common 1 1,000
(Connecticut), Inc., a Connecticut Georgia corporation
corporation
Pediatric Home Nursing Services, Inc., a Pediatric Services of America, Inc., a Common 1 100
New York corporation Georgia corporation
Pediatric Partners, Inc., a Delaware Pediatric Services of America, Inc., a Common 11 100
corporation Georgia corporation
Premier Medical Services, Inc., a Nevada Pediatric Services of America, Inc., a Common 1 1,000
corporation Georgia corporation
Insurance Medical Reporter, Inc., a Premier Medical Services, Inc., a Common 1 1,000
Nevada corporation Nevada corporation
Premier Nurse Staffing, Inc., a Nevada Premier Medical Services, Inc., a Common 1 1,000
corporation Nevada corporation
Premier Certified Home Health Services, Premier Medical Services, Inc., a Common 1 1,000
Inc., a Nevada corporation Nevada corporation
ARO Health Services, Inc., a Washington Premier Certified Home Health Common 2 500
corporation Services, Inc., a Nevada corporation
</TABLE>
<PAGE>
SCHEDULE 2
----------
Irrevocable Stock Power
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the following shares of capital stock of _______________, a ________
corporation:
Certificate No. No. of Shares
--------------- -------------
and irrevocably appoints
its agent and attorney-in-fact to transfer all or any part of such capital stock
and to take all necessary and appropriate action to effect any such transfer.
The agent and attorney-in-fact may substitute and appoint one or more persons to
act for him.
Date: Pediatric Services of America, Inc.,
a Georgia corporation
By:
------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and Chief Financial Officer
Witnessed by: [Signature Guaranteed:]
- -----------------------
- -----------------------
-13-
<PAGE>
SWINGLINE NOTE
$5,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of NATIONSBANK, N.A., and its successors and assigns, on or before the
Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of the
Swingline Committed Amount shown above or, if less, the aggregate unpaid
principal amount of all Swingline Loans in such amounts and on such dates as
provided in the Credit Agreement; together with interest thereon at the rates
and as provided in the Credit Agreement.
This Note is the Swingline Note referred to in the Credit Agreement dated
as of August 13, 1997 (as amended and modified, the "Credit Agreement") among
----------------
PEDIATRIC SERVICES OF AMERICA, INC., a Georgia corporation, the Guarantors and
Lenders identified therein and NationsBank, N.A., as Administrative Agent. Terms
used but not otherwise defined herein shall have the meanings provided in the
Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
---------------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
REVOLVING NOTE
$25,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of NATIONSBANK, N.A., and its successors and assigns, on or before the
Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount shown above or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
--------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
REVOLVING NOTE
$25,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of CREDITANSTALT-BANKVEREIN, and its successors and assigns, on or before
the Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount shown above or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payments of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
----------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
REVOLVING NOTE
$15,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of SUNTRUST BANK, ATLANTA, and its successors and assigns, on or before
the Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount shown above or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
----------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
REVOLVING NOTE
$15,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of TORONTO DOMINION (TEXAS), INC., and its successors and assigns, on or
before the Termination Date to the office of the Administrative Agent in
immediately available funds as provided in the Credit Agreement, the principal
amount of such Lender's Revolving Committed Amount shown above or, if less, the
aggregate unpaid principal amount of all Revolving Loans made by such Lender to
the undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
----------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
REVOLVING NOTE
$10,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of MELLON BANK, and its successors and assigns, on or before the
Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount shown above or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
----------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
REVOLVING NOTE
$10,000,000 August 13, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to
the order of PNC BANK, N.A., and its successors and assigns, on or before the
Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount shown above or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower, together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of August 13, 1997 (as amended and modified, the "Credit Agreement")
----------------
among Pediatric Services of America, Inc., a Georgia corporation, the Guarantors
and Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided in
the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
PEDIATRIC SERVICES OF AMERICA, INC.,
a Georgia corporation
By /s/ Stephen M. Mengert
--------------------------------
Name: Stephen M. Mengert
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
PRIMARY
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average common stock outstanding during the period.............. 6,260,017 5,974,146 4,620,507
Warrant exercises........................................................ - 14,324 -
Dilutive Warrants and options computed in accordance with the
treasury stock method as required by the SEC not included
above................................................................. 194,073 311,737 437,481
Shares canceled from Escrow.............................................. (8,335) - -
---------- ---------- ----------
Total.................................................................... 6,445,755 6,300,207 5,057,988
========== ========== ==========
NET INCOME ATTRIBUTABLE TO COMMON AND COMMON EQUIVALENT SHARES:
Income before extraordinary item......................................... $7,254,698 $5,046,333 $4,211,496
Less accretion on redeemable preferred stock............................. - (10,174) (35,952)
Less preferred stock dividend............................................ - (85,750) (194,943)
---------- ---------- ----------
Income before extraordinary item......................................... 7,254,698 4,950,409 3,980,601
Extraordinary item, net of tax........................................... - - 781,220
---------- ---------- ----------
Net income attributable to common and common equivalent shares........... $7,254,698 $4,950,409 $4,761,821
========== ========== ==========
PER SHARE DATA:
Per share amount before extraordinary item............................... $ 1.13 $ 0.79 $ 0.79
Per share amount extraordinary item...................................... - - 0.15
---------- ---------- ----------
Per share amount net income loss......................................... $ 1.13 $ 0.79 $ 0.94
========== ========== ==========
</TABLE>
PAGE - 38
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
PEDIATRIC SERVICES OF AMERICA, INC.
COMPUTATION OF EARNINGS PER SHARE
FULLY DILUTED
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average common stock outstanding during the period 6,260,017 6,111,263 4,620,507
Redeemable Series A convertible preferred stock converted - - 108,262
Warrant exercises - 14,324 -
Dilutive Warrants and options computed in accordance with the
treasury stock method as required by the SEC not included
above....................................................... 204,482 317,856 599,088
Shares canceled from Escrow............................................. (8,335) - -
---------- ---------- ----------
Total
6,456,164 6,443,443 5,327,857
========== ========== ==========
NET INCOME ATTRIBUTABLE TO COMMON AND COMMON EQUIVALENT SHARES:
Income before extraordinary item................................... $7,254,698 $5,046,333 $4,211,496
Less accretion on redeemable preferred stock...................... - (10,174) (35,952)
Less preferred stock dividend..................................... - (85,750) (194,943)
---------- ---------- ----------
Income before extraordinary item................................... 7,254,698 4,950,409 3,980,601
Extraordinary item, net of tax..................................... - - 781,220
---------- ---------- ----------
Net income attributable to common and common equivalent shares..... $7,254,698 $4,950,409 $4,761,821
========== ========== ==========
PER SHARE DATA:
Per share amount before extraordinary item........ $ 1.12 $ 0.77 $ 0.75
Per share amount extraordinary item............... - - 0.15
---------- ---------- ----------
Per share amount net income....................... $ 1.12 $ 0.77 $ 0.89
========== ========== ==========
</TABLE>
PAGE - 39
<PAGE>
EXHIBIT 13
1997
ANNUAL REPORT
PAGE - 40
<PAGE>
LETTER TO STOCKHOLDERS
FISCAL 1997 WAS A YEAR OF RECORD GROWTH at Pediatric Services of America, Inc.
("PSA"). Record net revenue and net income was reported for the fifth
consecutive year, thirteen new companies were welcomed to the PSA family, a home
health agency with a certificate of need was purchased in North Carolina, and
three new start up locations were opened.
Net revenue increased by 25 percent to a record $204.0 million, and income
before taxes and extraordinary item increased by 43 percent to a record $12.1
million. Along with our dynamic growth, we have invested in our infrastructure
to manage current and future opportunities. These results reflect the
dedication of our employees to providing the quality service that our patients
deserve and enhancing long-term stockholder value that our stockholders expect.
THE COMPANY AND INDUSTRY
PSA has become the nation's largest focused pediatric home health care provider
specializing in home nursing, respiratory therapy, infusion therapy and related
services for infants and children. According to industry sources, the market
for home health care services in the United States exceeds $30 billion
with the market for pediatrics estimated at approximately $5 billion. The
pediatric market is served primarily by a large number of small companies
operating on a local or regional basis providing a limited range of services.
We believe that PSA is in a unique position to continue to take advantage of
opportunities to acquire and consolidate this market and further our strategy as
a pediatric health care services company.
The health care industry has, in recent years, been under significant pressure
from governmental and managed care sources to reform the delivery of medical
services through lower cost alternatives. We feel the focus of the reform will
continue toward payors seeking lower cost home health care services as opposed
to more costly hospitalization. PSA has proven that it has the capability to
provide a wide range of cost effective home health care services for the needs
of pediatric patients, particularly the needs of medically fragile children
dependent on sophisticated nursing care and medical technology. The medical
needs of a pediatric patient are different from those of an adult patient.
PSA's experience in providing pediatric home health care services gives us a
distinct advantage in the provision of these services over other competitors.
ACQUISITIONS AND NEW BRANCH START UPS
In August, 1997, we expanded our bank credit facility from $60 million to $100
million. The combination of the bank financing and the Company's working
capital has allowed PSA to add approximately $28.9 million in annualized net
revenue from acquisitions in fiscal 1997 and to open three new branch offices
that expand existing geographic coverage and better position PSA to negotiate
national managed care contracts.
PAGE -1
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION TIME LINE FOR FISCAL 1997
FISCAL 1997 ANNUALIZED
DATE NET REVENUE NET REVENUE
ACQUIRED ACQUISITION (MILLIONS) (MILLIONS)
- ------------------------ -------------------------------------------- -------------- --------------
<S> <C> <C> <C>
October 1996 IntensiCare, Inc. $ 3.8 $3.8
October 1996 Pediatric Specialists, Inc. $ 0.8 $0.8
January 1997 Nurses Unlimited, Inc. $ 1.5 $2.0
January 1997 Ivonyx Pharmacy $ 0.4 $0.5
February 1997 Concerned Nursing Care, Inc. $ 2.2 $3.3
April 1997 Comprehensive Medical Enterprises, Inc. $ 1.4 $2.8
April 1997 Olsten Certified HealthCare Corp.* $ 0.0 $0.0
May 1997 Home Vitality, Inc. $ 0.5 $1.3
July 1997 Special Medical Services, Inc. $ 0.2 $0.7
August 1997 Lifetec Medical & Home Care, Inc. $ 1.1 $5.6
August 1997 Home Health Nursing Services, Inc. $ 0.1 $1.3
September 1997 Medical Service Providers, Inc. $0.02 $0.9
September 1997 Kids Individual Developmental Services, Inc. $0.01 $0.8
September 1997 Supplemental Staffing Services, Inc. $ 0.5 $5.1
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Only certain assets were purchased, giving PSA a home health agency with a
certificate of need in North Carolina.
Through fiscal 1997, we extended our record of double digit internal growth to
11 consecutive quarters. This growth was fueled by the expansion of services
and patient referral base at existing branch offices.
We are also very pleased to welcome a number of additional operations to the PSA
family in the first quarter of fiscal 1998, expanding our services yet further.
In October, 1997, PSA acquired the assets of Pediatric Physical Therapy, Inc., a
pediatric physical therapy operation in St. Louis, Missouri, and signed an
agreement to purchase the assets of Kid's Nurses, Inc., a pediatric nursing
company in St. Louis, Missouri.
In November, 1997, PSA acquired the assets of Kids & Nurses, Inc., a pediatric
home health care company with operations in Tennessee and Florida, adding seven
new Prescribed Pediatric Extended Care centers to PSA's already existing centers
in Florida and Georgia, and transferring to PSA pediatric certificates of need
in four major metropolitan areas of Tennessee. Prior to this acquisition, PSA
was not able to directly provide nursing service nor physical and other
therapies in the State of Tennessee. With the Kids & Nurses acquisition, PSA
will be able to expand into the Tennessee pediatric market.
Another November 1997, acquisition was the purchase by PSA of the assets of
Intra-Care, Inc., a pharmacy and infusion company with three locations in New
Jersey. In addition to directly providing home services, the Intra-Care
acquisition adds to PSA's services the management of physician's offices and
allows provision of infusion services at out-patient centers.
PAGE - 2
<PAGE>
In December, 1997, PSA purchased the assets of Cyber Home Medical Equipment
Corporation, Inc. and Pre-Med, Inc., home medical equipment companies in New
York with coverage of Long Island and several of the New York City boroughs.
This acquisition, along with the other acquisitions in fiscal 1998, provide PSA
with additional strategic presence in Missouri, Tennessee, Florida, New Jersey
and New York, and the opportunity to expand our core business to include our
wide range of services and national managed care contracts.
In the first quarter of fiscal 1998, PSA internally expanded its geographic
coverage into the state of Rhode Island, where we also expect to be able to
service the southern portion of Massachusetts.
Finally, in December 1997,one of PSA's consolidated entities, Insurance Medical
Reporter, Inc. ("IMR"), purchased certain assets of ChoicePoint Services, Inc.,
expanding IMR's annualized product line revenue from approximately $26 million
to $85 million. IMR provides paramedical examinations for the life and health
insurance industries. This acquisition makes IMR one of the top five providers
of paramedical examination services in the nation.
NEW RELATIONSHIPS
In fiscal 1997, PSA entered into a preferred provider relationship with Scottish
Rite Children's Hospital, a leading children's hospital in Atlanta, Georgia.
This strategic alliance provides us with a strong partner in the Atlanta market
from which to expand our pediatric health care services.
PSA also seeks to further its business expansion through the development of its
managed care contracts and fee-for-service contracts with hospitals, home health
agencies, physician organizations and other health-related entities. We are
continuing our strategy of creating a national organization that provides
comprehensive pediatric home health care services that address the needs of the
communities we serve.
THE YEAR AHEAD
We continue to be excited about PSA's future and the opportunities available to
us in the pediatric home health care market. Our challenge remains the creation
of customer value and delivery of quality home care in the existing and future
communities we serve.
PSA has always believed that the care and support of a child is much different
than that of an adult. Our philosophy towards the care of a pediatric patient
extends beyond the medical treatment and includes providing emotional support to
the parents in their time of need. I would like again to express gratitude to
our employees whose continued commitment has made PSA a valued entity to the
community, our patients and stockholders. The record results of fiscal 1996 and
1997 are evidence of their leadership, professionalism and dedication to meeting
the challenges of the health care industry.
We would also like to thank our stockholders for their continued confidence in
PSA and look forward to serving their interests in the year ahead.
Joseph D. Sansone
Chairman of the Board, President
and Chief Executive Officer
PAGE - 3
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
=================================================================================================================
(in thousands, except per share data) YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Net revenue.................................. $204,023 $163,804 $111,860 $70,686 $52,190
Operating salaries, wages and employee
benefits 87,943 72,026 50,078 33,198 26,260
Other operating costs 75,386 60,096 39,087 23,566 15,476
Corporate, general and administrative 12,885 10,784 7,217 5,428 4,946
Provision for doubtful accounts 6,239 4,708 3,164 1,411 1,335
Depreciation and amortization 6,103 4,858 3,656 1,874 1,328
Merger costs - 1,166 - - -
------- -------- -------- ------- -------
Operating income 15,467 10,166 8,658 5,209 2,845
Interest expense 3,534 1,778 1,643 1,074 872
------- -------- -------- ------- -------
Income before minority interest, income
taxes and extraordinary item 11,933 8,388 7,015 4,135 1,973
Minority interest in loss of subsidiary 119 64 - - -
------- -------- -------- ------- -------
Income before income taxes and extraordinary
item 12,052 8,452 7,015 4,135 1,973
Income taxes 4,797 3,406 2,803 1,556 574
------- -------- -------- ------- -------
Income before extraordinary item 7,255 5,046 4,212 2,579 1,399
Extraordinary item, net of tax - - 781 (408) -
------- -------- -------- ------- -------
Net income 7,255 $ 5,046 $ 4,993 $ 2,171 $ 1,399
======= ======== ======== ======= =======
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON AND
COMMON EQUIVALENT SHARES:
Income before extraordinary item $ 7,255 $ 5,046 $ 4,212 $ 2,579 $ 1,399
Less accretion on redeemable warrants - - - (51) (48)
Less accretion on redeemable preferred stock - (10) (36) (2,198) (1,865)
Less preferred stock dividends - (86) (195) (86) (128)
------- -------- -------- ------- -------
Income (loss) before extraordinary item
attributable to common and common
equivalent shares 7,255 4,950 3,981 244 (642)
Extraordinary item, net of tax - - 781 (408) -
------- -------- -------- ------- -------
Income (loss) attributable to common and
common equivalent shares $ 7,255 $ 4,950 $ 4,762 $ (164) $ (642)
======= ======== ======== ======= =======
SHARE DATA:
Income (loss) before extraordinary item per
common and common equivalent share $1.13 $0.79 $ 0.79 $0.15 $(2.83)
Extraordinary item per common and common
equivalent share - - 0.15 (0.25) -
Net income (loss) per common and common ------- -------- -------- ------- -------
equivalent share $1.13 $0.79 $ 0.94 $(0.10) $(2.83)
Weighted average shares outstanding (2) 6,446 6,300 5,058 1,664 227
======= ======== ======== ======= =======
- -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ 62,193 $ 35,673 $ 17,936 $13,754 $ 3,777
Total assets 153,834 98,736 73,151 40,299 30,706
Long-term debt, net of current portion 65,012 23,638 6,243 8,227 14,159
Redeemable warrants - - - - 578
Redeemable Series A convertible preferred stock - - - - 5,798
Redeemable convertible preferred stock - - 3,490 1,867 -
Total stockholders' equity 61,680 54,193 44,621 20,097 161
- -----------------------------------------------------------------------------------------------------------------
(1) The consolidated financial information has been restated for the effect of the business combination on
February 29, 1996 of the Company and Premier Medical Services, Inc. accounted for using the pooling-of-
interests method. See Note 5 to the Company's consolidated financial statements.
(2) Calculated as set forth in Note 12 to the Company's consolidated financial statements. All share
information gives effect to a 0.7 for 1 reverse split of the Common Stock that was effected on June 10, 1994.
==================================================================================================================
</TABLE>
PAGE - 4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report contains certain statements of a forward-looking nature
relating to future financial performance of the Company. When used in this
Annual Report, the words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "intend," "plan" and similar expressions are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, certain of which are beyond the
Company's control. The Company cautions that various factors, including the
factors described hereunder and those discussed in the Company's filings with
the Securities and Exchange Commission, as well as general economic conditions
and industry trends, the level of acquisition opportunities available to the
Company and the Company's ability to negotiate the terms of such acquisitions on
a favorable basis, could cause actual results or outcomes to differ materially
from those expressed in any forward-looking statements of the Company made by or
on behalf of the Company. Any forward-looking statements speak only as of the
date on which such statement is made, and the Company undertakes no obligation
to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of an unanticipated event. New factors emerge from time to time, and
it is not possible for management to predict all of such factors. Further,
management cannot assess the impact of each such factor on the business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
The following discussion should be read in conjunction with Selected
Consolidated Financial Data and the Consolidated Financial Statements of the
Company included in this report. All financial information has been restated to
reflect the combination of the Company and Premier Medical Services, Inc.
("Premier"), on February 29, 1996 using the pooling-of-interest method of
accounting.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
revenue represented by the following items:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net revenue.............................................................. 100.0% 100.0% 100.0%
Operating salaries, wages and employee benefits.......................... 43.1 44.0 44.8
Other operating costs.................................................... 36.9 36.7 34.9
Corporate, general and administrative.................................... 6.3 6.6 6.5
Provision for doubtful accounts.......................................... 3.1 2.9 2.8
Depreciation and amortization............................................ 3.0 3.0 3.3
Merger costs............................................................. - 0.6 -
----- ----- -----
Operating income......................................................... 7.6 6.2 7.7
Interest expense......................................................... 1.7 1.1 1.4
----- ----- -----
Income before minority interest, income taxes and extraordinary
item................................................................. 5.9 5.1 6.3
Minority interest in loss of subsidiary.................................. 0.1 0.1 -
----- ----- -----
Income before income taxes and extraordinary item........................ 6.0 5.2 6.3
Income taxes............................................................. 2.4 2.1 2.5
----- ----- -----
Income before extraordinary item......................................... 3.6 3.1 3.8
Extraordinary item, net of tax........................................... - - 0.7
----- ----- -----
Net income............................................................... 3.6% 3.1% 4.5%
===== ===== =====
</TABLE>
PAGE - 5
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenue increased $40.2 million, or 25%, to $204.0 million in fiscal 1997
from $163.8 million in fiscal 1996. The Company's acquisitions and start-up
operations accounted for approximately $14.5 million , or 36%, of the increase,
and internal growth accounted for the remaining $25.7 million, or 64%, of the
increase. Of the $40.2 million increase in net revenue in fiscal 1997,
pediatric net revenue accounted for $26.9 million, or 67%, of the increase.
Increased pediatric net revenue for fiscal 1997 was attributable to the
Company's acquisitions and start-up operations, the successful opening of new
branch offices and marketing efforts which resulted in an increase in patients
served rather than any significant increase in rate changes. Adult net revenue
accounted for $6.3 million, or 16%, of the increase in net revenue for fiscal
1997, primarily due to internal growth of existing locations and the Company's
acquisitions. Medical testing services net revenue accounted for $7.0 million,
or 17%, of the increase in net revenue for fiscal 1997, primarily due to an
increase in the volume of business. In fiscal 1997, the Company derived
approximately 64% of its net revenue from commercial and private payors, 27%
from Medicaid and 9% from Medicare.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and employee benefits increased
$15.9 million, or 22%, to $87.9 million in fiscal 1997 from $72.0 million in
fiscal 1996. The increase was primarily due to the Company's acquisitions,
start-up operations and the internal growth of the Company's operations. The
acquisitions and start-up operations added approximately $9.6 million, or 60%,
of the increase in operating salaries, wages and employees benefits. As a
percentage of net revenue, operating salaries, wage and employee benefits for
fiscal 1997 decreased to 43% from 44% in fiscal 1996. The decrease in operating
salaries, wages and employee benefits as a percentage of net revenue is
attributable to a number of factors including: improved nursing productivity
due to scheduling and staffing efficiencies and a change in business mix to a
higher percentage of pharmacy net revenue to total net revenue.
Other operating costs include medical supplies, branch office rents, utilities,
vehicle expenses and cost of sales. The cost of sales consists primarily of the
cost of pharmacy products. Other operating costs increased $15.3 million, or
25%, to $75.4 million in fiscal 1997 from $60.1 million in fiscal 1996. Of the
increase, $3.1 million, or 20%, relates to the Company's acquisitions and start-
up operations and the remaining $12.2 million, or 80%, to the internal growth of
the Company's operations. The percentage of other operating costs to net
revenue was essentially comparable for fiscal 1997 and 1996.
Corporate, general and administrative costs increased $2.1 million, or 20%, to
$12.9 million in fiscal 1997 from $10.8 million in fiscal 1996. The increase
was primarily due to the growth of the Company's operations and the addition of
temporary personnel needed for the implementation of the Company's new billing
and collection system. The percentage of corporate, general, and administrative
costs to net revenue was essentially comparable for fiscal 1997 and 1996.
Provision for doubtful accounts consists of the amount of billed revenue that
management estimates will become uncollectible. During fiscal 1997, the
Company's provision increased $1.5 million, or 33%, to $6.2 million from $4.7
million in fiscal 1996. The increase is primarily due to growth of the
business, and an increase in total net revenue and days sales outstanding.
Depreciation and amortization expenses increased $1.2 million, or 26%, to $6.1
million in fiscal 1997 from $4.9 million in fiscal 1996. The increase was
primarily attributable to the Company's capital expenditures, the purchase of
rental equipment and the amortization of goodwill from the Company's
acquisitions. As a percentage of the Company's total net revenue, depreciation
and amortization costs were comparable for fiscal 1997 and 1996.
In fiscal 1996, the Company incurred non-recurring business combination costs of
approximately $1.2 million related to the business combination of the Company
with Premier on February 29, 1996. These costs represent legal and professional
fees, severance costs and other costs related to consummating the business
combination.
PAGE - 6
<PAGE>
Interest expense increased $1.7 million, or 99%, to $3.5 million in fiscal 1997
from $1.8 million in fiscal 1996. The increase was primarily the result of a
$29.4 million increase in the Company's average debt outstanding incurred to
finance acquisitions and the Company's working capital for fiscal 1997.
Income tax expense increased $1.4 million, or 41%, to $4.8 million in fiscal
1997 from $3.4 million in fiscal 1996. This increase is due to an increase in
the profitability of the Company.
FISCAL 1996 COMPARED TO FISCAL 1995
Net revenue increased $51.9 million, or 46%, to $163.8 million in 1996 from
$111.9 million in fiscal 1995. The Company's acquisitions and start-up
operations accounted for approximately $25.0 million, or 48%, of the increase
and internal growth accounted for the remaining $26.9 million, or 52%, of the
increase. Overall, the internal growth in net revenue increased to 24% for
fiscal 1996 compared to 14% for fiscal 1995. Of the $51.9 million increase in
net revenue in fiscal 1996, pediatric net revenue accounted for $35.3 million,
or 68%, of the increase. Increased pediatric net revenue for fiscal 1996 was
attributable to the Company's acquisitions, the successful opening of new branch
offices and marketing efforts which resulted in an increase in patients served
rather than any significant increase in rates charged. Adult net revenue
accounted for $9.8 million, or 19%, of the increase in net revenue for fiscal
1996, primarily due to the internal growth of existing locations. Medical
testing services net revenue accounted for $6.8 million, or 13%, of the increase
in net revenue for fiscal 1996, primarily due to an increase in the volume of
business. In fiscal 1996, the Company derived approximately 63% of its net
revenue from commercial and private payors, 27% from Medicaid and 10% from
Medicare.
Operating salaries, wages and employee benefits consist primarily of branch
office operations. Operating salaries, wages and benefits increased $21.9
million, or 44%, to $72.0 million in fiscal 1996 from $50.1 million in fiscal
1995. The increase was primarily due to the Company's acquisitions, start-up
operations and the internal growth of the Company's operations. The acquisitions
and start-up operations added approximately $13.6 million, or 62%, of the
increase in operating salaries, wages and employee benefits. As a percentage of
net revenue, total operating salaries, wages and employee benefits for fiscal
1996 decreased to 44% from 45% in fiscal 1995. The decrease in operating
salaries, wages and employee benefits as a percentage of net revenue is
primarily attributable to the increase in the net revenue volume from pharmacy,
respiratory and medical testing services operations which have a lower operating
salaries, wages and employee benefits component as compared to the Company's
other lines of business, thereby lowering the Company's overall ratio.
Other operating costs include medical supplies, branch office rents, utilities,
vehicle expenses and cost of sales. Other operating costs increased $21.0
million, or 54%, to $60.1 million in fiscal 1996 from $39.1million in fiscal
1995. Of this increase, $9.1 million, or 43%, relates to the Company's
acquisitions and start-up operations and the remainder to the internal growth of
the Company's operations. As a percentage of net revenue, total other operating
costs for fiscal 1996 increased to 37% from 35% in fiscal 1995. The increase in
operating costs as a percentage of net revenue is primarily attributable to the
increase in net revenue volume from the pharmacy and medical testing services
operations. The pharmacy and medical testing services operations have a higher
other operating cost component than the Company's other operations due to the
purchase of drug product for the pharmacy business and the payment of operating
expenses for the medical testing services business.
Corporate, general and administrative costs increased $3.6 million, or 49%, to
$10.8 million in fiscal 1996 from $7.2 million in fiscal 1995. The increase is
primarily due to the internal growth of the Company's operations and the
addition of administrative staff to support the Company's acquisitions and
start-up operations. As a percentage of net revenue, corporate, general and
administrative costs are comparable for fiscal 1996 and fiscal 1995.
During fiscal 1996, the Company's provision for doubtful accounts increased $1.5
million, or 49%, to $4.7 million from $3.2 million in fiscal 1995. The increase
is primarily due to an increase in total net revenue and days sales outstanding.
As a percentage of net revenue, the provision for doubtful accounts is
PAGE - 7
<PAGE>
comparable for fiscal 1996 and fiscal 1995.
Depreciation and amortization expenses increased $1.2 million, or 33%, to $4.9
million in fiscal 1996 from $3.7 million in fiscal 1995. The increase was
primarily attributable to the Company's capital expenditures for the purchase of
rental equipment and the amortization of goodwill from the Company's
acquisitions. As a percentage of total net revenue, depreciation and
amortization costs decreased in fiscal 1996. The decrease is primarily
attributable to an increase in the Company's pharmacy and medical testing
services businesses which have a lower depreciation and amortization cost
component.
In fiscal 1996, the Company incurred non-recurring business combination costs of
approximately $1.2 million related to the business combination of the Company
with Premier on February 29, 1996. These costs represent legal and professional
fees, severance costs and other costs related to consummating the business
combination.
Interest expense increased $0.1 million, or 8%, to $1.7 million in fiscal 1996
from $1.6 million in fiscal 1995. The increase was primarily the result of a
$17.4 million increase in the Company's average debt outstanding incurred to
finance acquisitions during fiscal 1996. In June 1995, the Company used
approximately $19.0 million of the net proceeds of its second public offering to
repay outstanding indebtedness. See "Liquidity and Capital Resources".
Income tax expense increased $0.6 million, or 22%, to $3.4 million in fiscal
1996 from $2.8 million in fiscal 1995. This increase is due to an increase in
profitability of the Company.
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company extended its existing credit facility. The amount
of financing available increased to $100 million from $60 million consisting of
a $95 million revolving loan and a $5 million swingline facility. The loan is
due August 2002. A commitment fee ranging from .225% to .375% per annum is
charged on the average daily unused portion of the facility. The loan is
collateralized by 100% of the voting stock of the Company. The loan requires
the Company to maintain certain financial ratios, and places restrictions on the
sale and purchase of assets, payment of dividends and other distributions
relating to the Company's outstanding capital stock. At the Company's option,
borrowings under the revolving facility bear interest at (1) LIBOR, or (2) prime
rate or (3) at a rate equal to the bank's cost of funds, plus an applicable
margin that varies from a minimum of .875% to a maximum of 1.625% and is based
on the calculation of a leverage ratio. At September 30, 1997 the Company's
applicable margin was 1.25% and the interest rates under this facility at
September 30, 1997 ranged from 6.91% to 7.12%. Outstanding borrowings under
this facility at September 30, 1997 were approximately $61.0 million.
At September 30, 1997, the Company had one interest rate swap agreement with a
commercial bank (the "Counter Party"), having a cumulative notional principal
amount of $25 million. The Company pays a fixed rate of 6.61% plus the
applicable margin that varies from a minimum of .875% to a maximum of 1.625% and
is based on the calculation of a leverage ratio. The interest rate swap
terminates in June 2002. The Company is exposed to credit loss in the event of
non-performance by the Counter Party to the interest rate swap agreement.
However, the Company does not anticipate such non-performance.
In June 1995, the Company completed its second public offering of 1.1 million
shares of Common Stock at a price of $15.75 per share, from which the Company
received total proceeds, net of issuance costs, of approximately $15.9 million.
In July 1995, the Company's underwriters exercised their right to purchase
217,500 additional shares of the Company's Common Stock at a price of $15.75 per
share, from which the Company received total proceeds, net of issuance costs, of
approximately $3.2 million. The Company used substantially all of the proceeds
to repay a portion of the Company's outstanding debt. The second public
offering also included the offering of 347,585 shares of the Company's Common
Stock by certain of the Company's stockholders (the "Selling Stockholders").
The Company did not receive any of the proceeds from the sale of shares by the
Selling Stockholders. Subsequently, the Company has continued to finance its
operations, including acquisitions, through cash flows from operations and bank
borrowings.
Prior to the Company's acquisition of Premier, Premier financed its operations
primarily through cash flow
PAGE - 8
<PAGE>
from operations, bank borrowings and the issuance of Redeemable Convertible
Preferred Stock. In March 1995, Premier issued shares of Redeemable Convertible
Preferred Stock, from which Premier received total proceeds, net of issuance
costs, of approximately $1.4 million. The proceeds were used to repay
indebtedness to a former stockholder of Premier and provide proceeds for
acquisitions and general working capital requirements.
Upon the purchase of Premier by the Company, the Redeemable Convertible
Preferred Stock was converted to Common Stock. In addition, the Company paid
the cumulative preferred stock dividend of approximately $281,000 as required
upon the conversion of the Redeemable Convertible Preferred Stock to Common
Stock in February 1996. As of September 30, 1996, the Company had paid
substantially all of the non-recurring costs related to the combination.
The Company's operating cash flows are affected significantly by the growth in
accounts receivable, which occur largely as a result of the Company's net
revenue growth. For the fiscal years ended September 30, 1997, 1996 and 1995 the
Company's cash flows from operations were affected by increases in accounts
receivable balances of $30.2 million, $20.3 million and $12.3 million,
respectively. These increases were due primarily to volume growth and
acquisitions and slowing collections due to factors described herein. The
Company's days sales outstanding ("DSO") in accounts receivable was 126 days,
101 days and 83 days as of September 30, 1997, 1996 and 1995, respectively,
based on the annualized net revenue for the last quarter of each period. The
increase in DSO is primarily attributable to the accelerated growth experienced
by the Company, seasonality, the impact of the acquired accounts receivable
balances from the acquisitions and diversion of collection activities due to the
installation of the Company's new billing and collection system. The Company
has taken measures to improve the DSO by hiring more experienced key
reimbursement personnel, improving training programs and implementing its new
billing and receivable management system.
The Company's investments in property and equipment are attributable largely to
purchases of medical equipment that is rented to patients and computer equipment
needed for the Company's new billing system. The Company's investments in the
acquisition of businesses were $20.9 million, $4.8 million and $18.2 million in
fiscal 1997, fiscal 1996 and fiscal 1995, respectively.
As of September 30, 1996, the Company has recorded a net deferred tax asset in
its consolidated financial statements. Management believes that it is more
likely than not that the net deferred tax asset will be realized. Under new
guidance issued by the Internal Revenue Service, in December 1996, the Company
made an election entitling it to mark its accounts receivable to market value
for tax purposes. This election eliminated the deferred tax asset relating to
the allowance for doubtful accounts and established a new deferred tax liability
to reflect the new temporary differences. During fiscal 1997, the 1996 tax
return and the 1993 through 1995 amended tax returns were filed for the Company
and its subsidiaries under this new guidance. This election gave rise to
expected cash refunds of $2.0 million plus interest. As of September 30, 1997,
$1.8 million plus interest had been received. In addition, the net operating
loss carryforward of certain subsidiaries were increased and at September 30,
1997, $4.8 million was remaining to offset certain future tax payments. Such
losses expire $1.3 million by the year 2010 and $3.5 million by the year 2011.
The Company intends to continue to expand its business primarily through
acquiring local and regional home health care companies, opening branch offices
in both new and existing markets and expanding the services currently provided
at its existing branch offices. Acquisitions to date have been financed with a
combination of cash generated from operations, borrowings under the Company's
credit facility and shares of Common Stock of the Company.
Development costs of new branch offices include, among other things, lease
deposits and payments, and leasehold improvements and start-up costs, including
marketing and labor costs. Management believes that the Company's cash
commitment for each new branch office that delivers a full range of the
Company's services may approximate $500,000. Such costs will vary depending upon
inflation and the size and location of each facility and, accordingly, may vary
substantially from this approximation. Management expects to be able to finance
its current plan to expand services at the Company's existing branch offices
with existing sources of working capital.
PAGE - 9
<PAGE>
Management currently believes that internally generated funds and borrowings
under the Company's new credit facilities will be adequate to satisfy the
Company's working capital requirements, including currently anticipated
expansion, for the foreseeable future.
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Management does not anticipate that the Company
will incur operating expenses or will be required to invest heavily in computer
system improvements relating to the uncertainties associated with the year 2000
because the Company's current and planned systems are year 2000 compliant.
QUARTERLY OPERATING RESULTS AND SEASONALITY
The Company's quarterly results may vary significantly depending primarily on
factors such as rehospitalizations of patients, the timing of new branch office
openings and pricing pressures due to legislative and regulatory initiatives to
contain health care costs. The Company believes that its net revenue is
typically higher during the third and fourth quarters of its fiscal year due to
respiratory illnesses associated with the spring and summer months. As a result
of the above factors, the Company's operating results for any particular quarter
may not be indicative of the results for the full fiscal year.
PAGE - 10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pediatric Services of America, Inc.
We have audited the accompanying consolidated balance sheets of Pediatric
Services of America, Inc. ("PSA"), as of September 30, 1997 and 1996, and the
related consolidated statements of income, redeemable preferred stock, common
stock and other stockholders' equity and cash flows for each of the three years
in the period ended September 30,1997. These financial statements are the
responsibility of PSA's management. Our responsibility is to express an opinion
on these financial statements based on our audits. We did not audit the
consolidated statements of income, redeemable preferred stock, common stock and
other stockholders' equity and cash flows of Premier Medical Services, Inc., a
wholly-owned subsidiary, for the year ended September 30, 1995, which statements
reflect total net revenue of 26% for 1995 of the related consolidated financial
statement totals. Those statements were audited by other auditors, whose report
thereon has been furnished to us, and our opinion, insofar as it relates to data
included for Premier Medical Services, Inc. is based solely on the reports of
the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of PSA at September 30, 1997 and 1996, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
November 18, 1997
Atlanta, Georgia
PAGE - 11
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1997 1996
---------------- -----------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents................................. $ 500,629 $ 770,206
Accounts receivable, less allowances for doubtful
accounts of $10,036,000 and $8,523,000, respectively..... 75,458,527 47,744,840
Prepaid expenses.......................................... 507,905 460,850
Deferred income taxes..................................... 3,879,862 3,524,265
Other current assets...................................... 3,481,517 2,065,314
------------ ------------
Total current assets........................................ 83,828,440 54,565,475
PROPERTY AND EQUIPMENT:
Home care equipment held for rental....................... 24,103,723 19,013,569
Furniture and fixtures.................................... 6,979,170 4,910,212
Vehicles.................................................. 731,565 580,445
Leasehold improvements.................................... 580,675 562,285
------------ ------------
32,395,133 25,066,511
Accumulated depreciation and amortization................. (15,678,405) (11,644,023)
------------ ------------
16,716,728 13,422,488
OTHER ASSETS:
Goodwill, less accumulated amortization of
$3,695,000 and $2,333,000, respectively................ 50,421,121 28,733,976
Certificates of need, less accumulated amortization of
$279,000 and $176,000, respectively.................... 1,542,996 1,171,772
Deferred financing fees, less accumulated
amortization of $192,000 and $76,000, respectively..... 632,449 216,342
Noncompete agreements, less accumulated
amortization of $719,000 and $582,000,
respectively........................................... 320,555 368,333
Other.................................................. 371,706 257,144
------------ ------------
53,288,827 30,747,567
------------ ------------
Total assets................................................. $153,833,995 $ 98,735,530
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
PAGE - 12
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------------
1997 1996
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable.......................................................... $ 6,302,182 $ 5,779,594
Accrued compensation...................................................... 5,146,786 3,581,013
Accrued insurance......................................................... 2,392,780 1,845,993
Other accrued liabilities................................................. 3,559,100 2,724,454
Deferred revenue.......................................................... 852,899 792,139
Income taxes payable...................................................... 1,119,526 1,852,128
Current maturities of long-term obligations from related parties.......... 2,163,101 --
Current maturities of long-term obligations............................... 98,590 2,317,569
----------- -----------
TOTAL CURRENT LIABILITIES.................................................. 21,634,964 18,892,890
Long-term obligations from related parties net of current
maturities............................................................. 3,887,339 --
Long-term obligations, net of current maturities........................... 61,124,757 23,637,954
Deferred income taxes...................................................... 4,690,651 1,077,058
Minority interest in subsidiary............................................ 815,794 935,035
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, no shares issued and outstanding.......................... -- --
Common stock, $.01 par value, 80,000,000 shares
authorized,6,257,979 and 6,247,567 shares issued and
outstanding in 1997and 1996 respectively............................ 62,580 62,476
Additional paid-in capital................................................ 41,746,450 41,513,355
Retained earnings......................................................... 19,871,460 12,616,762
------------ -----------
Total stockholders' equity................................................. 61,680,490 54,192,593
------------ -----------
Total liabilities and stockholders' equity................................. $153,833,995 $98,735,530
============ ===========
</TABLE>
See accompanying notes.
PAGE - 13
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
1997 1996 1995
----------------- ---------------- --------------
<S> <C> <C> <C>
NET REVENUE............................................ $204,022,726 $163,804,464 $111,859,820
Costs and expenses:
Operating salaries, wages and employee benefits....... 87,943,066 72,026,197 50,077,865
Other operating costs................................. 75,385,617 60,096,166 39,086,858
Corporate, general and administrative................. 12,885,475 10,783,957 7,216,887
Provision for doubtful accounts....................... 6,238,965 4,707,989 3,163,799
Depreciation and amortization......................... 6,102,522 4,858,319 3,656,300
Combination costs................................... -- 1,165,600 --
------------ ------------ ------------
Total costs and expenses............................ 188,555,645 153,638,228 103,201,709
------------ ------------ ------------
Operating income....................................... 15,467,081 10,166,236 8,658,111
Interest expense....................................... 3,534,262 1,778,384 1,643,459
------------ ------------ ------------
Income before minority interest, income taxes and
extraordinary item.................................... 11,932,819 8,387,852 7,014,652
Minority interest in loss of subsidiary................ 119,341 64,965 --
------------ ------------ ------------
Income before income taxes and extraordinary item...... 12,052,160 8,452,817 7,014,652
Income taxes........................................... 4,797,462 3,406,484 2,803,156
------------ ------------ ------------
Income before extraordinary item....................... 7,254,698 5,046,333 4,211,496
Extraordinary item, net of tax expense of $521,000.. -- -- 781,220
------------ ------------ ------------
Net income............................................. $ 7,254,698 $ 5,046,333 $ 4,992,716
============ ============ ============
Net income attributable to common and common
equivalent shares:
Income before extraordinary item....................... $ 7,254,698 $ 5,046,333 $ 4,211,496
Less accretion on redeemable preferred stock........... -- (10,174) (35,952)
Less preferred stock dividends......................... -- (85,750) (194,943)
Income before extraordinary item attributable to
common and common equivalent shares................... 7,254,698 4,950,409 3,980,601
Extraordinary item, net of tax expense of $521,000.. -- -- 781,220
------------ ------------ ------------
Net income attributable to common and common equivalent
shares.............................................. $ 7,254,698 $ 4,950,409 $ 4,761,821
============ ============ =============
Share data:
Income before extraordinary item per common and common
equivalent share.................................... $1.13 $0.79 $0.79
Extraordinary item per common and common equivalent
share................................................. -- -- 0.15
------------ ------------ ------------
Net income per common and common equivalent
shares.............................................. $1.13 $0.79 $0.94
============ ============ ============
Weighted average shares outstanding.................... 6,445,755 6,300,207 5,057,988
============ ============ ============
</TABLE>
See accompanying notes.
PAGE - 14
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
-------------- --------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1994 $ 1,867,283 $41,876 $17,150,539 $ 2,904,532 $20,096,947
Issuance of 14,300 shares of redeemable convertible
preferred stock, net of issuance costs of $38,000 1,392,000 -- -- -- --
54,748 shares of common stock issued through
exercise of stock options -- 548 85,991 -- 86,539
41,548 shares of common stock issued in connection with
the acquisition of businesses -- 416 567,084 -- 567,500
Issuance of 1,319,915 shares of common stock upon
consummation of a second public offering, net
of issuance costs of $1,680,105 -- 13,199 19,095,357 -- 19,108,556
Accretion on redeemable preferred stock 35,952 -- -- (35,952) (35,952)
Preferred stock dividends 194,943 -- -- (194,943) (194,943)
Net income -- -- -- 4,992,716 4,992,716
----------- ------- ----------- ----------- -----------
Balances at September 30, 1995 3,490,178 56,039 36,898,971 7,666,353 44,621,363
63,563 shares of common stock issued through
exercise of stock options -- 636 355,356 -- 355,992
51,124 shares of common stock issued in connection with
the acquisition of a business -- 511 999,489 -- 1,000,000
Accretion on redeemable preferred stock 10,174 -- -- (10,174) (10,174)
Preferred stock dividends 85,750 -- -- (85,750) (85,750)
Conversion of preferred stock upon business combination (3,586,102) 3,324 3,261,505 -- 3,264,829
97,409 shares of common stock issued from the
conversion of warrants and stock options
upon the merger -- 974 (974) -- --
99,233 shares of common stock issued upon
the exercise of warrants -- 992 (992) -- --
Net income -- -- -- 5,046,333 5,046,333
----------- ------- ----------- ----------- -----------
Balances at September 30, 1996 -- 62,476 41,513,355 12,616,762 54,192,593
43,753 shares of common stock issued through
exercise of stock options -- 437 232,762 -- 233,199
33,341 shares of common stock cancelled from
escrow -- (333) 333 -- --
Net income -- -- -- 7,254,698 7,254,698
----------- ------- ----------- ----------- -----------
Balances at September 30, 1997............................. $ -- $62,580 $41,746,450 $19,871,460 $61,680,490
=========== ======= =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
PAGE - 15
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income.......................................................................... $ 7,254,698 $ 5,046,333 $ 4,992,716
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization..................................................... 6,102,522 4,858,319 3,656,300
Provision for doubtful accounts................................................... 6,238,965 4,707,989 3,163,799
Amortization of deferred financing fees........................................... 115,621 48,713 27,456
Accrued interest on subordinated note............................................. - - 181,210
Deferred income taxes............................................................. 3,257,996 (526,145) (562,844)
Minority interest in loss of subsidiary........................................... (119,341) (64,965) -
Extraordinary item, net of tax.................................................... - - (781,220)
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Accounts receivable............................................................. (30,202,092) (20,258,758) (12,342,946)
Prepaid expenses................................................................ (44,955) 81,708 67,774
Other current assets............................................................ (1,377,765) (1,295,488) (93,850)
Accounts payable................................................................ 288,183 2,671,756 544,664
Income taxes payable............................................................ (752,602) 1,034,234 199,159
Accrued liabilities............................................................. 2,206,288 1,281,231 1,480,443
------------ ------------ ------------
Net cash provided by (used in) operating activities................................. (7,032,482) (2,415,073) 532,661
INVESTING ACTIVITIES
Purchases of property and equipment................................................. (6,866,888) (6,478,823) (3,811,372)
Acquisitions of businesses.......................................................... (20,943,121) (4,780,619) (18,233,062)
Proceeds from minority partner in joint venture..................................... 100 1,000,000 -
Other, net.......................................................................... 38,846 (56,204) 29,895
------------ ------------ ------------
Net cash used in investing activities............................................... (27,771,063) (10,315,646) (22,014,539)
FINANCING ACTIVITIES
Borrowings (payments) on revolving line of credit, net.............................. - (3,892,054) 866,554
Principal payments on long-term debt................................................ (9,231,503) (2,290,404) (22,900,780)
Borrowings on long-term debt........................................................ 44,064,000 19,735,276 17,100,000
Deferred financing fees............................................................. (531,728) (94,770) (80,000)
Issuance of common stock............................................................ - - 19,108,556
Issuance of preferred stock......................................................... - - 1,392,000
Payment of preferred stock dividend................................................. - (280,693) -
Proceeds from exercise of stock options............................................. 233,199 223,008 86,539
------------ ------------ ------------
Net cash provided by financing activities........................................... 34,533,968 13,400,363 15,572,869
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents.................................... (269,577) 669,644 (5,909,009)
Cash and cash equivalents at beginning of year...................................... 770,206 100,562 6,009,571
------------ ------------ ------------
Cash and cash equivalents at end of year............................................ $ 500,629 $ 770,206 $ 100,562
============ ============ ============
Supplemental disclosure of cash flow information
Cash paid for interest.............................................................. $ 2,957,313 $ 1,843,000 $ 1,635,000
============ ============ ============
Cash paid for income taxes.......................................................... $ 4,344,976 $ 2,689,000 $ 3,163,000
============ ============ ============
</TABLE>
See accompanying notes.
PAGE - 16
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Pediatric
Services of America, Inc. ("PSA" or "the Company") and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of net revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
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. Deposits with
banks are federally insured in limited amounts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on the
straight-line method over the related asset's estimated useful life,
generally five to ten years for assets other than home care equipment.
OTHER ASSETS
Goodwill represents the excess of the purchase price of acquired businesses
over the fair value of net assets acquired and is being amortized using the
straight-line method over thirty years. The carrying value of goodwill will
be reviewed if the facts and circumstances suggest that it may be impaired.
If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over
the remaining amortization period, the Company's carrying value of the
goodwill and related assets will be reduced to their fair value.
Certificates of need are certificates which allow the Company to provide
home care services in sixteen counties in Maryland, the District of
Columbia, North Carolina, New Jersey and Washington. The certificates of
need were acquired in connection with business acquisitions by Premier
Medical Services, Inc. ("Premier") and business acquisitions by the
Company. The certificates of need are being amortized over their useful
lives (see Note 5).
Financing fees incurred in connection with the new credit agreement (see
Note 4) are being amortized using the straight-line method over the term of
the agreement.
The cost of non-compete agreements with former owners of acquired
businesses are being amortized over the respective lives of each agreement
(see Note 5).
NET REVENUE
Net revenue represents the estimated net realizable amounts from patients,
third-party payors and others for patient services rendered. Such revenue
is recognized as the related services are performed. Approximately 36%,
37%, and 38% of the Company's net revenue for the years
PAGE - 17
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ended September 30, 1997, 1996 and 1995 respectively, were reimbursed under
arrangements with Medicare and Medicaid. Certain services are billed in
advance of the Company rendering the related services. Such amounts are
deferred in the balance sheet until the related services are performed.
ADVERTISING COSTS
Advertising costs are charged to expense in the period the costs are
incurred. Advertising expense was approximately $587,000, $354,000 and
$282,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.
CONCENTRATION OF CREDIT RISK
The Company's principal financial instrument subject to potential
concentration of credit risk is trade accounts receivable. The
concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of payors including Medicare and Medicaid,
insurance companies, and individuals and the diversity of geographic
locations in which the Company operates.
At September 30, 1997, the Company had one interest rate swap agreement
with a commercial bank (the "Counter Party"), having a cumulative notional
principal amount of $25 million. The Company pays a fixed rate of 6.61%
plus the applicable margin that varies from a minimum of .875% to a maximum
of 1.625% and is based on the calculation of a leverage ratio. The interest
rate differential to be received or paid is recognized over the life of the
agreement as an adjustment to interest expense. The interest rate swap
terminates in June 2002. The Company is exposed to credit loss in the event
of non-performance by the Counter Party to the interest rate swap
agreement. However, the Company does not anticipate such non-performance.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of fiscal year 1997, the Company adopted the Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
adoption of this Statement did not have a material effect on the Company's
financial position or on results of operations.
In the first quarter of fiscal year 1998, the Company will adopt Statement
of Financial Accounting Standards No. 131, "Reporting Aggregated
Information about a Business Enterprise." The adoption of this Statement
will not have a material effect on the Company's financial position or
results of operations.
PAGE - 18
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share". The
adoption of this Statement will not have a material effect on the Company's
financial position or results of operations (see Note 12).
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
The Statement, which is effective for the Company's fiscal year ending
September 30, 1999, establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of this Statement is not anticipated to
have a material effect on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The new accounting standards prescribed by
SFAS No. 123 are optional, and the Company is permitted to account for its
stock incentive and stock purchase plans under previously issued accounting
standards (See Note 7).
2. PREFERRED STOCK AND COMMON STOCK
On June 13, 1995, the Company issued 1,102,415 shares of its Common Stock
upon the closing of its second public offering for $15,890,077 in cash, net
of issuance costs of $1,473,435. Also, on July 11, 1995, the Company's
underwriters exercised their option to purchase 217,500 of additional
shares of Common Stock for $3,218,479 in cash, net of issuance costs of
$206,670.
As of September 30, 1997 a total of 565,289 shares of Common Stock have
been reserved for future issuance.
PAGE - 19
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. PREFERRED STOCK AND COMMON STOCK - CONTINUED
Shares of Preferred Stock and Common Stock outstanding and related changes
for the three years ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE PREFERRED STOCK COMMON STOCK
------------------------------------------
<S> <C> <C>
Balances at October 1, 1994 20,000 4,187,641
Exercise of stock options - 54,748
Shares issued in connection with the
acquisition of a business - 41,548
Issuance of preferred stock 14,300 -
Issuance of common stock in second
public offering -- 1,319,915
------- ---------
Balances at September 30, 1995 34,300 5,603,852
Exercise of stock options - 63,563
Exercise of warrants - 99,233
Shares issued in connection with the
acquisition of a business - 51,124
Conversion of warrants and stock options
upon business combination - 97,409
Conversion of preferred stock upon
business combination (34,300) 332,386
------- ---------
Balances at September 30, 1996 - 6,247,567
Exercise of stock options - 43,753
-
Shares cancelled from escrow - (33,341)
------- ---------
Balances at September 30, 1997 - 6,257,979
======= =========
</TABLE>
PAGE - 20
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SHORT-TERM BORROWING ARRANGEMENTS
Premier had a $5,000,000 revolving line of credit agreement bearing
interest at the bank's prime interest rate plus 1.0%. Premier had
outstanding borrowings of $3,892,000 under this line of credit at September
30, 1995. On May 20, 1996, the Company retired the debt and cancelled the
credit agreement.
4. LONG-TERM OBLIGATIONS
The Company's long-term obligations as of September 30, 1997 and 1996,
consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- --------------
<S> <C> <C> <C>
Note payable to bank................................ $61,000,000 $25,705,000
Related party notes payable......................... 6,050,440 -
Other notes payable................................. 223,347 250,523
----------- -----------
67,273,787 25,955,523
Less current maturities............................. 98,590 2,317,569
Less current maturities on related party notes
payable............................................. 2,163,101 -
----------- -----------
$65,012,096 $23,637,954
=========== ===========
</TABLE>
In May 1996, the Company amended its credit agreement (the "Amended Credit
Agreement") to increase the amount of financing available from $28 million
to $35 million, consisting of a $25 million revolving loan and a $10
million term loan. Amounts available to borrow under the Amended Credit
Agreement were subject to limits as defined in the agreement. Borrowings
under this facility bore interest at LIBOR plus 1.5% (7.00% at September
30, 1996), the bank's prime rate (8.25% at September 30, 1996) or at a rate
equal to the bank's cost of funds plus 1.5%, at the Company's option. The
principal balance outstanding at September 30, 1996 on the term loan was
$10 million. The principal balance outstanding on September 30, 1996 on
the revolving loan was $15.7 million.
In December 1996, the Company again amended and restated the credit
agreement ("1996 Amended and Restated Credit Agreement") to further
increase the amount of available financing to $60 million, consisting of a
$50 million revolving loan and a $10 million term loan. An additional bank
was added to the credit agreement to expand the credit facility. The terms
of the 1996 Amended and Restated Credit Agreement were consistent with the
original terms of the credit agreement.
In August 1997, the Company extended its existing credit facility. The
amount of financing increased to $100 million from $60 million consisting
of a $95 million revolving loan and a $5 million swingline facility. The
loan is due August 2002. A commitment fee ranging from .225% to .375% per
annum is charged on the average daily unused portion of the facility.
Amounts available to borrow under this agreement are subject to rate limits
as defined in the agreement. The revolving loan is collateralized by 100%
of the voting stock of the Company, requires the Company to maintain
certain financial ratios and places restrictions on the sale and purchase
of assets, payment of dividends and other distributions relating to the
Company's outstanding capital stock. Borrowings under this facility bear
interest at LIBOR, the bank's prime rate or at a rate
PAGE - 21
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM OBLIGATIONS - CONTINUED
equal to the bank's cost of funds, plus an applicable margin that varies
from a minimum of .875% to a maximum of 1.625% and is based on the
calculation of a leverage ratio. At September 30, 1997 the Company's
applicable margin was 1.25% and the interest rates under this facility at
September 30, 1997 ranged from 6.91% to 7.12%. The principle balance
outstanding at September 30, 1997 on the revolving loan was $61 million.
In connection with these extended agreements, the Company incurred loan
costs of approximately $532,000. These costs include loan closing fees,
legal and professional fees.
The subordinated note payable to Health Professionals, Inc. ("HPI") at
September 30, 1995 charged interest at the prime rate. In fiscal year
1995, the Company restructured the note payable to HPI such that a
prepayment on the note of $830,000 resulted in a reduction of the debt of
$2,132,034. The difference is considered a gain on the extinguishment of
the debt and is recorded as an extraordinary item of $781,220, which is net
of income taxes of $520,814. In July 1996, the remaining outstanding
balance of the note payable was repaid and cancelled.
The Company entered into twelve related party notes payable and thirteen
non-compete agreements with individuals in connection with the acquisition
of businesses. The notes are payable in monthly, quarterly or annual
installments and bear interest at rates ranging from 6.0% to 9.0%. The
maturity dates range from January 1998 to August 2000.
The aggregate amount of required principal payments during each of the next
five fiscal years and thereafter on all long-term obligations as of
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
<S> <C> <C>
1998.................................................... $ 2,261,691
1999.................................................... 3,887,214
2000.................................................... 114,517
2001 and thereafter..................................... 61,010,365
-----------
$67,273,787
===========
</TABLE>
Warrants were issued to a bank for the purchase of 124,094 shares of Common
Stock or Series B Preferred Stock at an exercise price of $0.01 per share.
Upon closing of the Company's initial public offering, warrants for 24,819
shares of Common Stock were exercised (see Note 2). As a result of the
termination of a put right and exercise of certain of the warrants, the
Company transferred $629,443 from redeemable warrants to Common Stock and
Additional Paid-in Capital. In May, 1996, the remaining warrants were
exercised for 99,233 shares of Common Stock, and 42 shares of Common Stock
were transferred to the Company as consideration for the exercise of the
warrants valued at $23.63 per share at the date of exercise.
Premier also issued common stock warrants in conjunction with financing
transactions. At September 30, 1995, Premier had outstanding warrants to
purchase 57,027 shares of Common Stock with exercise prices ranging from
$5.70 to $11.40. Upon the business combination with the Company, the
warrants were exercised and converted into 35,069 shares of Common Stock.
PAGE - 22
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS
The Company acquired thirteen companies and a home health agency with a
certificate of need during fiscal 1997, which were not deemed significant
for the disclosure of pro forma financial information. The aggregate
fiscal year net revenue for these acquisitions was approximately $28.9
million and total net assets were $6.1 million. The aggregate purchase
price of these companies was approximately $25.5 million.
PSA entered into a Stock Exchange Agreement with Premier on February 29,
1996. Based on the exchange ratio set forth in the Stock Exchange
Agreement, PSA issued approximately 845,000 shares of its Common Stock for
approximately 1,926,000 shares of Premier common stock outstanding, after
giving effect to the conversion of Premier redeemable convertible preferred
stock, warrants and certain options immediately prior to the transaction.
The transaction has been accounted for using the pooling-of-interests
method and, as a result, the financial position, results of operations and
cash flows are presented as if the combining companies had been
consolidated for all periods presented. Premier was incorporated in March
1993 and its results have been included since that date. The consolidated
financial statements for 1996 include the costs related to the combination
of approximately $1.2 million ($687,700 after tax, or $0.11 per share).
These costs consist primarily of payments required under certain employment
agreements due to a change in control of Premier and professional fees.
A reconciliation of net revenue, net income and related per share amounts
of the combined entities from October 1, 1995 through the end of the
quarter immediately preceding the date of the acquisition and fiscal 1995
are presented in the following table.
<TABLE>
<CAPTION>
THREE MONTHS YEAR END
ENDED DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE) 1995 1995
-------------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
NET REVENUE:
PSA, as previously reported......................... $27,389 $ 83,224
Premier............................................. 9,521 28,636
------- --------
Combined net revenue................................ $36,910 $111,860
======= ========
Net Income:
PSA, as previously reported......................... $ 1,335 $ 4,203
Premier............................................. 154 9
------- --------
Combined net income before extraordinary item....... 1,489 4,212
Extraordinary item, net of tax...................... - 781
------- --------
Combined net income................................. $ 1,489 $ 4,993
======= ========
Net income per share:
PSA, as previously reported......................... $ 0.24 $ 0.93
Combined............................................ $ 0.24 $ 0.94
</TABLE>
PAGE - 23
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS - CONTINUED
On August 1, 1994, Premier acquired substantially all of the assets and
assumed certain liabilities of Peters Pediatrics Nursing Team, Inc.
("Peters") which provides health care personnel to care for pediatric
patients in their homes. The purchase price consisted of a cash payment of
$925,195, of which $300,000 was allocated to a covenant not to compete, the
issuance of 17,547 shares of Common Stock and the issuance of a contingent
note payable. The agreement requires the Company to pay the former owners
$333,333 plus an interest factor in each of November 1995, 1996 and 1997,
should the Peters business achieve specified revenue targets. In addition,
the Company must pay the former owners a designated percentage of fiscal
1995, 1996 and 1997 earnings over specified target amounts.
During fiscal 1997, the Peters business achieved certain specified revenue
and earnings targets, resulting in additional payments or obligations of
$368,602 which have been allocated to goodwill. Due to the uncertainty of
meeting the remaining performance targets, such amounts have not been
recorded as liabilities in these financial statements.
On October 3, 1994, the Company acquired all of the outstanding stock of
Oxygen Specialties, Inc. ("OSI"), a home medical equipment company
headquartered in New Orleans, Louisiana. The purchase price of $4.9
million consisted of $4.7 million in cash and 16,393 shares of Common Stock
valued at $200,000. An additional $200,000 was paid at closing for a non-
compete agreement with the principal stockholders of OSI.
On March 31, 1995, the Company acquired all of the outstanding stock of
Pediatric Partners, Inc. ("PPI"), a health care company headquartered in
Atlanta, Georgia, specializing in pediatric home health care services for
medically fragile children, including intravenous therapies, nursing and
home care equipment. The purchase price of $9.2 million consisted of $8.9
million in cash and 18,575 shares of Common Stock valued at $300,000. In
addition, the Company assumed a note payable due by PPI to a former
stockholder of the Company, T2 Medical, Inc., in the amount of $4.1 million
(repaid during fiscal 1995) and paid $100,000 at closing for non-compete
agreements with two PPI stockholders.
PAGE - 24
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS - CONTINUED
The following represents unaudited pro forma consolidated results of
operations for the year ended September 30, 1995, assuming the above
acquisitions had occurred at the beginning of the year of acquisition:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1995
----------------
<S> <C>
Net revenue.......................................... $122,328,932
Income before extraordinary item..................... 4,172,100
Net income........................................... 4,953,320
Income before extraordinary item per share........... 0.78
Net income per share................................. 0.93
</TABLE>
These unaudited pro forma consolidated results do not purport to be
indicative of the results or trends that actually would have been obtained
if the operations were combined during the periods presented, and is not
intended to be a projection of future results or trends.
The Company also acquired eight companies during fiscal 1996 and 1995,
which were not deemed significant for the disclosure of pro forma financial
information, with aggregate net revenue of approximately $16.6 million and
total assets of $3.1 million. The aggregate purchase price of these
companies was approximately $6.3 million.
The purchase method of accounting was used to record each of the above
acquisitions except Premier. Accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based on estimated fair
values at the purchase dates. Operating results for the acquired companies
have been included in the Company's consolidated results of operations from
the respective purchase dates.
PAGE - 25
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES
The Company leases office space as well as certain automobiles and medical
equipment under operating leases that expire at various dates through 2008.
Rent expense approximated $4,209,000, $3,978,000 and $3,089,000 under these
leases for the years ended September 30, 1997, 1996 and 1995, respectively.
At September 30, 1997 the future minimum lease payments under non-
cancelable operating leases with initial or remaining terms equal to or
exceeding one year were as follows:
YEAR ENDING SEPTEMBER 30,
1998......................................... $ 3,197,654
1999......................................... 2,417,440
2000......................................... 1,687,339
2001......................................... 971,115
2002 and thereafter......................... 4,226,279
-----------
$12,499,827
===========
7. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's Stock Option Plan (the "Option Plan") provides for the
granting of stock options covering up to 700,000 shares of Common Stock, of
which 700,000 options have been granted to eligible participants as of
September 30, 1997. A proposal to increase the number of shares of Common
Stock issuable under the Option Plan from 700,000 shares to 1,750,000
shares will be submitted to the shareholders at the 1998 Annual Meeting of
Shareholders. As of September 30, 1997, 101,575 options have been granted
to eligible participants, subject to approval of the increase in shares.
If shareholder approval of the increase in shares is not obtained, these
options will be void. Options may be issued as either incentive stock
options or as nonqualified stock options. Options may be granted only to
those persons who are officers or employees of the Company or to certain
outside consultants.
The terms and conditions of options granted under the Option Plan,
including the number of shares, the exercise price and the time at which
such options become exercisable are determined by the Board of Directors.
Upon the occurrence of certain events, the vesting period of the options
accelerate. The term of options granted under the Option Plan are typically
3 to 5 years but may not exceed 10 years. The Company has the right to
repurchase the Common Stock issued upon the exercise of these options at
the then fair market value of such shares, if the Company or the holders of
such shares terminate their employment with the Company.
PAGE - 26
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLANS - CONTINUED
Under the Company's Directors' Stock Option Plan, directors of the Company
who are not officers or employees of the Company will receive stock options
each year to purchase up to 6,000 shares of Common Stock, at an exercise
price equal to the fair market value on the date of grant and expiring 10
years after issuance. The options vest on the first anniversary of their
issuance, provided that the grantee is then a director of the Company. A
total of 95,000 shares of Common Stock have been reserved for issuance
pursuant to options granted under the Directors' Stock Option Plan of which
75,000 options have been granted to eligible participants as of September
30, 1996. A proposal to increase the number of shares of Common Stock
issuable under the Directors' Option Plan from 95,000 shares to 300,000
shares will be submitted to shareholders at the 1998 Annual Meeting of
Shareholders, together with a proposal to permit discretionary grants under
the plan. During fiscal year 1997, an additional 45,000 options were
granted in excess of the 20,000 remaining options available to grant under
the plan to eligible participants. The options are subject to shareholder
approval of the proposed amendments and if shareholder approval of the
increase of the proposed amendments is not obtained, these options will be
void.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest rates of
5.99% and 6.40%; a dividend yield of 0.0%; volatility factors of the
expected market price of the Company's common stock of 2.12 and a weighted-
average expected life of the option of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro
forma information follows (in thousands, except for earnings per share
information):
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Pro forma net income. $6,506 $4,708
Pro forma earnings per share
Primary. $ 1.01 $ 0.75
</TABLE>
PAGE - 27
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLANS - CONTINUED
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
----------------- ----------------
<S> <C> <C>
Outstanding at October 1, 1994. 471,892 $ 4.21
Granted. 189,509 16.97
Exercised. (54,748) 1.59
Cancelled. (20,517) 8.31
-------- -----
Outstanding at September 30, 1995 586,136 9.30
Granted. 185,600 19.55
Exercised. (124,707) 3.51
Cancelled. (65,376) 11.92
-------- -----
Outstanding at September 30, 1996. 581,653 13.20
Granted 194,500 18.46
Exercised (43,753) 5.33
Cancelled (20,537) 16.54
-------- -----
Outstanding at September 30, 1997 711,863 $15.02
======== =====
</TABLE>
At September 30, 1997, 1996 and 1995, options to acquire 322,821, 247,084,
and 223,122 shares, respectively, were exercisable. The weighted average
fair value of options granted in 1997 and 1996 was $7.97 and $8.64,
respectively.
The following table summarizes the ranges of exercise prices and weighted
average contractual lives for options outstanding and the weighted average
exercise price for options exercisable as of September 30, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED AVERAGE
REMAINING CONTRACTUAL NUMBER OPTIONS WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE EXERCISE PRICE
- --------------------------- ----------------- ---------------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
$ 0.014-$ 0.714 16,474 3.0 16,474 $ 0.47
1.43 12,017 4.3 12,017 1.43
4.29-5.70 114,016 5.4 95,746 4.46
8.00-10.26 45,731 6.7 38,084 8.85
13.38-19.87 478,625 8.6 144,000 17.89
20.00-24.75 45,000 9.2 16,500 24.58
-------- ---- ------- ------
711,863 7.8 322,821 $11.68
======= =======
</TABLE>
PAGE - 28
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The provision for income taxes for the years ended September 30, 1997, 1996
and 1995 are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ----------------- ----------------
Current:
<S> <C> <C> <C>
Federal.............................................. $2,683,000 $3,421,000 $2,830,000
State................................................ 503,000 642,000 536,000
---------- ---------- ----------
3,186,000 4,063,000 3,366,000
Deferred:
Federal.............................................. 1,357,021 (552,856) (480,540)
State................................................ 254,441 (103,660) (82,304)
---------- ---------- ----------
1,611,462 (656,516) (562,844)
---------- ---------- ----------
$4,797,462 $3,406,484 $2,803,156
========== ========== ==========
</TABLE>
A reconciliation of the provision for income taxes to the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Statutory rate of 34% applied to pre-tax income $4,097,734 $2,873,958 $2,385,000
State income taxes, net of federal tax benefit 448,340 338,113 302,300
Amortization of goodwill 202,992 192,630 136,000
Other, net 48,396 1,783 (20,144)
---------- ---------- ----------
$4,797,462 $3,406,484 $2,803,156
========== ========== ==========
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Allowance for doubtful accounts................................. $ - $ 3,238,765
Mark to market accounting for accounts receivable............... (2,448,500) -
Net operating loss carryforward................................. 1,830,844 96,000
Payroll related accruals........................................ 495,566 394,568
Insurance related accruals...................................... 1,068,684 701,436
Property and equipment and intangibles.......................... (2,242,151) (2,023,422)
Other, net...................................................... 484,768 39,860
----------- -----------
Net deferred tax asset/(liability)............................. $ (810,789) $ 2,447,207
=========== ===========
</TABLE>
Under new guidance issued by the Internal Revenue Service in December 1996, the
Company made an election entitling it to mark its accounts receivable to market
value for tax purposes. This election eliminated the deferred tax asset
relating to the allowance for doubtful accounts and established a new deferred
tax liability to reflect the new temporary difference.
PAGE - 29
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES - CONTINUED
The Company has approximately $4.8 million of net operating losses for
income tax purposes available to offset future taxable income. Such losses
expire $1.3 million by the year 2010 and $3.5 million by the year 2011.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents The carrying amount reported in the balance
-------------------------
sheet for cash and cash equivalents approximates its fair value.
Long and short-term debt The carrying amounts of the Company's borrowings
------------------------
under its short-term revolving credit agreements approximate their fair
value. The fair values of the Company's long-term debt are estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The Company's
amount of long-term debt approximates its fair value.
10. EMPLOYEE SAVINGS PLAN
The Company has a contributory savings plan (the "Plan"), which qualifies
under Section 401(k) of the Internal Revenue Code, covering substantially
all of its employees. The Company at its discretion, may match 33% of
employee contributions to a maximum of 6% of employee earnings each Plan
year. Company contributions to the Plan were approximately $277,000,
$201,000 and $117,000 for the years ended September 30, 1997, 1996 and
1995, respectively.
11. COMMITMENTS AND CONTINGENCIES
As of September 30, 1997, the Company's professional liability insurance
policy is on a claims-made basis. Should this claims-made policy not be
renewed or replaced with equivalent insurance, claims based on occurrences
during its term but asserted subsequently would be uninsured.
The Company is subject to claims and suits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material adverse effect on the
Company's consolidated financial position.
12. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of warrants and stock options (calculated
using the treasury stock method). This calculation excludes any
antidilutive shares during the period.
The 1996 supplemental earnings per common share is calculated using the
weighted average number of common and common equivalent shares outstanding
during the respective periods assuming the conversion of the redeemable
convertible preferred stock into common stock, the payment of accrued
dividends and the issuance of common stock in connection with the exercise
of warrants as of the beginning of fiscal 1996. The 1995 supplemental
earnings per common
PAGE - 30
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. NET INCOME PER SHARE - CONTINUED
share also gives effect to the conversion of Premier redeemable convertible
preferred stock as if it had occurred as of the beginning of fiscal 1995.
Additionally, supplemental earnings per common share gives effect to the
use of a portion of the proceeds of the secondary offering to retire
substantially all long-term debt as of the beginning of fiscal 1995.
The computation of supplemental earnings per common share is presented
below:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
Income before extraordinary item, as reported $5,046,333 $4,211,496
Pro forma adjustment for reduction of interest
expense, net of tax effect - 394,444
----------- ----------
Adjusted income before extraordinary charge 5,046,333 4,605,940
Extraordinary charge on early extinguishment of debt,
net of tax effect - 781,220
---------- ----------
Adjusted net income $5,046,333 $5,387,160
========== ==========
Supplemental earnings per share:
Adjusted income before extraordinary item $ 0.78 $ 0.85
Extraordinary item - 0.14
---------- ----------
Adjusted net income $ 0.78 $ 0.99
========== ==========
Supplemental weighted average shares outstanding 6,439,450 5,458,877
========== ==========
</TABLE>
In February 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement Statement No. 128, "Earnings per Share" (SFAS No.
128), which will change the current method of computing earnings per share.
The new standard requires presentation of "basic earnings per share" and
"diluted earnings per share" amounts, as defined. SFAS No. 128 will be
effective for the Company's quarter ending December 31, 1997, and, upon
adoption, all prior period earnings per share data presented shall be
restated to conform with the provisions of the new pronouncement.
Application earlier than the Company's quarter ending December 31, 1997 is
not permitted. Adoption of Statement No. 128 is expected to result in
basic earnings per share for fiscal 1997, 1996 and 1995 of $1.16, $0.83
and $1.03 per share, respectively. Statement No. 128 is not expected to
have a significant impact on the calculation of diluted earnings per share
for fiscal years ended 1997, 1996 and 1995.
13. UNAUDITED SUBSEQUENT EVENTS
As of December 1, 1997, the Company has acquired five companies subsequent
to September 30, 1997. These companies were not deemed significant for the
disclosure of pro forma financial information. The total purchase price of
these companies was approximately $18.8 million and were accounted for
under the purchase method of accounting.
PAGE - 31
<PAGE>
PEDIATRIC SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. UNAUDITED SUBSEQUENT EVENTS - CONTINUED
On December 15, 1997, one of the Company's consolidated subsidiaries,
Insurance Medical Reporter, Inc. ("IMR"), purchased certain assets of
ChoicePoint Services, Inc., for $21.7 million and was accounted for under
the purchase method of accounting. This acquisition expanded IMR's product
line revenue from approximately $26 million to $85 million. IMR provides
paramedical examinations for the life and health insurance industries.
This acquisition was not deemed significant for the disclosure of pro forma
financial information.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER
------------------------------------------------
FISCAL 1996: FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue.............................. $36,910 $40,166 $43,033 $43,695
Operating income......................... 2,766 1,348 3,002 3,050
Income before income taxes............... 2,496 948 2,413 2,595
Net income............................... 1,489 576 1,401 1,580
Net income per share..................... 0.24 0.09 0.22 0.25
QUARTER
------------------------------------------------
FISCAL 1997: FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------
Net revenue.............................. $46,554 $49,746 $53,890 $53,833
Operating income......................... 3,309 3,683 4,032 4,444
Income before income taxes............... 2,774 2,903 3,064 3,311
Net income............................... 1,656 1,733 1,839 2,026
Net income per share..................... 0.26 0.27 0.29 0.31
</TABLE>
PAGE - 32
<PAGE>
<TABLE>
<CAPTION>
B O A R D O F D I R E C T O R S
<S> <C> <C>
JOSEPH D. SANSONE ADAM O. HOLZHAUER IRVING S. SHAPIRO
Chairman of the Board of Directors, Chairman, Director and Chief Of Counsel to the law firm of
President and Chief Executive Officer of Executive Officer of Royale Healthcare, Skadden, Arps, Slate, Meagher & Flom
PSA Inc.
MICHAEL J. FINN ROBERT P. PINKAS RICHARD S. SMITH
General Partner of Brantley Venture General Partner of Brantley Venture President of Ventex Management, Inc. (an
Partners, L.P. Partners, L.P. investment company)
C O R P O R A T E A N D E X E C U T I V E O F F I C E R S
JOSEPH D. SANSONE JAMES R. HENDERSON JULIE A. BOWMAN
President and Chief Executive Officer Senior Vice President of Operations Divisional Vice President
STEPHEN M. MENGERT PAMELA H. BARROW LISA A. PALMER
Senior Vice President, Vice President of Managed Care Divisional Vice President
Chief Financial Officer,
Secretary and Treasurer
SUSAN E. DIGNAN THOMAS E. D'ANNA LINDA K. DUVAL
Assistant Secretary and General Counsel Vice President of Marketing Divisional Vice President
CHARLES P. GAETANO DAVID NABORS JOSEPH M. HARRELSON
Senior Vice President of Development Vice President of Diagnostic Services Divisional Vice President
</TABLE>
PAGE - 33
<PAGE>
<TABLE>
<CAPTION>
C O R P O R A T E I N F O R M A T I O N
CORPORATE OFFICES ANNUAL SHAREHOLDERS' MEETING PRICE RANGE OF COMMON STOCK
<S> <C> <C>
Pediatric Services of America, Inc. The Annual Meeting will be held at the The Company's Common Stock trades on the NASDAQ
3159 Campus Drive Medlock Auditorium at Northeast Atlanta National Market under the Symbol "PSAI". The
Norcross, Georgia 30071 Hilton, 5993 Peachtree Industrial Blvd., following table sets forth the quarterly high
(770) 441-1580 Norcross, Georgia, on January 21, 1997 and low closing sale prices for the Common Stock
at 3:00 p.m. local time. for the periods indicated through September 30,
1997 as reported by NASDAQ. At December 1, 1997,
there were approximately 95 shareholders of record
and an estimated 1,700 beneficial owners holding
TRANSFER AGENT FORM 10-K stock in nominee or "street" name. The Company has
Chase Mellon Shareholder Services A copy of the Company's Annual Report on paid no cash dividends on its Common Stock.
Four Station Square Form 10-K for fiscal 1997, including
3/rd/ Floor financial statements schedules (without
Pittsburgh, Pennsylvania 15219 exhibits), as filed with the Securities
and Exchange Commission, will be
furnished without charge to shareholders
upon written request to Stephen M.
INDEPENDENT AUDITORS Mengert, Pediatric Services of America,
Ernst & Young, LLP Inc., 3159 Campus Drive, Norcross,
600 Peachtree Street Georgia 30071
Atlanta, Georgia 30308
High Low
---------------------------------------------------
ATTORNEYS 1997
Long Aldridge & Norman MARKET MAKERS First Quarter $21.50 $15.38
One Peachtree Center The following firms make a market in the Second Quarter $20.50 $16.88
3030 Peachtree Street Company's Common Stock: Third Quarter $21.25 $16.00
Atlanta, Georgia 30308 Alex Brown & Sons, inc. Fourth Quarter $23.38 $19.88
Dean Witter Reynolds, Inc.
Equitable Securities Corp. 1996
Everen Securities, Inc. First Quarter $19.75 $15.50
STOCK LISTING Furman Selz Incorporated Second Quarter $26.50 $15.00
The Company's Common Stock is Needham & Company, Inc. Third Quarter $27.75 $19.50
traded on the NASDAQ National Prudential Securities, Inc. Fourth Quarter $22.75 $17.00
Market under the symbol "PSAI". Smith Barney
Volpe Brown
Wheat First Securities, Inc.
SHAREHOLDER RELATIONS
Stephen M. Mengert
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
3159 Campus Drive
Norcross, Georgia 30071
</TABLE>
PAGE - 34
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
PSA Properties Corporation, a Delaware corporation
Pediatric Services of America, Inc., a Georgia corporation
Pediatric Partners, Inc., a Delaware corporation
Pediatric Services of America, Inc. (Connecticut), a Connecticut corporation
PSA Home HealthCare, Limited Partnership, a Florida Limited Partnership
Pediatric Home Nursing Services, Inc., a New York corporation
Premier Medical Services, Inc., a Nevada corporation
Premier Nurse Staffing, Inc., a Nevada corporation
Premier Certified Home Health Services, Inc., a Nevada corporation
ARO Health Services, Inc., a Washington corporation
Insurance Medical Reporter, Inc., a California corporation
PSA Licensing Corporation, a Delaware corporation
Home Vitality, Inc., an Illinois corporation
PSA/HRH, L.L.C., a North Carolina limited liability company
Tender HealthCare, a Georgia Joint Venture
PAGE - 42
<PAGE>
EXHIBIT 23.1
CONSENT AND REPORT AS TO SCHEDULES OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Pediatric Services of America, Inc. of our report dated November 18, 1997,
included in the 1997 Annual Report to the Shareholders of Pediatric Services of
America, Inc.
Our audits also included the consolidated financial statement schedules of
Pediatric Services of America, Inc. listed in Item 14(a). These schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, as of the date of our
report referred to in the preceding paragraph, the consolidated financial
statement schedules referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-88406 and No. 33-99936) pertaining to various stock
option/purchase plans of Pediatric Services of America, Inc. of our report dated
November 18, 1997 with respect to the consolidated financial statements and
schedules of Pediatric Services of America, Inc. incorporated by reference
and/or included in the Annual Report (Form 10-K) for the year ended September
30, 1997.
ERNST & YOUNG LLP
Atlanta, Georgia
December 18, 1997
PAGE 43
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No.
33-88406 and No. 33-99936 on Form S-8 of Pediatric Services of America, Inc. of
our report dated November 21, 1995 (February 29, 1996 as to Note 10) (relating
to the consolidated financial statements of Premier Medical Services, Inc. not
presented separately herein), appearing in this Annual Report on Form 10-K of
Pediatric Services of America, Inc. for the year ended September 30, 1997.
/s/ Deloitte & Touche LLP
- ---------------------------
DELOITTE & TOUCHE LLP
San Jose, California
December 18, 1997
<PAGE>
EXHIBIT 23.3
Report of Independent Auditors
The Board of Directors of
Premier Medical Services, Inc.:
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Premier Medical Services, Inc. (the Company) and its
subsidiaries for the year ended September 30, 1995 (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the operations and cash flows of the Company
and its subsidiaries for the year ended September 30, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------------
DELOITTE & TOUCHE LLP
San Jose, California
November 21, 1995
(February 29, 1996 as to Note 10)
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph D. Sansone and Stephen M. Mengert, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on Form 10K of Pediatric Services of America, Inc. for the fiscal year ended
September 30, 1997, and any and all amendments thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 21/st/ day of a November, 1997.
/s/ Michael J. Finn
-------------------
Signature Michael J. Finn
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph D. Sansone and Stephen M. Mengert, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on form 10K of Pediatric Services of America, Inc. for the fiscal year ended
September 30, 1997, and any and all amendments thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 21/st/ day of November, 1997.
/s/ Irving S. Shapiro
---------------------
Signature Irving S. Shapiro
PAGE - 46
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph D. Sansone and Stephen M. Mengert, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on form 10K of Pediatric Services of America, Inc. for the fiscal year ended
September 30, 1997, and any and all amendments thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 21/st/ day of November, 1997.
/s/ Adam O. Holzhauer
---------------------
Signature Adam O. Holzhauer
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph D. Sansone and Stephen M. Mengert, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on form 10K of Pediatric Services of America, Inc. for the fiscal year ended
September 30, 1997, and any and all amendments thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 21/st/ day of November, 1997.
/s/ Robert R. Pinkas
--------------------
Signature Robert R. Pinkas
PAGE - 47
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph D. Sansone and Stephen M. Mengert, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign the Annual Report
on form 10K of Pediatric Services of America, Inc. for the fiscal year ended
September 30, 1997, and any and all amendments thereto and other documents in
connection therewith, with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc., granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 21/st/ day of November, 1997.
/s/ Richard S. Smith
--------------------
Signature Richard S. Smith
PAGE - 48
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 501 770
<SECURITIES> 0 0
<RECEIVABLES> 85,495 56,268
<ALLOWANCES> 10,036 8,523
<INVENTORY> 0 0
<CURRENT-ASSETS> 83,828 54,565
<PP&E> 32,395 25,067
<DEPRECIATION> 15,678 11,644
<TOTAL-ASSETS> 153,834 98,736
<CURRENT-LIABILITIES> 21,635 18,893
<BONDS> 0 0
0 0
0 0
<COMMON> 63 62
<OTHER-SE> 61,618 54,130
<TOTAL-LIABILITY-AND-EQUITY> 153,834 98,736
<SALES> 204,023 163,804
<TOTAL-REVENUES> 204,023 163,804
<CGS> 0 0
<TOTAL-COSTS> 182,317 148,930
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 6,239 4,708
<INTEREST-EXPENSE> 3,534 1,778
<INCOME-PRETAX> 12,052 8,452
<INCOME-TAX> 4,797 3,406
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,255 5,046
<EPS-PRIMARY> 1.13 .79
<EPS-DILUTED> 1.12 .77
</TABLE>
