-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, cUp2mDOgnfnDTUMeaiT6n39tsT/1zeCmwZbNKv0eburpa9AAaUqdWGWRop2f8F8t 60Py65mZbMrFi2Ks3h/D5g== 0000912057-95-002461.txt : 19950417 0000912057-95-002461.hdr.sgml : 19950417 ACCESSION NUMBER: 0000912057-95-002461 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950414 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL MEDICAL ENTERPRISES INC /NV/ CENTRAL INDEX KEY: 0000070318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 952557091 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07293 FILM NUMBER: 95528974 BUSINESS ADDRESS: STREET 1: 2700 COLORADO AVE CITY: SANTA MONICA STATE: CA ZIP: 90404 BUSINESS PHONE: 3103158000 MAIL ADDRESS: STREET 1: P O BOX 4070 CITY: SANTA MONICA STATE: CA ZIP: 90404 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ....... TO ....... . COMMISSION FILE NUMBER I-7293 - -------------------------------------------------------------------------------- NATIONAL MEDICAL ENTERPRISES, INC. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- NEVADA 95-2557091 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2700 COLORADO AVENUE SANTA MONICA, CA 90404 (Address of principal executive offices) (310) 998-8000 (Registrant's telephone number, including area code) __________________________ 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 AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO --- --- AS OF MARCH 31, 1995 THERE WERE 199,768,144 SHARES OF $0.075 PAR VALUE COMMON STOCK OUTSTANDING. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES INDEX Page ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets - February 28, 1995 and May 31, 1994 . . . . . . . . . . . . 2 Condensed Consolidated Statements of Operations - Three Months and Nine Months Ended February 28, 1995 and 1994. . . . . . . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows - Nine Months Ended February 28, 1995 and 1994 . . . . . . . . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 20 Item 5. Other Events . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 22 Signature. . . . . . . . . . . . . . . . . . . . . . . . . . 25 ____________________ Note: Items 2, 3 and 4 of Part II are omitted because they are not applicable. 1 NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, MAY 31, 1995 1994 (UNAUDITED) ----------- ----------- (IN MILLIONS) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 144.5 $ 313.2 Short-term investments, at cost which approximates market . . . . 51.6 60.2 Accounts and notes receivable, less allowance for doubtful accounts ($71.3 at February 28 and $77.2 at May 31). . . . . . 411.1 384.9 Inventories of supplies, at cost. . . . . . . . . . . . . . . . . 55.3 55.1 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 284.0 371.7 Assets held for sale (Note 3) . . . . . . . . . . . . . . . . . . 16.4 203.8 Prepaid expenses and other current assets . . . . . . . . . . . . 53.9 54.8 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . . . . . 1,016.8 1,443.7 ----------- ----------- Long-term receivables. . . . . . . . . . . . . . . . . . . . . . . . 67.7 73.3 Investments and other assets . . . . . . . . . . . . . . . . . . . . 345.2 308.8 Property, plant and equipment, at cost . . . . . . . . . . . . . . . 2,663.2 2,536.1 Less accumulated depreciation and amortization. . . . . . . . . . 876.5 771.6 ----------- ----------- Net property, plant and equipment . . . . . . . . . . . . . . . . 1,786.7 1,764.5 ----------- ----------- Intangible assets, at cost less accumulated amortization ($48.3 at February 28 and $53.6 at May 31). . . . . . . . . . . . 114.3 106.7 ----------- ----------- $ 3,330.7 $ 3,697.0 ----------- ----------- ----------- -----------
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 2 NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, MAY 31, 1995 1994 (UNAUDITED) -------------- ----------- (IN MILLIONS) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 8). . . . . . . . . . $ 12.7 $ 544.5 Short-term borrowings and notes . . . . . . . . . . . . . . . 114.0 66.4 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 129.5 176.0 Employee compensation and benefits. . . . . . . . . . . . . . 78.0 93.4 Reserves related to discontinued operations (Note 3). . . . . 76.5 465.2 Income taxes payable. . . . . . . . . . . . . . . . . . . . . 26.4 58.1 Other current liabilities . . . . . . . . . . . . . . . . . . 187.8 236.4 ------------ ------------ Total current liabilities . . . . . . . . . . . . . . . 624.9 1,640.0 ------------ ------------ Long-term debt, net of current portion (Note 8). . . . . . . . . 725.6 223.1 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 136.1 125.1 Other long-term liabilities and minority interests . . . . . . . 359.1 388.9 Shareholders' equity: Common stock, $0.075 par value; authorized 450,000,000 shares; 185,587,666 shares issued at February 28, 1995 and at May 31, 1994. . . . . . . . . . . . . . . . . . . . 13.9 13.9 Other shareholders' equity. . . . . . . . . . . . . . . . . . 1,747.3 1,588.2 Less common stock in treasury, at cost, 19,088,892 shares at February 28, 1995 and 19,507,161 at May 31, 1994 . . . . . (276.2) (282.2) ------------ ------------ Total shareholders' equity. . . . . . . . . . . . . . . 1,485.0 1,319.9 ------------ ------------ $ 3,330.7 $ 3,697.0 ------------ ------------ ------------ ------------
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 3 NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1995 AND 1994 (UNAUDITED)
THREE MONTHS NINE MONTHS ---------------------- ---------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS) Net operating revenues (Notes 1, 2, 4 and 6) . . . . . . . $ 660.5 $ 716.0 $1,962.1 $2,246.3 -------- -------- -------- -------- Operating expenses: Salaries and benefits. . . . . . . . . . . . . . . . . . 275.3 312.8 831.5 1,010.9 Supplies . . . . . . . . . . . . . . . . . . . . . . . . 84.0 85.7 243.1 253.6 Provision for doubtful accounts . . . . . . . . . . . . 22.1 25.8 68.9 84.3 Other operating expenses . . . . . . . . . . . . . . . . 152.8 158.7 447.5 501.2 Depreciation . . . . . . . . . . . . . . . . . . . . . . 34.0 34.8 101.4 109.8 Amortization . . . . . . . . . . . . . . . . . . . . . . 3.6 4.2 11.3 13.7 -------- -------- -------- -------- Operating income . . . . . . . . . . . . . . . . . . . . . 88.7 94.0 258.4 272.8 -------- -------- -------- -------- Interest expense, net of capitalized portion . . . . . . . (17.9) (15.7) (52.9) (53.4) Investment earnings . . . . . . . . . . . . . . . . . . . . 5.2 6.1 15.6 20.2 Equity in earnings of unconsolidated affiliates . . . . . . 6.1 4.2 18.5 18.9 Minority interests in income of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . (1.2) (1.3) (5.0) (6.3) Net gain (loss) on disposals of facilities and long-term investments. . . . . . . . . . . . . . . . . . -- 60.4 (2.5) 89.4 Gain on sale of subsidiary's common stock (Note 6) . . . . -- -- 32.0 -- -------- -------- -------- -------- Income from continuing operations before income taxes and cumulative effect of a change in accounting . . . . . . . . . . . . . . . . . . . . . . . 80.9 147.7 264.1 341.6 Taxes on income . . . . . . . . . . . . . . . . . . . . . . (32.0) (57.0) (105.0) (137.0) -------- -------- -------- -------- Income from continuing operations before cumulative effect of a change in accounting . . . . . . 48.9 90.7 159.1 204.6 Discontinued operations, net of taxes (Note 3) . . . . . . -- (255.0) -- (696.0) Cumulative effect of a change in accounting for income taxes (Note 9) . . . . . . . . . . . . . . . . . -- -- -- 60.1 -------- -------- -------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 48.9 $ (164.3) $ 159.1 $ (431.3) -------- -------- -------- -------- -------- -------- -------- --------
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 4 NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1995 AND 1994 (UNAUDITED)
THREE MONTHS NINE MONTHS --------------------------- ------------------------------ 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Earnings (loss) per share: Primary: Continuing operations . . . . . . . $ 0.29 $ 0.55 $ 0.95 $ 1.23 Discontinued operations . . . . . . -- (1.54) -- (4.19) Change in accounting . . . . . . . -- -- -- 0.36 ------------ ------------ ------------ ------------ Net . . . . . . . . . . . . . $ 0.29 $ (0.99) $ 0.95 $ (2.60) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted: Continuing operations . . . . . . . $ 0.28 $ 0.51 $ 0.91 $ 1.16 Discontinued operations . . . . . . -- (1.50) -- (4.09) Change in accounting . . . . . . . -- -- -- 0.33 ------------ ------------ ------------ ------------ Net . . . . . . . . . . . . . $ 0.28 $ (0.99) $ 0.91 $ (2.60) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Cash dividends per common share . . . . . . . $ -- $ -- $ -- $ 0.12 Weighted average shares and share equivalents outstanding - primary . . . 167,902,000 165,872,000 168,226,000 165,887,000 Weighted average shares, share equivalents and other dilutive securities outstanding - fully diluted . . . . . . . . . . . . . . . . 182,070,000 179,850,000 181,703,000 179,865,000
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 5 NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED FEBRUARY 28, 1995 AND 1994 (UNAUDITED)
1995 1994 ---------- ---------- (IN MILLIONS) Net cash provided by (used in) operating activities, including net expenditures for discontinued operations and restructuring charges . . . . . . . . . . $ (240.6) $ 54.1 ---------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment . . . . . . . . . . . . . . . (100.5) (93.8) Purchases of new businesses, net of cash acquired . . . . . . . . . . . . (16.1) -- Proceeds from sales of facilities and other assets . . . . . . . . . . . 159.1 483.3 Proceeds from sales of investments . . . . . . . . . . . . . . . . . . . 8.6 46.8 Collections on notes . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 97.8 Purchase of Hillhaven preferred stock . . . . . . . . . . . . . . . . . . -- (63.4) Purchase of AMH zero coupon bonds . . . . . . . . . . . . . . . . . . . . (31.3) -- Increase in intangible and other assets . . . . . . . . . . . . . . . . . (15.3) (13.9) Equity investments in partnerships . . . . . . . . . . . . . . . . . . . (4.7) (6.6) Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1.2) ---------- ---------- Net cash provided by investing activities . . . . . . . . . . . . . 2.4 449.0 ---------- ---------- Cash flows from financing activities: Net proceeds from (payments of) unsecured lines of credit . . . . . . . . 43.3 (117.8) Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . . . 94.0 18.2 Payments of other borrowings . . . . . . . . . . . . . . . . . . . . . . (73.9) (154.2) Cash dividends paid to shareholders . . . . . . . . . . . . . . . . . . . -- (39.6) Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . 5.4 0.6 Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 (0.4) ---------- ---------- Net cash provided by (used in) financing activities . . . . . . . . 69.5 (293.2) ---------- ---------- Net increase (decrease) in cash and cash equivalents . . . . . . . (168.7) 209.9 Cash and cash equivalents at beginning of year . . . . . . . . . . 313.2 140.9 ---------- ---------- Cash and cash equivalents at end of period . . . . . . . . . . . . $ 144.5 $ 350.8 ---------- ---------- ---------- ---------- Supplemental disclosures: Interest paid, net of amounts capitalized . . . . . . . . . . . . . . . . $55.7 $ 49.3 Income taxes paid, net of refunds received . . . . . . . . . . . . . . . 38.9 30.5 Major effects of consolidating new businesses: Assets acquired, primarily accounts receivable and property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $59.1 -- Liabilities assumed, primarily long-term debt . . . . . . . . . . . . . . 34.9 -- Major effects of excluding a formerly consolidated affiliate from the consolidated financial statements: Decrease in assets, primarily accounts receivable and property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (31.9) -- Decrease in liabilities, primarily long-term debt . . . . . . . . . . . . (83.2) --
See accompanying Notes to Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. 6 NATIONAL MEDICAL ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The unaudited financial information furnished herein, in the opinion of management, reflects all adjustments that are necessary to fairly state the financial position of National Medical Enterprises, Inc., its cash flows and the results of its operations for the periods indicated. All the adjustments affecting income from continuing operations are of a normal recurring nature. As of March 1, 1995, National Medical Enterprises, Inc. began doing business as Tenet Healthcare Corporation. The Company presumes that users of this interim financial information have read or have access to the Company's audited financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosures contained in the Company's most recent annual report to security holders have been omitted. Income from continuing operations is not necessarily representative of continuing operations for a full year for various reasons, including levels of occupancy, interest rates, acquisitions and disposals of facilities and long-term assets, revenue allowances and discount fluctuations, the timing of price changes and fluctuations in quarterly tax rates. These same considerations apply to all year-to-year comparisons. The Condensed Consolidated Statements of Operations for the three months and nine months ended February 28, 1994 have been reclassified to show equity in earnings of unconsolidated affiliates and minority interests in income of consolidated subsidiaries as separate line items, to be comparable with the presentation for the current periods. These items were previously included in net operating revenues and in other operating expenses, respectively. 2. The Company's net operating revenues from continuing operations consist primarily of net patient service revenues, which are based on established billing rates less applicable allowances and discounts. These allowances and discounts, primarily for patients covered by Medicare, Medicaid and other contractual programs, amounted to $692.0 million and $676.9 million for the three-month periods ended February 28, 1995 and 1994, and $2,019.9 million and $2,022.5 million for the nine-month periods, respectively. 3. At November 30, 1993, the Company decided to discontinue its psychiatric hospital business and adopted a plan to dispose of its psychiatric hospitals and substance abuse recovery facilities. The Condensed Consolidated Statements of Operations reflect the operating results of the discontinued business separately from continuing operations. Operating results and gains or losses on disposals of facilities for the discontinued business for periods subsequent to November 30, 1993 have been charged to a provision for estimated losses during the phase-out period. 7 Assets and liabilities of the discontinued business at February 28, 1995 and at May 31, 1994 consisted of the following (in millions):
FEBRUARY 28, MAY 31, 1995 1994 ------------ ------------ Accounts and notes receivable . . . . . . . . . $ 6.5 $ 90.9 Inventories of supplies . . . . . . . . . . . . 0.4 2.8 Property, plant and equipment . . . . . . . . . 12.5 104.9 Prepaid expenses and other current assets . . . 0.6 3.7 Investments and other non-current assets . . . -- 20.1 ------------ ------------ Total assets . . . . . . . . . . . . . . . 20.0 222.4 Accounts payable . . . . . . . . . . . . . . . 2.3 10.6 Other accrued liabilities . . . . . . . . . . . 1.3 10.7 Capital lease obligation . . . . . . . . . . . -- 6.3 ------------ ------------ Net assets to be disposed of . . . . . . . $ 16.4 $ 194.8 ------------ ------------ ------------ ------------
Assets are shown at their expected net realizable values and the liabilities are shown at their face amounts. The reserves related to discontinued operations in the accompanying balance sheet include $68.7 million for unusual litigation costs and legal fees relating to matters that have not been resolved as of February 28, 1995 and represents management's estimate of the net costs of the ultimate disposition of these matters. There can be no assurance, however, that the ultimate liability will not exceed such estimates. 4. In January 1994, the Company sold 28 inpatient rehabilitation hospitals and 45 related satellite outpatient clinics. The Company retained six rehabilitation hospitals on or near acute hospital campuses and in March 1994 sold its other remaining rehabilitation hospital. For the quarter and nine-month period ended February 28, 1994, net operating revenues of the sold facilities were approximately $38.9 million and $265.8 million, respectively, and pre-tax income, before general corporate overhead, was approximately $4.1 million and $22.2 million, respectively. 8 5. During the fourth quarter of fiscal 1994, the Company initiated a plan to significantly decrease overhead costs through a reduction in corporate and division staffing levels and to review the resulting office space needs of all corporate operations. The Company also decided to sell its corporate headquarters building and to lease substantially less office space in that building or at an alternative site. Costs associated with this plan were estimated to be approximately $77.0 million and were reserved in the quarter ended May 31, 1994. During the nine-month period ended February 28, 1995, actual costs incurred and charged against the reserve were approximately $9.2 million. The balance of the reserve is included in other current liabilities or other long-term liabilities. 6. On August 11, 1994, the Company completed the sale of a controlling interest in Total Renal Care, Inc. (formerly Medical Ambulatory Care, Inc., the operator of the Company's outpatient renal dialysis centers). As part of the transaction, the Company received a $75.5 million cash distribution from Total Renal Care, Inc. prior to the sale and retained an approximate 25% minority interest, which since has been reduced to approximately 23% due to the issuance of additional shares by Total Renal Care, Inc. in connection with acquisitions. The transaction resulted in a $32.0 million gain. For the quarter and nine-month period ended February 28, 1994, net operating revenues of the predecessor of Total Renal Care, Inc. were $20.2 million and $59.5 million, respectively, and operating income was approximately $2.9 million and $8.1 million, respectively. Net operating revenues and operating income included in the current year's nine-month statement of operations, for the period from June 1, 1994 through August 11, 1994 were $16.6 million and $2.7 million, respectively. 7. On March 1, 1995, in a transaction accounted for as a purchase, the Company acquired all the outstanding common stock of American Medical Holdings, Inc. ("AMH") for approximately $1.5 billion in cash and 33,156,614 shares of the Company's common stock valued at approximately $489.0 million. AMH operates general hospitals and related healthcare facilities serving primarily urban and regional areas in 13 states. In connection with the merger, the Company repaid approximately $1.2 billion of AMH debt and approximately $554.9 million of its own debt, including $222.0 million of loans under its April 13, 1994 revolving credit agreement, $96.6 million of unsecured medium-term notes, $93.0 million of 12 1/8% unsecured notes and $143.3 million of secured loans. The Company financed the merger and debt refinancing transactions through a new $2.3 billion credit facility and the public issuance of $1.2 billion in debt securities. The total purchase price is expected to exceed the fair value of the net assets acquired by approximately $2.2 billion. The resulting goodwill will be amortized on a straight-line basis over 40 years. Deferred financing costs on the new debt were $59.1 million and will be written off to interest expense using the interest method over the respective lives of the new credit facility and public debt securities, which range from 6-1/2 to 10 years. 9 The following supplemental pro forma information is unaudited and assumes that the merger combination occurred as of the beginning of each period presented. The amounts reflect pro forma adjustments for interest on new and refinanced debt, depreciation on revalued property, plant and equipment, and the amortization of goodwill, as well as the following unusual, non-recurring transactions not directly related to the merger: (i) the August 1994 sale of a controlling interest in Total Renal Care, Inc.; (ii) the January and March 1994 sales of 29 rehabilitation hospitals; (iii) the September 1993 and February 1994 sales of 23 long-term care facilities to The Hillhaven Corporation ("Hillhaven") and (iv) the elimination of non-recurring gains and merger costs recorded by the Company and AMH.
THREE MONTHS NINE MONTHS ENDED FEBRUARY 28, ENDED FEBRUARY 28, 1995 1994 1995 1994 --------- --------- --------- --------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net operating revenues . . . . . . . . . . $ 1,328.4 $ 1,239.2 $ 3,883.8 $ 3,614.1 Income from continuing operations . . . . . $ 62.4 $ 47.7 $ 167.5 $ 133.3 Fully diluted earnings per share . . . . . $ 0.30 $ 0.23 $ 0.81 $ 0.64
The supplemental pro forma information shown above does not purport to present the results of operations of the Company had the transactions and events assumed therein occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. In addition, such information does not reflect certain cost savings that management believes may be realized following the merger, currently estimated to be approximately $60 million annually beginning in fiscal 1996 (before any severance or other costs of implementing certain efficiencies). No assurances can be made as to the amount of cost savings, if any, that actually will be realized. 8. In connection with the merger and refinancing described in Note 7 above, Morgan Guaranty Trust Company of New York, Bank of America NT&SA, The Bank of New York, Bankers Trust Company and a syndicate of other lenders have entered into a new credit facility with the Company consisting of (i) a six and a half year amortizing term loan in the aggregate principal amount of $1.8 billion and (ii) a six and a half year $500.0 million revolving credit facility, with a letter of credit option not to exceed $100.0 million. The Company's unused borrowing capacity under the new credit facility was $314.4 million as of April 6, 1995. Borrowings under the new credit facility are secured by a first priority lien on the capital stock of certain of the Company's first-tier subsidiaries, all intercompany indebtedness owed to the Company and one of its subsidiaries' equity investments in Westminster Health Care Holdings PLC. The lenders under the new credit facility have priority as to such collateral over the Company's other indebtedness, including the new senior notes and senior subordinated notes described below. The Company's obligations under the new credit facility will rank PARI PASSU with 10 the new senior notes and will constitute senior debt with respect to the new senior subordinated notes and any other subordinated debt of the Company. Loans under the new credit facility will bear interest at a base rate equal to the prime rate announced by Morgan Guaranty Trust Company of New York or, if higher, the federal funds rate plus 0.50%, plus an interest margin ranging from zero to 50 basis points, or, at the option of the Company, a London interbank offered rate ("LIBOR") for 1-, 2-, 3-, or 6-month periods plus an interest margin of from 50 to 150 basis points. The Company has agreed to pay to the lenders under the new credit facility a commitment fee on the unused loan commitment at rates ranging from 18.75 basis points to 50 basis points. The interest margins and loan commitment rates will be based on the ratios of the Company's consolidated net earnings before interest, taxes, depreciation and amortization ("EBITDA") to interest expense and the ratio of the Company's consolidated total debt to EBITDA. The Company must make quarterly mandatory payments on the term loan in each fiscal year in the following annual amounts, with the first installment due on August 31, 1995 (in millions): 1996 - $180.0; 1997 - $180.0; 1998 - $225.0; 1999 - $315.0; 2000 - $360.0; 2001 - $405.0; and on August 31, 2001 - $135.0. Prepayments will be required from the proceeds of certain events, including the sale of certain assets and a portion of the proceeds of a sale, if any, of the equity investments in Hillhaven, Westminster Health Care Holdings PLC, or the Company's international subsidiaries, and additional offerings of certain debt or equity securities. Also in connection with the merger and refinancing, the Company issued, on March 1, 1995, $300.0 million of 9-5/8% Senior Notes due September 1, 2002 and $900.0 million of 10-1/8% Senior Subordinated Notes due March 1, 2005. After underwriting discounts and commissions, the proceeds to the Company were approximately $1.2 billion. The senior notes are not redeemable by the Company prior to maturity. The senior subordinated notes are redeemable at the option of the Company, in whole or from time to time in part, at any time after March 1, 2000 at redemption prices ranging from 105.063% in 2000 to 100.0% in 2003 and thereafter. The senior notes are general unsecured obligations of the Company ranking senior to all subordinated indebtedness of the Company, including the senior subordinated notes, and PARI PASSU in right of payment with all other indebtedness of the Company, including borrowings under the new credit facility described above. The senior subordinated notes also are general unsecured obligations of the Company subordinated in right of payment to all existing and future senior debt of the Company, including the senior notes and borrowings under the new credit facility. The new credit facility and the indentures governing the senior notes and the senior subordinated notes have, among other requirements, limitations on borrowings, liens, investments, capital expenditures, dividends, asset sales, and covenants regarding maintenance of net worth, debt ratios and fixed charge coverages. Some of the March 1, 1995 proceeds of the loans under the new credit 11 facility, the senior notes and the senior subordinated notes were used to refinance approximately $449.9 million of the current portion of the Company's long-term debt as of February 28, 1995. Accordingly, this debt has been reclassified as long-term debt in the February 28, 1995 condensed consolidated balance sheet. 9. Effective June 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Company recognized $60.1 million as income in the first quarter of fiscal 1994, for the cumulative effect on prior years of adopting this standard based on tax rates in effect at June 1, 1993. Management believes that the net deferred tax asset at February 28, 1995 will be realized from offsetting tax provisions against future income or through tax loss carry backs. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IMPACT OF THE MERGER On March 1, 1995, in a transaction accounted for as a purchase, the Company acquired all the outstanding common stock of AMH for approximately $1.5 billion in cash and 33,156,614 shares of the Company's common stock valued at approximately $489.0 million. In connection with the merger, the Company also repaid approximately $1.2 billion of AMH debt and approximately $554.9 million of the Company's debt. The Company financed the merger and debt refinancing transactions through a new $2.3 billion credit facility and the public issuance of $1.2 billion in new debt securities. Presented below is certain unaudited pro forma combined balance sheet information for the Company and AMH as if the merger of the two companies and the related debt refinancing occurred on February 28, 1995 (in millions):
HISTORICAL ---------------------------- NME AMH PRO FORMA ------------- ------------- ------------- Cash and cash equivalents . . . . . . . . . . . . . $ 144.5 $ 89.4 $ 143.8 Accounts and notes receivable, net . . . . . . . . 411.1 195.7 626.3 Deferred income taxes . . . . . . . . . . . . . . . 284.0 15.4 321.3 Other current assets . . . . . . . . . . . . . . . 177.2 81.0 258.2 Total current assets . . . . . . . . . . . . . . . 1,016.8 381.5 1,349.6 Total current liabilities . . . . . . . . . . . . . 624.9 428.5 1,058.5 Net working capital . . . . . . . . . . . . . . . . 391.9 (47.0) 291.1 Property, plant and equipment, net . . . . . . . . 1,786.7 1,491.0 3,552.7 Intangible assets, net . . . . . . . . . . . . . . 114.3 1,212.5 2,436.7 Long-term debt, net of current portion . . . . . . 725.6 1,331.5 3,646.1 Other liabilities . . . . . . . . . . . . . . . . . 495.2 520.7 1,176.3 Shareholders' equity . . . . . . . . . . . . . . . 1,485.0 841.6 1,968.5
Management believes that the transaction will strengthen the Company in its existing markets and enhance the Company's ability to deliver quality, cost- effective health care services. The consolidation of the two companies is expected to result in certain cost savings, currently estimated to be approximately $60.0 million in fiscal 1996 (before any severance or other costs of implementing certain efficiencies). These savings are expected to be realized through the elimination of duplicate corporate overhead expenses, reduced supplies expense through the incorporation of AMH into the Company's group purchasing program and improved collection of AMH accounts receivable by the Company's wholly owned debt collection business. No assurances can be made as to the amount of cost savings, if any, that actually will be realized. The Company believes that its post-merger liquidity needs consist primarily of capital expenditures, debt service and working capital. Capital expenditures for the Company are expected to be approximately $400.0 million per year for each of the next three fiscal years. The Company believes that cash generated by operations and amounts available under the revolving credit portion of the new 13 credit facility will be sufficient to meet its liquidity needs. The Company's strategy includes the pursuit of growth through strategic acquisitions. All or a portion of such acquisitions may be financed through available credit under the new credit facility or, depending on capital market conditions, the issuance of additional subordinated debt or equity securities or other bank borrowings. The Company's unused borrowing capacity under the new credit facility was $314.4 million as of April 6, 1995. The new credit facility and the debt securities include various affirmative, negative and financial covenants with which the Company must comply, including among other requirements, limitations on borrowings, liens, investments, capital expenditures, dividends, asset sales, and covenants regarding maintenance of net worth, debt ratios and fixed charge coverages. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents at February 28, 1995 were $144.5 million, a decrease of $168.7 million from May 31, 1994. The decrease was primarily due to expenditures relating to the resolution of unusual legal proceedings and government investigations associated with the discontinued psychiatric business. The ratio of total debt to equity was 0.57:1 at February 28, 1995 compared with 0.63:1 at May 31, 1994. The working capital at February 28, 1995 was $391.9 million compared to a deficit of $196.3 million at May 31, 1994. The principal reason for the deficit in working capital at May 31, 1994 was the fiscal 1994 increase in the current portion of long-term debt to $544.5 million. At February 28, 1995 the current portion of long-term debt was $12.7 million due to the reclassification of $449.9 of short-term obligations which were refinanced in connection with the merger. Cash used in operating activities was $240.6 million for the nine months ended February 28, 1995, compared to $54.1 million of cash provided by operating activities in the same period last year, including net pre-tax expenditures of $421.2 million in 1995 and $222.1 million in 1994, related to the discontinued psychiatric hospital business and restructuring charges. Of these net pre-tax expenditures during the nine months ended February 28, 1995, $379.8 million were related to payments in connection with the resolution of investigations by federal and state government agencies. Proceeds from the sales of facilities, investments and other assets were $167.7 million during the nine months ended February 28, 1995, compared with $530.1 million in the prior nine-month period, including proceeds of $350.0 million from the January 1994 sale of 28 inpatient rehabilitation hospitals and 45 related satellite outpatient clinics. Cash payments for property and equipment were $100.5 million for the nine months ended February 28, 1995 and $93.8 million for the same period last year. The estimated cost to complete major approved construction projects at the merged companies' wholly owned subsidiaries is approximately $128.0 million, all of which is related to expansion, improvement and equipping of existing domestic hospital facilities, and a significant portion of which will be spent over the next three years. The Company expects to finance all such expenditures with either internally generated funds or borrowed 14 funds. The Company intends to continue to invest in existing and new facilities. During the nine months ended February 28, 1995, costs incurred and charged against the Company's $77.0 million restructuring reserve, which was established in fiscal 1994 in connection with a plan to reduce corporate and division overhead costs, were $9.2 million, consisting principally of severance payments to terminated employees. The Company expects its annual overhead savings from implementation of this plan to approximate $32.0 million, most of which is attributable to discontinued and divested operations, including its psychiatric and rehabilitation operations. The Company also expects that the sale of its corporate headquarters building to generate after-tax proceeds in excess of $40.0 million. This sale may take two years to consummate. Management believes that patient volumes, cash flows and operating results at the Company's principal healthcare businesses have been adversely affected by the legal proceedings and investigations described in the Annual Report to Shareholders on Form 10-K for the fiscal year ended May 31, 1994, the quarterly reports on Form 10-Q for the quarters ended August 31, 1994 and November 30, 1994 and herein. The Company has recorded reserves for the remaining legal proceedings not yet settled as of February 28, 1995 and an estimate of the legal fees related to these matters to be incurred subsequently, totaling approximately $68.7 million, of which $60.6 million is expected to be paid within one year. These reserves represent management's estimate of the net costs of the ultimate disposition of these matters. There can be no assurance, however, that the ultimate liability will not exceed such estimates. The Company's liquidity, including cash proceeds from operating activities, anticipated disposals of assets, realization of tax benefits associated with the expenditures and losses on sales of facilities related to the discontinued psychiatric hospital business, and the proceeds from the new credit facility and the issuance of debt securities, is believed to be adequate to finance planned capital expenditures and other known operating needs, including settlements of the unusual legal proceedings referred to herein. RESULTS OF OPERATIONS Income from continuing operations before income taxes was $80.9 million for the quarter ended February 28, 1995, compared with $147.7 million for the prior year quarter. As discussed below, the results of operations for the prior year periods include the results of certain businesses which have since been divested. The prior year quarter also includes pre-tax gains on disposals of facilities and long-term investments of $60.4 million (approximately $.20 per share after taxes, fully diluted). Income from continuing operations before income taxes was $264.1 million for the nine months ended February 28, 1995, compared with $341.6 for the prior year period. These results include pre-tax net gains on disposals of facilities and long-term investments of $29.5 million (approximately $.09 per share after taxes, fully diluted) in 1995 and $89.4 million (approximately $.30 per share after taxes, fully diluted) in 1994. Net operating revenues from continuing operations for the quarter and nine- month period were $660.5 million and $1,962.1 million, respectively, compared with $716.0 million and $2,246.3 million 15 in the prior year periods. The principal reasons for the 7.8% decline in revenues in the quarter and 12.7% decline in revenues in the nine-month period are (i) the August 1994 sale of approximately 75% of the Company's common stock interest in Total Renal Care, Inc.; (ii) the March 1994 sale of one inpatient rehabilitation hospital and the January 1994 sale of 28 inpatient rehabilitation hospitals and 45 related satellite outpatient clinics; and (iii) the February 1994 sale to Hillhaven of four long-term care facilities and the September 1993 sale of 19 long-term care facilities (all of which properties previously had been leased to Hillhaven) (collectively, the "divested operations"). For the quarter and nine months ended February 28, 1994, net operating revenues of the divested operations were $60.3 million and $338.9 million, respectively. Operating income from continuing operations before interest decreased by $5.3 million (or 5.6%) from the prior year quarter and by $14.4 million (or 5.3%) for the nine months ended February 28, 1995 from the comparable prior year period primarily due to the divested operations referred to above. The operating income margin for the current quarter increased to 13.4% from 13.1% a year ago and for the current nine-month period it increased to 13.2% from 12.1% a year ago. The increases in the operating margins are primarily due to effective cost control programs in the hospitals, initial benefits of the overhead reduction plan referred to above and the sale of the rehabilitation hospitals, which as a whole, had lower margins than the general hospitals. Net operating revenues from the Company's domestic general hospital operations decreased 0.6% to $1,576.5 million for the nine months ended February 28, 1995, compared to $1,585.7 million for the prior year period, representing a decrease of $9.2 million. Net operating revenues for the Company's domestic general hospitals have remained relatively unchanged as less intensive services continue to shift from an inpatient to an outpatient basis or to alternative healthcare delivery services because of technological improvements and continued increases in cost containment pressures by payors. In addition, management believes that patient volumes, cash flows and operating results at the Company's domestic general hospitals have been adversely affected by the legal proceedings and investigations mentioned above. Management believes that these legal proceedings adversely affected the Company's ability to pursue its business strategy, particularly during fiscal 1994. The most significant of these legal proceedings and investigations have been resolved. On a same store basis, net operating revenues for the Company's domestic general hospitals decreased 0.2% to $1,540.2 million for the nine months ended February 28, 1995, compared to $1,543.3 million in the prior year period. Same store operating results represent the combined results of the 32 general hospitals operated by the Company throughout both the nine months ended February 28, 1995 and the prior year period. The patient volumes and net operating revenues of the Company's domestic general hospitals are subject to seasonal variations caused by a number of factors, including but not necessarily limited to, seasonal cycles of illness, climate and weather conditions, vacation patterns of both hospital patients and admitting physicians and other factors relating to the timing of elective hospital procedures. The table below sets forth certain selected operating statistics for the Company's domestic general 16 hospitals. Included in these statistics are the operations of one hospital that was sold in June 1993, two hospitals that were sold in July 1994, and the operations of one hospital that was acquired in March 1994.
THREE MONTHS ENDED NINE MONTHS ENDED FEBRUARY 28, FEBRUARY 28, ------------------------------------- ---------------------------------------- INCREASE INCREASE 1995 1994 (DECREASE) 1995 1994 (DECREASE) --------- --------- ---------- ----------- ----------- ---------- Number of hospitals (at end of period) . . . . 33 34 (1) 33 34 (1) Licensed beds (at end of period) . . . . . . . 6,620 6,749 (1.9)% 6,620 6,749 (1.9)% Net inpatient revenues (in thousands) . . . . . $ 385,700 $ 408,700 (5.6)% $ 1,125,900 $ 1,160,000 (2.9)% Net outpatient revenues (in thousands) . . . . $ 144,200 $ 133,300 8.2% $ 426,700 $ 406,400 5.0% Admissions . . . . . . . . . . . . . . . . . . 51,882 54,304 (4.5)% 149,623 155,415 (3.7)% Equivalent admissions . . . . . . . . . . . . . 67,637 69,309 (2.4)% 197,299 202,154 (2.4)% Average length of stay (days) . . . . . . . . . 5.6 5.7 (0.1) 5.5 5.5 -- Patient days . . . . . . . . . . . . . . . . . 289,897 307,870 (5.8)% 825,377 861,561 (4.2)% Equivalent patient days . . . . . . . . . . . . 375,131 390,859 (4.0)% 1,079,755 1,112,493 (2.9)% Net inpatient revenues per patient day . . . . $ 1,330 $ 1,328 0.2% $ 1,364 $ 1,346 1.3% Utilization of licensed beds . . . . . . . . . 48.6% 50.7% (2.1)% * 45.3% 46.8% (1.5)% * Outpatient visits . . . . . . . . . . . . . . . 394,453 366,729 7.6% 1,141,203 1,090,353 4.7% * These percentage changes are the differences between the 1995 and 1994 percentages (%s) shown.
The general hospital industry in the United States and the Company's general hospitals continue to have significant unused capacity, and thus there is substantial competition for patients. Inpatient utilization continues to be negatively affected by payor-required pre-admission authorization and by payor pressure to maximize outpatient and alternative health care delivery services for less acutely ill patients. Increased competition, admission constraints and payor pressures are expected to continue. Allowances and discounts are expected to continue to rise because of increasing cost controls by government and group health payors and because the percentage of business from managed care programs (and related discounts) continues to grow. The Company has been implementing various cost-control programs focused on reducing operating costs. The Company's general hospitals have been successful in increasing operating profits in a very competitive environment, due in large part to enhanced cost controls and efficiencies being achieved throughout the Company. The Company, however, does not expect to be able to sustain the operating profit growth rates from its existing domestic hospitals that were achieved in recent years. In addition to the specific items mentioned above that continue to have an impact on the Company's results of operations, there are a number of other factors affecting our domestic business. Because of intense national, state and private industry efforts to reform the healthcare delivery and payment systems in this country and other countries in which the Company operates, the healthcare industry as a whole faces increased uncertainty. The Company is continuing to monitor these reform efforts and analyze their potential impact in order to formulate its business strategies for the future. 17 Net operating revenues from the Company's other domestic operations increased 9.7% to $212.8 million for the nine months ended February 28, 1995, compared to $194.0 million for the prior year period, representing an increase of $18.8 million. This increase primarily reflects continued growth of National Health Plans, the Company's HMO and insurance subsidiary, to approximately 53,000 members at February 28, 1995, compared to approximately 37,000 members at the end of the prior year period. Net operating revenues from other domestic operations include the revenues principally of the following: (i) six rehabilitation hospitals and seven long-term care facilities located on the same campus as, or nearby, the Company's general hospitals; (ii) certain healthcare joint ventures operated by the Company; (iii) various subsidiaries of the Company that offer health maintenance organizations, preferred provider organizations and indemnity products in California; and (iv) revenues earned by the Company in consideration of the guarantee of certain indebtedness and leases of Hillhaven and of other third parties. Net operating revenues from the Company's international operations increased 22.3% to $156.2 million for the nine months ended February 28, 1995, compared to $127.7 million for the prior year period, representing an increase of $28.5 million. This increase is principally attributable to a 19.9% increase in net operating revenues of Australian Medical Enterprises, Ltd. ("AME"), and a 12.2% increase in the net operating revenues of the Company's two hospitals in Singapore. In addition, Centro Medico Teknon in Barcelona, Spain was opened in February 1994 and became a wholly owned subsidiary in June 1994, when the Company acquired its partner's 50% interest. Operating expenses, which include salaries and benefits, supplies, provision for doubtful accounts, depreciation and amortization, and other operating expenses, were $571.8 million for the quarter ended February 28, 1995, compared with $622.0 million for the prior year quarter. These expenses for the prior year periods include the divested operations, as discussed above, and to that extent, the current year and prior year periods are not comparable. Salaries and benefits expense decreased $37.5 million to 41.7% of net operating revenues in the three months ended February 28, 1995, compared to 43.7% in the prior year quarter. For the nine-month periods, the decrease was $179.4 million. The improvement is primarily attributable to the divested operations and a reduction in corporate and divisional staffing levels. Supplies expense decreased in dollar amounts in both the three-month and nine-month periods, but increased as a percentage of net operating revenues: to 12.7% from 12.0% in the three-month periods and to 12.4% from 11.3% in the nine- month periods. Most of this change is due to the sales of the rehabilitation hospitals, which were less supplies-intensive than are general hospitals. The provision for doubtful accounts decreased $3.7 million to 3.3% of net operating revenues for the three months ended February 28, 1995, compared to 3.6% for the prior year quarter. For the nine months ended February 28, 1995, the provision decreased $15.4 million to 3.5% of net operating revenues, compared to 3.8% in the year-earlier period. The decrease is primarily attributable to the divested operations. 18 Other operating expenses decreased $5.9 million in the quarter ended February 28, 1995, compared to the year earlier period. The decline for the nine-month periods was $53.7 million. Both the quarter and the nine-month period ended February 28, 1995 had slight increases as a percent of net operating revenues, from 22.2% to 23.1% for the quarter and 22.3% to 22.8% for the nine-month period. Depreciation and amortization expense decreased $1.4 million in the three months ended February 28, 1995, compared to the year-ago three-month period, and $10.8 million in the nine-month period, primarily due to the divested operations as discussed above. Interest expense, net of capitalized interest, declined $0.5 million for the nine months ended February 28, 1995, compared to the year ago period, due to debt reductions during a period of rising interest rates. Investment earnings were $15.6 million in the nine months ended February 28, 1995, compared to $20.2 million for the prior year period, and were derived primarily from notes receivable and investments in short-term marketable securities. The decrease is largely due to the financial restructuring of Hillhaven in September 1993 and the recent expenditures made in connection with the discontinued psychiatric hospital business, including the resolution of federal and state investigations and restructuring charges. Equity in earnings of unconsolidated affiliates decreased to $18.5 million during the nine months ended February 28, 1995, as compared to $18.9 million for the prior year period, primarily due to unusual non-recurring income at Hillhaven recorded in November 1993. The decrease was partially offset by an increase in the Company's ownership of Hillhaven from approximately 14% to approximately 33.0% during fiscal 1994. By February 28, 1995 the Company's ownership of Hillhaven had been reduced to approximately 27.0% as a result of the issuance by Hillhaven of additional stock in connection with an acquisition and as a result of action taken by the board of directors of Hillhaven to fund a purported grantor trust of Hillhaven established to fund certain employee benefit plans of Hillhaven. On February 28, 1995, Hillhaven announced that it had agreed to acquire Nationwide Care, Inc. and certain related entities in exchange for 5,000,000 new shares of common stock, subject to a potential adjustment of up to 500,000 additional shares of common stock if Hillhaven's average share price prior to closing is below $24. Assuming the issuance of 5,500,000 new shares of common stock in such transaction, the Company's beneficial ownership would be reduced to approximately 23.2%. (See "Legal Proceedings - Litigation with The Hillhaven Corporation.") Minority interest in income of consolidated subsidiaries represents outside shareholders' interests in consolidated, but not wholly owned, subsidiaries of the Company, and, at February 28, 1995, consists primarily of the approximately 48% minority shareholder interest in AME. Minority interest expense fell to $5.0 million in the nine months ended February 28, 1995, as compared to $6.3 million for the prior year period, primarily as a result of the divestiture of rehabilitation hospitals and the restructuring or elimination of certain joint venture arrangements controlled by the Company. 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings Material Development in Previously Reported Legal Proceedings: JOHN C. BEDROSIAN V. NATIONAL MEDICAL ENTERPRISES, INC., JEFFREY C. BARBAKOW, MICHAEL H. FOCHT, SR., BERNICE B. BRATTER, MAURICE J. DEWALD, PETER DE WETTER AND LESTER B. KORN As previously reported in the Company's Form 10-K for the fiscal year ended May 31, 1994 and Form 10-Qs for the quarters ended August 31, 1994 and November 30, 1994, Mr. Bedrosian's employment claims against the Company were tried before a Superior Court Referee during the summer of 1994. The Referee issued a Statement of Decision on those claims on November 4, 1994. In November 1994, Mr. Bedrosian filed a motion to have the Referee's decision vacated, which motion was denied. In January 1995, Mr. Bedrosian filed a Motion for Reconsideration of that ruling and other motions seeking to have that ruling set aside. All of those motions also were denied. LITIGATION WITH THE HILLHAVEN CORPORATION On February 15, 1995, the Company filed a complaint seeking declaratory and injunctive relief in the California Superior Court for the County of Los Angeles entitled NATIONAL MEDICAL ENTERPRISES, INC. V. THE HILLHAVEN CORPORATION, BRUCE L. BUSBY, CHRISTOPHER J. MARKER AND DOES 1-25. The Company alleges, among other things, that the named defendants have breached their fiduciary duties to the Company and its fellow shareholders in The Hillhaven Corporation ("Hillhaven") and interfered with the Company's prospective economic advantage by undertaking a series of acts designed to: (1) entrench themselves, (2) dilute the Company's equity interest in Hillhaven, and (3) deprive all of Hillhaven's shareholders the opportunity to consider the friendly acquisition proposal made by Horizon Healthcare Corporation to Hillhaven. On March 7, 1995, the Services Employees International Union, a union allegedly representing 2,000 Hillhaven employees at approximately 40 Hillhaven nursing homes, and Joann Sforza, an individual allegedly employed by Hillhaven moved to file a complaint in intervention in the case. On March 23, 1995, the parties entered into a stipulation staying all activity in the case for a 45 day period. On March 24, 1994, an order confirming the stay was entered by the court. 20 PSYCHIATRIC MALPRACTICE CASES The Company continues to experience a greater than normal level of litigation relating to its former psychiatric operations. The majority of the lawsuits filed contain allegations of fraud and conspiracy against the parent company and certain of its subsidiaries and former employees. The Company believes that the increase in litigation stems, in whole or in part, from advertisements by certain lawyers seeking former psychiatric patients in order to ascertain whether potential claims exist against the Company. The advertisements focus, in many instances, on the Company's past settlement of disputes involving the operations of its former psychiatric division, including the Company's resolution of the government's investigation and the corresponding criminal plea agreement. During the quarter ended February 28, 1995, additional lawsuits were filed, including one lawsuit in Texas with approximately 630 individual plaintiffs who are purported to have been patients in certain Texas psychiatric facilities. The lawsuit is in a very preliminary stage; however, the Company believes it has a number of defenses to actions by certain of the individual plaintiffs including, but not limited to, the defense that certain claims are barred by applicable statutes of limitations. Until the lawsuits are resolved, the Company will continue to incur substantial legal expenses. The Company expects that additional lawsuits of this nature will be filed. LITIGATION RELATING TO THE MERGER OF NME AND AMI As previously reported in the Company's Form 10-Q for the quarter ended November 30, 1994, a total of nine purported class actions (the "Class Actions") have been filed challenging the Merger in both Delaware and California. The seven Class Actions filed in the Delaware Court of Chancery have been consolidated under the caption, In re: American Medical Holdings, Inc., Shareholders Litigation, C.A. No. 13797, and discovery is continuing in this case. In addition, two purported class actions, entitled Ruth LeWinter and Raymond Cayuso v. the AMH Directors (with the exception of Harold S. Williams), NME and AMH, Case No. BC115206 and David F. and Sylvia Goldstein v. O'Leary, NME, AMH, et al., Case No. BC-116104, have been filed in the Superior Court of the State of California, County of Los Angeles. The California actions have been stayed pending the resolution of the Delaware actions. There will be a status conference in the California actions in June, 1995. Because the Merger has been consummated, plaintiffs seek rescission or rescissory damages, an accounting of all profits realized and to be realized by the defendants in connection with the Merger and the imposition of a constructive trust for the benefit of the plaintiffs and other members of the purported classes pending such an accounting. Plaintiffs also seek monetary damages of an unspecified amount together with prejudgment interest and attorneys' and experts' fees. AMH and NME believe that the complaints are without merit. 21 Items 2, 3 and 4 are not applicable. Item 5. Other Events The Company is soliciting proxies from Hillhaven's shareholders in favor of a non-binding resolution urging the Hillhaven Board of Directors to take action to maximize the value of all shareholders' investment in Hillhaven through the immediate sale or merger of Hillhaven. The purpose of the solicitation is to give all Hillhaven shareholders the opportunity to send such a message to the Hillhaven Board of Directors. Hillhaven has announced that a special committee of its Board has instructed Hillhaven's investment banker to explore strategic alternatives, including the possible sale of Hillhaven to third parties. As part of the process, Hillhaven has stated that it intends to engage in discussions with persons interested in acquiring Hillhaven. Hillhaven also announced, however, that the special committee may conclude that the best available alternative for Hillhaven is to remain a publicly owned company pursuing its existing strategy for enhancing value and servicing its constituents. The Company plans to vote its 8,878,147 shares of Hillhaven common stock (which is estimated to represent approximately 27% of the shares outstanding) in favor of the resolution. On March 1, 1995, AMH Acquisition Co., a wholly-owned subsidiary of the Company, merged into AMH. Pursuant to the merger, AMH, and its wholly-owned subsidiary, AMI became direct or indirect wholly-owned subsidiaries of the Company. Concurrently with the merger, the Company began doing business as Tenet Healthcare Corporation. The Company intends to solicit its shareholders to consent to an amendment of the Company's Restated Articles of Incorporation legally changing its name from National Medical Enterprises, Inc. to Tenet Healthcare Corporation. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. (3) Articles of Incorporation and Bylaws (b) Restated Bylaws of Registrant, as amended March 1, 1995. (4) Instruments Defining the Rights of Security Holders, Including Indentures (a) Indenture, dated as of March 1, 1995, between National Medical Enterprises, Inc. and The Bank of New York, as Trustee, related to $300,000,000 9 5/8% Senior Notes due 2002. (b) Indenture, dated as of March 1, 1995, between National Medical Enterprises, Inc. and The Bank of New York, as Trustee, related to $900,000,000 10 1/8% Senior Subordinated Notes due 2005. 22 (10) Material Contracts (a) $2,300,000,000 Credit Agreement, dated as of February 28, 1995, among National Medical Enterprises, Inc., the Lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York as Administrative Agent. (b) $91,350,000 Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of February 28, 1995, among National Medical Enterprises, Inc., as Account Party, and Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as Issuing Bank. (11) (Page 26) Statement Re: Computation of Per Share Earnings for the three months and nine months ended February 28, 1995 and 1994. (27) Financial Data Schedule (included only in the EDGAR filing). (b) Reports on Form 8-K (a) During the quarter ended February 28, 1995, the Company filed a Current Report on Form 8-K, dated January 31, 1995 for Item 5, Other Events. The Form 8-K was filed in connection with the merger of AMH and AMH Acquisition Co., a wholly-owned subsidiary of the Company, in order to provide the holders of the common stock of AMH certain supplemental financial information about the Company after giving effect to certain divestitures done by the Company. The Form 8-K included certain unaudited adjusted operating information of the Company for each of the last three fiscal years and for the six months ended November 30, 1993 and 1994, together with a summary discussion of such adjusted operating results for each of such periods. (b) During the quarter ended February 28, 1995, the Company filed a Current Report on Form 8-K, dated February 10, 1995 for Item 5, Other Events. The Form 8-K was filed in connection with the merger of AMH and AMH acquisition Co., a wholly-owned subsidiary of the Company. The Form 8-K included (i) certain unaudited pro forma financial information of the Company for the fiscal year ended May 31, 1994 and 23 for the six months ended November 30, 1993 and 1994, together with the notes thereto and (ii) consolidated balance sheets of AMH for the fiscal years ended August 31, 1994 and 1993, and the related consolidated statements of income, of cash flows and of shareholders' equity for the fiscal years ended August 31, 1994, 1993 and 1992. 24 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL MEDICAL ENTERPRISES, INC. (Registrant) Date: April 14, 1995 /s/ RAYMOND L. MATHIASEN ----------------------------------- Raymond L. Mathiasen Senior Vice President, Chief Financial Officer EX-3.(B) 2 EXHIBIT 3(B) Exhibit 3(b) RESTATED BY-LAWS OF NATIONAL MEDICAL ENTERPRISES, INC. A NEVADA CORPORATION AS AMENDED MARCH 1, 1995 ARTICLE I SHAREHOLDERS' MEETINGS SECTION 1.1 PLACE OF MEETINGS. All meetings of the shareholders shall be held at the principal office of the Corporation in the State of California, or at any other place within or without the State of Nevada as may be designated for that purpose from time to time by the Board of Directors. SECTION 1.2 ANNUAL MEETINGS. The Annual meeting of the shareholders shall be held not later than 210 days after the close of the fiscal year, on the date and at the time set by the Board of Directors, at which time the shareholders shall elect by plurality vote an annual Class of the Board of Directors, consider reports of the affairs of the Corporation, and transact such other business as may properly be brought before the meeting. SECTION 1.3 SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Chief Executive Officer or by the Board of Directors. SECTION 1.4 NOTICE OF MEETINGS. 1.4.1. Notice of each meeting of shareholders, whether annual or special, shall be given at least 10 and not more than 60 days prior to the day thereof by the Secretary or any Assistant Secretary causing to be delivered to each shareholder of record entitled to vote at such meeting a written notice stating the time and place of the meeting and the purpose or purposes for which the meeting is called. Such notice shall be signed by the Chief Executive Officer, the President, the Secretary or any Assistant Secretary and shall be mailed postage prepaid to each shareholder at his address as it appears on the stock books of the Corporation. If any shareholder has failed to supply an address, notice shall be deemed to have been given if mailed to the address of the principal office of the Corporation, or published at least once in a newspaper having general circulation in the county in which the principal office is located. - 2 - 1.4.2. It shall not be necessary to give any notice of the adjournment of or the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken; provided that when a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. SECTION 1.5 CONSENT BY SHAREHOLDERS. Any action which may be taken at a regular meeting of the shareholders, except election of directors, may be taken without a meeting, if authorized by a writing signed by holders of the number of shares required under the law to give their approval for such purpose. SECTION 1.6 QUORUM. 1.6.1. The presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting constitutes a quorum for the transaction of business. Shares shall not be counted in determining the number of shares represented or required for a quorum or in any vote at a meeting, if voting of them at the meeting has been enjoined or for any reason they cannot be lawfully voted at the meeting. 1.6.2. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. 1.6.3. In the absence of a quorum, a majority of the shares present in person or by proxy and entitled to vote may adjourn any meeting from time to time, but not for a period of more than 30 days at any one time, until a quorum shall attend. SECTION 1.7 VOTING RIGHTS. 1.7.1. Every shareholder of record of the Corporation shall be entitled at each meeting of the shareholders to one vote for each share of stock standing in his name on the books of the Corporation. Except as otherwise provided by law, or by the Articles of Incorporation or any amendment thereto, or by the By-Laws, if a quorum is present, the majority of votes cast in person or by proxy shall be binding upon all shareholders of the Corporation. 1.7.2. The Board of Directors shall designate a day not more than 60 days prior to any meeting of the shareholders as the day as of which shareholders entitled to notice of and to vote at such meetings shall be determined. SECTION 1.8 PROXIES. Every shareholder entitled to vote or to execute consents may do so either in person or by written proxy executed in accordance with the provisions - 3 - of Section 78.355 of the Nevada Revised Statutes and filed with the Secretary of the Corporation. SECTION 1.9 MANNER OF CONDUCTING MEETINGS. To the extent not in conflict with the provisions of the law relating thereto, the Articles of Incorporation, or express provisions of these By-Laws, meetings shall be conducted pursuant to such rules as may be adopted by the chairman presiding at, or a majority of the shares represented at, the meeting. ARTICLE II DIRECTORS - MANAGEMENT SECTION 2.1 POWERS. Subject to the limitation of the Articles of Incorporation, of the By-Laws, and of the laws of the State of Nevada as to action to be authorized or approved by the shareholders, all corporate powers shall be exercised by or under authority of, and the business and affairs of this Corporation shall be controlled by, a Board of Directors. SECTION 2.2 NUMBER AND QUALIFICATION. The authorized number of directors of this Corporation shall be 13, all of whom shall be of full age and at least a majority of whom shall be citizens of the United States. SECTION 2.3 CLASSIFICATION AND ELECTION. The Board of Directors shall be classified into three annual Classes, with four directors in Class 1, four directors in Class 2, and five directors in Class 3. Each Class of directors shall be elected for terms of three years. Each term shall continue for the number of years stated and until their successors are elected and have qualified. Their term of office shall begin immediately after election. These By-Laws are being adopted subsequent to the initial classification of directors in 1975. The directors in office as of the date of adoption hereof shall continue to serve the terms for which they have been previously elected. SECTION 2.4 INCREASE IN THE NUMBER OF DIRECTORS. The Board of Directors may change the number of directors from time to time; provided, however, neither the Board of Directors nor the shareholders may ever increase the number of directorships by more than one during any twelve-month period, except upon the affirmative vote of two-thirds of the directors of each Class, or the affirmative vote of the holders of two-thirds of all outstanding shares voting together and not by class. This provision may not be amended except by a like vote. - 4 - SECTION 2.5 VACANCIES. 2.5.1. Any vacancies in the Board of Directors, except vacancies first filled by the shareholders, may be filled by the affirmative vote of two-thirds of the remaining directors of each Class, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office for the balance of the term of the resigning director and until his successor is elected. The power to fill vacancies shall in no event be delegated to any committee appointed in accordance with these By-Laws. 2.5.2. The shareholders may at any time elect a director to fill any vacancy not filled by the directors, and may elect the additional directors at the meeting at which an amendment of the By-Laws is voted authorizing an increase in the number of directors. 2.5.3. A vacancy or vacancies shall be deemed to exist in case of the death, resignation, or removal of any director, or if the directors or shareholders shall increase the authorized number of directors but shall fail at a meeting at which such increase is authorized or at an adjournment thereof to elect the additional director so provided for, or in case the shareholders fail at any time to elect the full number of authorized directors. 2.5.4. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders shall have power to immediately elect a successor who shall take office when the resignation shall become effective. 2.5.5. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office. SECTION 2.6 REMOVAL OF DIRECTORS. The entire Board of Directors or any individual director may be removed from office, with or without cause, by the vote or written consent of shareholders representing two-thirds of the issued and outstanding capital stock entitled to vote. SECTION 2.7 RESIGNATIONS. Any director of the Corporation may resign at any time either by oral tender of resignation at any meeting of the Board or by giving written notice thereof to the Secretary, the Chief Executive Officer or the President. Such resignation shall take effect at the time it specifies, and the acceptance of such resignation shall not be necessary to make it effective. SECTION 2.8 PLACE OF MEETINGS. Meetings of the Board of Directors shall be held at the principal office of the Corporation in the State of California, or at such other place within or without the State of Nevada as may be designated for that purpose by the Board of Directors. Any meeting shall be valid, wherever held, if held by the written - 5 - consent of all members of the Board of Directors, given before or after the meeting and filed with the Secretary of the Corporation. SECTION 2.9 MEETINGS AFTER ANNUAL SHAREHOLDERS' MEETING. The first meeting of the Board of Directors held after the annual shareholders' meeting shall be held at such time and place within or without the State of Nevada as shall be fixed by announcement of the Chief Executive Officer or the President given at the annual shareholders' meeting, and no other notice of such meeting shall be necessary, provided a majority of the whole Board shall be present. Alternatively, such meeting may be held at such time and place as shall be fixed pursuant to notice given under other provisions of these By-Laws. SECTION 2.10 OTHER REGULAR MEETINGS. 2.10.1. Regular meetings of the Board of Directors shall be held at such time and place within or without the State of Nevada as may be agreed upon from time to time by the Board. 2.10.2. No notice need be given of regular meetings, except that a written notice shall be given to each director of the resolution establishing specific meeting dates or a regular meeting date, which notice shall set forth the date of the month, the time, and the place of the meetings. SECTION 2.11 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the Chief Executive Officer or the President or by two-thirds of the directors of each Class. Notice of any such meeting shall be mailed to each director not later than three days before the day on which the meeting is to be held, or shall be sent to him by telegraph, or delivered personally or by telephone, not later than midnight of the day before the day of the meeting. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given, if each director consents to the holding thereof or waives notice by a writing filed with the Secretary, or is present thereat and their oral consents are entered on the minutes, or they take part in the deliberations thereat without objection. Except as otherwise provided in the By-Laws or as may be indicated in the notice thereof, any and all business may be transacted at any special meeting. SECTION 2.12 WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, notice of any meeting of directors shall not be required as to any director who shall waive notice in writing (including telex, facsimile telephonic transmission, telegram, cablegram or radiogram) before or after such meeting. - 6 - SECTION 2.13 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place is fixed at the meeting adjourned. SECTION 2.14 QUORUM. A majority of the number of directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided, that a minority of the directors, in the absence of a quorum, may adjourn from time to time or fill vacant directorships in accordance with Section 2.5 but may not transact any business. SECTION 2.15 ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing thereto. Such written consent shall be filed with the minutes of the proceedings of the Board and shall have the same force and effect as a unanimous vote of such directors. SECTION 2.16 COMPENSATION. The directors may be paid their expenses of attendance at each meeting of the Board of Directors. Additionally, the Board of Directors may from time to time, in its discretion, pay to directors either or both a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for services as a director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like reimbursement and compensation for attending committee meetings. SECTION 2.17 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS. In the absence of fraud, no contract or other transaction of the Corporation shall be affected or invalidated by the fact that any of the directors of the Corporation are in any way interested in, or connected with, any other party to, such contract or transaction or are themselves parties to such contract or transaction, provided that such transaction satisfies Section 78.140 of the Nevada Revised Statutes; and each and every person who may become a director of the Corporation is hereby relieved, to the extent permitted by law, from any liability that might otherwise exist from contracting in good faith with the Corporation for the benefit of himself or any person in which he may be in any way interested or with which he may be in any way connected. Any director of the Corporation may vote and act upon any matter, contract or transaction between the Corporation and any other person without regard to the fact that he is also a stockholder, director or officer of, or has any interest in, such other person. -7- SECTION 2.18 EMERITUS POSITIONS. The Board of Directors may authorize parties to serve in an emeritus position with respect to the Board of Directors, included by way of example but not by way of limitation, as an Emeritus Director, as a Chairman Emeritus of the Board of Directors or as a Vice-Chairman Emeritus of the Board of Directors. These positions shall be honorary positions and parties elected to those positions may be asked to attend meetings of the board of directors and meeting of the shareholders from time to time. A party holding an emeritus position shall not be an officer or director of the Company, shall have no vote at a director's meeting, shall receive no fees for service in that position and shall not be given access to material, non-published information pertaining, to the Company. A party filling an emeritus position shall be requested to do so because of his or her experience with and contributions to the Company. ARTICLE III OFFICERS SECTION 3.1 EXECUTIVE OFFICERS. The executive officers of the Corporation shall be a Chairman, a Vice Chairman, a Chief Executive Officer, a President, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or more Group Presidents and Chief Executive Officers, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, and a Treasurer. Any person may hold two or more offices. The executive officers of the Corporation shall be elected annually by the Board of Directors and shall hold office for one year or until their respective successors shall be elected and shall qualify. SECTION 3.2 APPOINTED OFFICERS: TITLES. 3.2.1. The Chief Executive Officer or the Secretary in the case of Assistant Secretaries or the Treasurer in the case of Assistant Treasurers may appoint one or more Assistant Secretaries or one or more Assistant Treasurers, each of whom shall hold such title at the pleasure of the appointing officer, have such authority and perform such duties as are provided in the By-Laws, or as the Chief Executive Officer or the appointing officer may determine from time to time. Any person appointed under this Section 3.2.1 to serve in any of the foregoing positions shall be deemed by reason of such appointment or service in such capacity to be an "officer" of the corporation. 3.2.2. The Chief Executive Officer or a person designated by the Chief Executive Officer may also appoint a president, one or more executive vice presidents, one or more senior vice presidents, one or more vice presidents and one or more assistant vice presidents for each operating group and division of the Corporation and one or more senior vice presidents, one or more vice presidents and one or more assistant vice presidents for each corporate staff function and a corporate controller and one or more assistant controllers. Each of such persons will hold such title at the pleasure of the Chief Executive - 8 - Officer and have authority to act for and shall perform duties with respect to only the group, division or corporate staff function for which the person is appointed. Any person appointed under this Section 3.2.2 to serve in any of the foregoing positions shall not be deemed by reason of such appointment or service in such capacity to be an "officer" of the Corporation. SECTION 3.3 REMOVAL AND RESIGNATION. 3.3.1. Any officer may be removed, either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board. Any appointed person may be removed from such position at any time by the person making such appointment or his successor. 3.3.2. Any officer may resign at any time, by giving written notice to the Board of Directors, the Chief Executive Officer, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice, or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.4 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-Laws for regular appointments to such office. SECTION 3.5 CHAIRMAN AND VICE CHAIRMAN. The Chairman shall preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. The Vice Chairman shall, in the absence of the Chairman, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. SECTION 3.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and affairs of the Corporation. He shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board and the Vice Chairman of the Board, at all meetings of the Board of Directors. He shall be ex officio a member of the Executive Committee and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors. SECTION 3.7 PRESIDENT. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when - 9 - so acting shall have all the powers and be subject to all the restrictions upon the Chief Executive Officer, including the power to sign all instruments and to take all actions which the Chief Executive Officer is authorized to perform by the Board of Directors or the By-Laws. The President shall have the general powers and duties usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Chief Executive Officer or the Board of Directors. SECTION 3.8 SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENT AND VICE PRESIDENT. In the absence or disability of the Chief Executive Officer and the President, a Senior Executive Vice President, an Executive Vice President or a Group President and Chief Executive Officer, in the order of his rank and seniority shall perform all of the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer, including the power to sign all instruments and to take all actions which the Chief Executive Officer is authorized to perform by the Board of Directors or the By-Laws. The Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall have the general powers and duties usually vested in the office of a vice president of a corporation; the Group Presidents and Chief Executive Officers shall have the general powers and duties of a principal executive officer of an operating group of a corporation; and each of them shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, the Executive Committee of the Board of Directors, the Chief Executive Officer or the By-Laws. SECTION 3.9 SECRETARY AND ASSISTANT SECRETARIES. 3.9.1. The Secretary shall (1) attend all sessions of the Board and all meetings of the shareholders; and (2) record and keep, or cause to be kept, all votes and the minutes of all proceedings in a book to be kept for that purpose at the principal office of the Corporation, or at such other place as the Board of Directors may from time to time determine, specifying therein (i) the time and place of holding, (ii) whether regular or special, and if special, how authorized, (iii) the notice thereof given, (iv) the names of those present at directors' meetings, (v) the number of shares present or represented at shareholders' meetings, and (vi) the proceedings thereof; and (3) perform like duties for the Executive and other standing committees, when required. In addition, he shall keep or cause to be kept, at the principal office of the Corporation in the State of Nevada, those documents required to be kept thereat by Section 5.2 of the By-Laws and Section 78.105 of the Nevada Revised Statutes. 3.9.2. The Secretary shall give, or cause to be given, notice of meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation, and, when authorized by the Board, affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an - 10 - Assistant Secretary. The Secretary is hereby authorized to issue certificates, to which the corporate seal may be affixed, attesting to the incumbency of officers of this Corporation or to actions duly taken by the Board of Directors or the shareholders. 3.9.3. The Assistant Secretaries, in the order of their seniority, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Chief Executive Officer or the Secretary shall prescribe. SECTION 3.10 TREASURER AND ASSISTANT TREASURERS. 3.10.1. The Treasurer shall deposit all moneys and other valuables in the name, and to the credit, of the Corporation, with such depositories as may be ordered by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer and directors, whenever they request it, an account of all his transactions as Treasurer, and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. 3.10.2. The Assistant Treasurers, in the order of their seniority, shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties as the Chief Executive Officer or the Treasurer shall prescribe. SECTION 3.11 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS. In addition to the foregoing powers and duties specifically prescribed for the respective officers, the Board of Directors may from time to time by resolution (i) impose or confer upon any of the officers such additional duties and powers as the Board of Directors may see fit, (ii) determine the order of seniority among the officers, and/or (iii) except as otherwise provided above, provide that in the absence of any officer or officers, any other officer or officers shall substitute for and assume the duties, powers and authority of the absent officer or officers. Any such resolution may be final, subject only to further action by the Board of Directors, or the resolution may grant such discretion, as the Board of Directors deems appropriate, to the Chairman, the Vice Chairman, the Chief Executive Officer, the President (or in his absence the Senior Executive Vice President or the Executive Vice President serving in his place) to impose or confer additional duties and powers, to determine the order of seniority among officers, and/or to provide for substitution of officers as above described. SECTION 3.12 COMPENSATION. The officers of the Corporation shall receive such compensation as shall be fixed from time to time by the Board of Directors. No officer shall be prohibited from receiving such salary by reason of the fact that he is also a director of the Corporation. - 11 - SECTION 3.13 TRANSACTION INVOLVING INTEREST OF OFFICER. In the absence of fraud, no contract or other transaction of the Corporation shall be affected or invalidated by the fact that any of the officers of the Corporation are in any way interested in, or connected with, any other party to such contract or transaction, or are themselves parties to such contract or transaction, provided that such transaction complies with Section 78.140 of the Nevada Revised Statutes; and each and every person who is or may become an officer of the Corporation is hereby relieved, to the extent permitted by law, when acting in good faith, from any liability that might otherwise exist from contracting with the Corporation for the benefit of himself or any person in which he may be in any way interested or with which he may be in any way connected. ARTICLE IV EXECUTIVE AND OTHER COMMITTEES SECTION 4.1 STANDING COMMITTEES. The Board of Directors shall appoint an Executive Committee, an Audit Committee and a Compensation and Stock Option Committee, consisting of such number of its members as it may designate, consistent with the Articles of Incorporation, the By-Laws and the laws of the State of Nevada. 4.1.1. The Executive Committee shall have and may exercise, when the Board is not in session, all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, but the Executive Committee shall not have the power to fill vacancies on the Board, or to change the membership of or to fill vacancies in the Executive Committee or any other Committee of the Board, or to adopt, amend or repeal the By-Laws, or to declare dividends. 4.1.2. The Audit Committee shall select and engage on behalf of the Corporation, subject to the consent of the shareholders, and fix the compensation of, a firm of certified public accountants whose duty it shall be to audit the books and accounts of the Corporation and its subsidiaries for the fiscal year in which they are appointed, and who shall report to such Committee. The Audit Committee shall confer with the auditors and shall determine, and from time to time shall report to the Board of Directors upon, the scope of the auditing of the books and accounts of the Corporation and its subsidiaries. The Audit Committee shall also be responsible for determining that the business practices and conduct of employees and other representatives of the Corporation and its subsidiaries comply with the policies and procedures of the Corporation. None of the members of the Audit Committee shall be officers or employees of the Corporation. 4.1.3. The Compensation and Stock Option Committee shall establish a general compensation policy for the Corporation and shall have responsibility for the approval of increases in directors' fees and in salaries - 12 - paid to officers and senior employees earning in excess of an annual salary to be determined by the Committee. The Compensation and Stock Option Committee shall have all of the powers of administration under all of the Corporation's employee benefit plans, including any stock option plans, long-term incentive plans, bonus plans, retirement plans, stock purchase plans and medical, dental and insurance plans. In connection therewith, the Compensation and Stock Option Committee shall determine, subject to the provisions of the Corporation's plans, the directors, officers and employees of the Corporation eligible to participate in any of the plans, the extent of such participation and the terms and conditions under which benefits may be vested, received or exercised. None of the members of the Compensation and Stock Option Committee shall be officers or employees of the Corporation. SECTION 4.2 OTHER COMMITTEES. Subject to the limitations of the Articles of Incorporation, the By-Laws and the laws of the State of Nevada as to action to be authorized or approved by the shareholders, or duties not delegable by the Board of Directors, any or all of the corporate powers may be exercised by or under authority of, and the business and affairs of this Corporation may be controlled by, such other committee or committees as may be appointed by the Board of Directors. The powers to be exercised by any such committee shall be designated by the Board of Directors. SECTION 4.3 PROCEDURES. Subject to the limitations of the Articles of Incorporation, the By-Laws and the laws of the State of Nevada regarding the conduct of business by the Board of Directors and its appointed committees, any committee created under this Article may use any procedures for conducting its business and exercising its powers, including but not limited to actions by the unanimous written consent of its members in the manner set forth in Section 2.15. A majority (but not less than two members) shall constitute a quorum. Notices of meetings may be in any reasonable manner and may be waived as for meetings of directors. ARTICLE V CORPORATE RECORDS AND REPORTS - INSPECTION SECTION 5.1 RECORDS. The Corporation shall maintain adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal place of business in the State of California, as fixed by the Board of Directors from time to time. SECTION 5.2 ARTICLES, BY-LAWS AND STOCK LEDGER. The Corporation shall maintain and keep the following documents at its principal place of business in the State of Nevada: (i) a certified copy of the - 13 - Articles of Incorporation and all amendments thereto; (ii) a certified copy of the By-Laws and all amendments thereto; and (iii) a statement setting forth the following: "The Secretary of the Corporation, whose address is 2700 Colorado Avenue, Santa Monica California 90404, is the custodian of the duplicate stock ledger of the Corporation." SECTION 5.3 INSPECTION. Any person who has been a shareholder of record for at least six months immediately preceding his demand, or any person holding, or thereunto authorized in writing by the holders of, at least five percent of all of the Corporation's outstanding shares, upon at least five days' written demand, or any judgment creditor without prior demand, shall have the right to inspect in person or by agent or attorney, during usual business hours, the duplicate stock ledger of the Corporation and to make extracts therefrom; provided, however, that such inspection may be denied to any shareholder or other person upon his refusal to furnish to the Corporation an affidavit that such inspection is not desired for a purpose which is in the interest of a business or object other than the business of the Corporation and that he has not at any time sold or offered for sale any list of shareholders of any corporation or aided or abetted any person in procuring any such record of shareholders for any such purpose. SECTION 5.4 CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of, or payable to, the Corporation, shall be signed or endorsed by such person or persons, and in such manner as shall be determined from time to time by resolution of the Board of Directors. ARTICLE VI OTHER AUTHORIZATIONS SECTION 6.1 EXECUTION OF CONTRACTS. The Board of Directors, except as the By-Laws otherwise provide, may authorize any officer or officers or agent or agents to enter into any contract or execute any instrument in the name of and on behalf of the Corporation. Such authority may be general, or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority, except in the ordinary course of business, to bind the Corporation by any contract or engagement or to pledge its credit, or to render it liable for any purpose or in any amount. SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS. All shares of any other corporation, standing in the name of the Corporation, shall be voted, represented, and all rights incidental thereto exercised as directed by written consent or resolution of the Board of Directors expressly referring thereto. In general, such rights shall be delegated by the - 14 - Board of Directors under express instructions from time to time as to each exercise thereof to the Chief Executive Officer, the President, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President, any Vice President, the Treasurer or the Secretary of this Corporation, or any other person expressly appointed by the Board of Directors. Such authority may be exercised by the designated officers in person, or by any other person authorized so to do by proxy, or power of attorney, duly executed by such officers. SECTION 6.3 DIVIDENDS. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and on the terms and conditions provided by the laws of the State of Nevada, and the Articles of Incorporation, subject to any contractual restrictions to which the Corporation is then subject. ARTICLE VII CERTIFICATES FOR AND TRANSFER OF SHARES SECTION 7.1 CERTIFICATES FOR SHARES. 7.1.1. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall be numbered and registered as they are issued. Each shall state the name of the record holder of the shares represented thereby; its number and date of issuance; the number of shares for which it is issued; the par value; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to rights of redemption or conversion, if any; and a statement of liens or restrictions upon transfer or voting, if any, or, alternatively, a statement that certificates specifying such matters may be obtained from the Secretary of the Corporation. 7.1.2. Every certificate for shares must be signed by the Chief Executive Officer or the President and the Secretary or an Assistant Secretary, or must be authenticated by facsimiles of the signatures of the Chief Executive Officer or the President and the Secretary or an Assistant Secretary. Before it becomes effective, every certificate for shares authenticated by a facsimile or a signature must be countersigned by a transfer agent or transfer clerk, and must be registered by an incorporated bank or trust company, either domestic or foreign, as registrar of transfers. 7.1.3. Even though an officer who signed, or whose facsimile signature has been written, printed, or stamped on a certificate for shares ceases, by death, resignation, or otherwise, to be an officer of the Corporation before the certificate is delivered by the Corporation, the certificate shall be as valid as though signed by a duly elected, qualified and authorized officer, if it is countersigned by the signature or facsimile signature of a transfer clerk or transfer agent and registered by an incorporated bank or trust company, as registrar of transfers. - 15 - 7.1.4. Even though a person whose facsimile signature as, or on behalf of, the transfer agent or transfer clerk has been written, printed or stamped on a certificate for shares ceases, by death, resignation, or otherwise, to be a person authorized to so sign such certificate before the certificate is delivered by the Corporation, the certificate shall be deemed countersigned by the facsimile signature of a transfer agent or transfer clerk for purposes of meeting the requirements of this section. SECTION 7.2 TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 7.3 LOST OR DESTROYED CERTIFICATES. The Board of Directors may direct, or may authorize the Secretary to direct, a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate for shares so lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors or Secretary may, in its or his discretion, and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 7.4 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, who may be the same person, and may be the Secretary of the Corporation, or an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the Corporation may necessitate and the Board of Directors may designate. SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC. The Board of Directors may fix a time, not exceeding 50 days preceding the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the shareholders entitled to receive any such dividend or distribution, or any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of shares, and, in such case, only shareholders of record on the date so fixed shall be entitled to receive such dividend, distribution, or allotment - 16 - of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. SECTION 7.6 RECORD OWNERSHIP. The Corporation shall be entitled to recognize the exclusive right of a person registered as such on the books of the Corporation as the owner of shares of the Corporation's stock to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII AMENDMENTS TO BY-LAWS SECTION 8.1 BY SHAREHOLDERS. New or restated by-laws may be adopted, or these By-Laws may be repealed or amended, at the annual shareholders' meeting or at any other meeting of the shareholders called for that purpose, by a vote of shareholders entitled to exercise a majority of the voting power of the Corporation. SECTION 8.2 BY DIRECTORS. Subject to the right of the shareholders to adopt, amend, or repeal by-laws, as provided in Section 8.1, the Board of Directors may adopt, amend, or repeal any of these By-Laws by the affirmative vote of two-thirds of the directors of each Class except as otherwise provided in Section 2.4. This power may not be delegated to any committee appointed in accordance with these By-Laws. SECTION 8.3 RECORD OF AMENDMENTS. Whenever an amendment or a new By-Law is adopted, it shall be copied in the book of minutes with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted, or written assent was filed, shall be stated in said book. ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 9.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 9.3 of this Article IX, each person who was or is a party or is threatened to be made a party to or is involved in any action, suit - 17 - or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding") (other than an action by or in the right of the Corporation), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee, fiduciary or agent shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Nevada, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, employee benefit plan exercise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with such proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 9.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 9.3 of this Article IX, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee, fiduciary or agent, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. - 18 - SECTION 9.3 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this Article IX (unless ordered by a court or advanced pursuant to Section 9.6 hereof) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 9.1 or Section 9.2 of this Article IX, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders, by independent legal counsel in a written opinion, or (iii) if such a quorum is not obtainable, by independent legal counsel in a written opinion, or (iv) by the shareholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. SECTION 9.4 GOOD FAITH DEFINED. For purposes of any determination under Section 9.3 of this Article IX, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 9.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 9.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 9.1 or 9.2 of this Article IX, as the case may be. SECTION 9.5 INDEMNIFICATION BY A COURT. If a claim under Sections 9.1 or 9.2 is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any - 19 - proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Nevada law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including the Board, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he has met such standard of conduct, nor an actual determination by the Corporation (including the Board, independent legal counsel, or its shareholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. SECTION 9.6 EXPENSES PAYABLE IN ADVANCE. The right to indemnification conferred in this Article IX shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Nevada General Corporation Law required, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to any employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director of officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 9.6 or otherwise. SECTION 9.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, By-Law, agreement, vote of shareholders or disinterested directors or otherwise. SECTION 9.8 INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, fiduciary or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Nevada law. SECTION 9.9 CERTAIN DEFINITIONS. For purposes of this Article IX, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or - 20 - merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article IX, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article IX. SECTION 9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by or granted pursuant to, this Article IX shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, fiduciary or agent and shall inure to the benefit of his heirs, executors and administrators. SECTION 9.11 LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained in this Article IX to the contrary, except as provided in Section 9.3, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized or consented to by the Board. SECTION 9.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, by action of the Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. SECTION 9.13 INDEMNIFICATION OF WITNESSES. To the extent that any director, officer, employee, fiduciary or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he shall be indemnified against all costs and expenses actually and reasonably incurred by him or on his behalf in connection therewith. - 21 - SECTION 9.14 INDEMNIFICATION AGREEMENTS. The Corporation may enter into agreements with any director, officer, employee, fiduciary or agent of the Corporation providing for indemnification to the full extent permitted by Nevada law. SECTION 9.15 DEFINITION OF BOARD. For purposes of this Article IX, the term "Board" shall mean the Board of Directors of the Corporation or, to the extent permitted by the laws of Nevada, as the same exist or may hereafter be amended, its Executive Committee. On vote of the Board, the Corporation may assent to the adoption of this Article IX by any subsidiary, whether or not wholly owned. SECTION 9.16 ACTIONS PRIOR TO ADOPTION OF ARTICLE IX. The rights provided by this Article IX shall be available whether or not the claim asserted against the director, officer, employee, fiduciary or agent is based on matters which antedate the adoption of this Article IX. SECTION 9.17 SEVERABILITY. If any provision of this Article IX shall for any reason be determined to be invalid, the remaining provisions hereof shall not be affected thereby but shall remain in full force and effect. SECTION 9.18 APPLICABILITY TO FEDERAL ELECTION CAMPAIGN ACT OF 1971, AS AMENDED. The rights provided by this Article IX shall be applicable to the officers (including without limitation the Chairman, Vice Chairman, treasurer and assistant treasurer) appointed from time to time by the Chief Executive Officer of the Corporation or his designee to serve in the administration and management of any separate, segregated fund established for purposes of collecting and distributing voluntary employee political contributions to federal election campaigns pursuant to the Federal Election Campaign Act of 1971, as amended. ARTICLE X CORPORATE SEAL The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation, and the date of its incorporation, and the word "Nevada". - 22 - ARTICLE XI INTERPRETATION Reference in these By-Laws to any provision of the Nevada Revised Statutes shall be deemed to include all amendments thereto and the effect of the construction and determination of validity thereof by the Nevada Supreme Court. EX-4.(A) 3 EXHIBIT 4(A) Exhibit 4(a) INDENTURE dated as of March 1, 1995 between National Medical Enterprises, Inc., a Nevada corporation (the "COMPANY"), and The Bank of New York, as trustee (the "TRUSTEE"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 9 5/8% Senior Notes due 2002 (the "SECURITIES"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "AGENT" means any Registrar, Paying Agent or co-registrar. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (PROVIDED that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Section 3.13 and/or Article 4 hereof and not by Section 3.10 hereof), and (ii) the issuance or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $25.0 million or (b) for net proceeds in excess of $25.0 million. Notwithstanding the foregoing: (a) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 3.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any authorized committee thereof. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL LEASE" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment would be capitalized on a balance sheet of the lessee in accordance with GAAP. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capital Lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than to a Person or group who, prior to such transaction, held a majority of the voting power of the voting stock of the Company, (ii) the acquisition by any Person or group, as defined above, of a direct or indirect interest in more than 50% of the voting power of the voting stock of the Company, by way of merger, consolidation or otherwise, or (iii) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change of Control and a Rating Decline. "COMMISSION" means the Securities and Exchange Commission. "COMPANY" means National Medical Enterprises, Inc., as obligor under the Securities, unless and until a successor replaces National Medical Enterprises, Inc., in accordance with Article 4 hereof and thereafter includes such successor. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period PLUS (i) an amount equal to any extraordinary loss of such Person PLUS any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), PLUS (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent such provision for taxes was included in computing such Consolidated Net 2 Income, PLUS (iii) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income, PLUS (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP but excluding any one-time charge or expense incurred in order to consummate the Refinancing; PROVIDED that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date PLUS (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock), LESS all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date hereof or (ii) was nominated for election or elected to such Board of Directors with the 3 approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 9.02 hereof or such other address as to which the Trustee may give notice to the Company. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to September 1, 2002. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date hereof, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of the date hereof (other than letters of credit issued pursuant to the New Credit Facility). "FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period; PROVIDED, HOWEVER, that in the event that the Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period; and PROVIDED FURTHER that for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded. 4 "FIXED CHARGES" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, TIMES (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as in effect from time to time. "GOVERNMENT SECURITIES" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) foreign exchange contracts or currency swap agreements and (iii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "HOLDER" means a Person in whose name a Security is registered. "HOSPITAL" means a hospital, outpatient clinic, long-term care facility or other facility that is used or useful in the provision of healthcare services. "HOSPITAL SWAP" means an exchange of assets by the Company or a Subsidiary of the Company for one or more Hospitals and/or one or more Related Businesses or for the 5 Capital Stock of any Person owning one or more Hospitals and/or one or more Related Businesses. "INDEBTEDNESS" means with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INTERNATIONAL SUBSIDIARIES" means International-NME, Inc., NME (Australia) Pty. Limited, and National Medical Enterprises Corp., and each of such Person's respective Subsidiaries. "INVESTMENT GRADE" means a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; PROVIDED that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company shall not be deemed to be an Investment. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). "METROCREST LETTER OF CREDIT FACILITY" means that certain letter of credit facility, dated as of February 28, 1995, by and among the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, in an aggregate principal amount of $91.35 million. 6 "MOODY'S" means Moody's Investors Services, Inc. and its successors. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "NET PROCEEDS" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any permitted Non-Cash Consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions) and any other expenses incurred or to be incurred by the Company or a Subsidiary as a direct result of the sale of such assets (including, without limitation, severance, relocation, lease termination and other similar expenses), taxes actually paid or payable as a result thereof, amounts required to be applied to the repayment of Indebtedness (other than Senior Term Debt or Senior Revolving Debt) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of February 28, 1995, by and among the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, providing for $1.8 billion in aggregate principal amount of Senior Term Debt and up to $500.0 million in aggregate principal amount of Senior Revolving Debt, including any related notes, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "NON-CASH CONSIDERATION" means any non-cash consideration received by the Company or a Subsidiary of the Company in connection with an Asset Sale and any non-cash consideration received by the Company or any of its Subsidiaries upon disposition thereof. "NON-RECOURSE DEBT" means Indebtedness of an International Subsidiary (i) as to which neither the Company nor any of its Subsidiaries (other than the International Subsidiaries) (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness of the Company or any of its Subsidiaries), or (b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an International Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Subsidiaries (other than the International Subsidiaries) to declare a default on such other Indebtedness or cause the payment thereof to be accelerated 7 or payable prior to its stated maturity (except any such provisions set forth in Existing Indebtedness until the same is repaid or refinanced). "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICERS" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary and any Vice President of the Company or any Subsidiary, as the case may be. "OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company, any Subsidiary or the Trustee. "PAYMENT DEFAULT" means any failure to pay any scheduled installment of interest or principal on any Indebtedness within the grace period provided for such payment in the documentation governing such Indebtedness. "PERFORMANCE INVESTMENT PLAN" means the 1989 Performance Investment Plan adopted by the Company's Board of Directors on March 10, 1989. "PERMITTED COLLATERAL" means, collectively, (i) all Capital Stock and other Equity Interests of the Company's present and future direct Subsidiaries, (ii) all intercompany Indebtedness owed to the Company and (iii) all Capital Stock and other Equity Interests in Westminster Health Care Holdings PLC owned by the Company or its Subsidiaries. "PERMITTED LIENS" means (i) Liens on Permitted Collateral securing Senior Term Debt of the Company under the New Credit Facility in an aggregate principal amount at any time outstanding not to exceed an amount equal to $1.8 billion less the aggregate amount of all repayments, optional or mandatory, of the principal of any Senior Term Debt (other than repayments that are immediately reborrowed) that have been made since the date hereof; (ii) Liens on Permitted Collateral securing Senior Revolving Debt and letters of credit of the Company incurred pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential reimbursement obligation of the Company with respect thereto) not to exceed an amount equal to $500.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce commitments with respect to such Indebtedness pursuant to Section 3.10 hereof since the date hereof; (iii) Liens in favor of the Company; (iv) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; PROVIDED 8 that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into or consolidated with the Company or that becomes a Subsidiary of the Company; (v) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, PROVIDED that such Liens were in existence prior to the contemplation of such acquisition; (vi) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vii) Liens existing on the date hereof, including, without limitation, Liens on Permitted Collateral securing reimbursement obligations under the Metrocrest Letter of Credit Facility; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) other Liens on assets of the Company or any Subsidiary of the Company securing Indebtedness that is permitted by the terms hereof to be outstanding having an aggregate principal amount at any one time outstanding not to exceed 10% of the Stockholders' Equity of the Company; and (x) Liens to secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted hereunder and that was incurred in accordance with the provisions hereof; PROVIDED that such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than assets or property securing the Indebtedness so refinanced. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED that, except in the case of Indebtedness of the Company issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any premiums paid and reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Securities on terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust or unincorporated organization (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). 9 "PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by the Company or any of its Subsidiaries to any physician, pharmacist or other allied healthcare professional in connection with the unwinding, liquidation or other termination of any joint venture or similar arrangement between any such Person and the Company or any of its Subsidiaries. "PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee incurred in the ordinary course of business by the Company or a Subsidiary of the Company in connection with any advance, loan or payment to, or on behalf of or for the benefit of any physician, pharmacist or other allied healthcare professional for the purpose of recruiting, redirecting or retaining the physician, pharmacist or other allied healthcare professional to provide service to patients in the service area of any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries; EXCLUDING, HOWEVER, compensation for services provided by physicians, pharmacists or other allied healthcare professionals to any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries. "QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the Company other than Disqualified Stock of the Company. "RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both shall not make a rating of the Securities publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, shall be substituted for S&P or Moody's or both, as the case may be. "RATING CATEGORY" means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (E.G., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, shall constitute a decrease of one gradation). "RATING DATE" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. "RATING DECLINE" means the occurrence on or within 90 days after the date of the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by any of the Rating Agencies) of: (a) in the event the Securities are rated by either Moody's or S&P on the Rating Date as Investment Grade, a decrease in the rating of the Securities by both Rating Agencies to a rating that is below Investment Grade, or (b) in the event the Securities are rated below Investment Grade by both Rating Agencies on the Rating Date, a decrease in the rating of the 10 Securities by either Rating Agency by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "REFINANCING" has the meaning ascribed to it in the prospectus dated February 21, 1995 relating to the Securities. "RELATED BUSINESS" means a healthcare business affiliated or associated with a Hospital or any business related or ancillary to the provision of healthcare services or the operation of a Hospital. "RESPONSIBLE OFFICER" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED INVESTMENT" means an Investment in any of the International Subsidiaries. "SECURITIES" means the securities described above, issued under this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR REVOLVING DEBT" means revolving credit loans outstanding from time to time under the New Credit Facility. "SENIOR SUBORDINATED ASSET SALE OFFER" means the offer to purchase Senior Subordinated Notes made by the Company to holders of Senior Subordinated Notes under Section 4.10 of the Senior Subordinated Note Indenture. "SENIOR SUBORDINATED NOTES" means the 10-1/8% Senior Subordinated Notes due 2005 of the Company in an aggregate principal amount of $900.0 million, issued pursuant to the Senior Subordinated Note Indenture. "SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of March 1, 1995 between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time, under which the Senior Subordinated Notes were issued. "SENIOR TERM DEBT" means term loans outstanding from time to time under the New Credit Facility. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. 11 "S&P" means Standard & Poor's Corporation and its successors. "SPECIFIED ASSETS" means the Company's and its Subsidiaries' interest in The Hillhaven Corporation and Westminster Healthcare Holdings PLC owned as of the date hereof and the Capital Stock and assets of the International Subsidiaries. "STOCKHOLDERS' EQUITY" means, with respect to any Person as of any date, the stockholders' equity of such Person determined in accordance with GAAP as of the date of the most recent available internal financial statements of such Person, and calculated on a pro forma basis to give effect to any acquisition or disposition by such Person consummated or to be consummated since the date of such financial statements and on or prior to the date of such calculation. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof); PROVIDED that no International Subsidiary shall be deemed to be a "Subsidiary" for any purpose hereunder for so long as such International Subsidiary: (a) has no Indebtedness other than Existing Indebtedness and Non-Recourse Debt; (b) is not a party to any agreement, contract, arrangement or understanding with the Company or any of its other Subsidiaries (other than International Subsidiaries) except any such agreement, contract, arrangement or understanding that (i) was in effect on the date hereof, or (ii) meets the requirements of Section 3.11 hereof; (c) is a Person with respect to which neither the Company nor any of its Subsidiaries (other than International Subsidiaries) has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified level of operating results except, in each case, any such obligation in existence on the date hereof or created pursuant to the terms of any Investment permitted by Section 3.07 hereof; and (d) has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Subsidiaries (other than International Subsidiaries). If, at any time, any International Subsidiary would fail to meet the foregoing requirements, it shall thereafter be deemed to be a Subsidiary for all purposes of this Indenture and any Indebtedness of such International Subsidiary shall be deemed to be incurred by a Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 3.09 hereof, the Company shall be in default of such covenant). "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 8.03 hereof. "TRANSFER RESTRICTION" means, with respect to the Company's Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any 12 other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries. "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS. DEFINED IN TERM SECTION ---- ------- "Affiliate Transaction"..................... 3.11 "Bankruptcy Law"............................ 5.01 "Change of Control Offer"................... 3.13 "Change of Control Payment"................. 3.13 "Change of Control Payment Date"............ 3.13 "Commencement Date"......................... 2.15 "Covenant Defeasance"....................... 7.03 "Custodian"................................. 5.01 "Event of Default".......................... 5.01 "Excess Proceeds"........................... 3.10 "incur"..................................... 3.09 "Legal Defeasance".......................... 7.02 "Legal Holiday"............................. 9.07 "Notice of Default"......................... 5.01 "Offer Amount".............................. 2.15 "Offer Period".............................. 2.15 "Paying Agent".............................. 2.03 "Purchase Date"............................. 2.15 13 "Purchase Price"............................ 3.10 "Registrar"................................. 2.03 "Restricted Payments"....................... 3.07 "Senior Asset Sale Offer"................... 3.10 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Securities; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Commission rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. 14 ARTICLE 2 THE SECURITIES; OFFER TO PURCHASE PROCEDURES SECTION 2.01. FORM AND DATING. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. SECTION 2.02. EXECUTION AND AUTHENTICATION. An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Securities for original issue up to the aggregate principal amount stated in paragraph 4 of the Securities. The aggregate principal amount of Securities outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain (i) an office or agency where Securities may be presented for registration of transfer or for exchange (including any co-registrar, the "REGISTRAR") and (ii) an office or agency where Securities may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any 15 Paying Agent, Registrar or co-registrar without prior notice to any Holder. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 6.07 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Securities. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior to the due date of principal of, premium, if any, and interest on any Securities, the Company shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and interest becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Securities, and shall notify the Trustee of any Default by the Company in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Section Holders and shall otherwise comply with TIA Section 312(a). If the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount of the Securities held by each thereof, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such trans- 16 actions are met; PROVIDED, HOWEVER, that any Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Securities at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required to register the transfer or exchange of a Security between the record date and the next succeeding interest payment date. No service charge shall be made to any Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10 or 8.05 hereof, which shall be paid by the Company). Prior to due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of, premium, if any, and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. SECTION 2.07. REPLACEMENT SECURITIES. If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss which any of them may suffer if a Security is replaced. Each of the Company and the Trustee may charge for its expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. 17 If the principal amount of any Security is considered paid under Section 3.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.09 hereof, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. SECTION 2.09. TREASURY SECURITIES. In determining whether the Holders of the required principal amount of Securities then outstanding have concurred in any demand, direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, waiver or consent, only Securities that a Responsible Officer actually knows to be so owned shall be so considered. Notwithstanding the foregoing, Securities that are to be acquired by the Company or an Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company or an Affiliate of the Company until legal title to such Securities passes to the Company or such Affiliate, as the case may be. SECTION 2.10. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company and the Trustee consider appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.11. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such cancelled Securities to the Company. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to 18 the related payment date, in each case at the rate provided in the Securities and in Section 3.01 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.13. RECORD DATE. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or Trustee is not the permitted under this Indenture shall be determined as 316(c). SECTION 2.14. CUSIP NUMBER. The Company in issuing the Securities may use a "CUSIP" number, and if it does so, the Trustee shall use the CUSIP number in notices to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. SECTION 2.15. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that the Company shall commence a Senior Asset Sale Offer pursuant to Section 3.10 hereof, it shall follow the procedures specified below. No later than the date on which the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall notify the Trustee of such Senior Asset Sale Offer and provide the Trustee with an Officers' Certificate setting forth, in addition to the information to be included therein pursuant to Section 3.10 hereof, the calculations used in determining the amount of Net Proceeds to be applied to the purchase of Securities. The Company shall commence or cause to be commenced the Senior Asset Sale Offer on a date no later than 10 Business Days after such notice (the "COMMENCEMENT DATE"). The Senior Asset Sale Offer shall remain open for at least 20 Business Days after the Commencement Date relating to such Senior Asset Sale Offer and shall remain open for no more than such 20 Business Days, except to the extent required by applicable law (as so extended, the "OFFER PERIOD"). No later than one Business Day after the termination of the Offer Period (the "PURCHASE DATE"), the Company shall purchase the principal amount (the "OFFER Amount") of Securities required to be purchased in such Senior Asset Sale Offer pursuant to Section 3.10 hereof or, if less than the Offer Amount has been tendered, all Securities tendered in response to the Senior Asset Sale Offer, in each case for an amount in cash equal to the Purchase Price. If the Purchase Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest shall be paid to the Person in 19 whose name a Security is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Securities pursuant to the Senior Asset Sale Offer. On the Commencement Date of any Senior Asset Sale Offer, the Company shall send, or at the Company's request the Trustee shall send, by first class mail, a notice to each of the Holders at their last registered address, with a copy to the Trustee and the Paying Agent, offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. Such notice, which shall govern the terms of the Senior Asset Sale Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Senior Asset Sale Offer and shall state: (1) that the Senior Asset Sale Offer is being made pursuant to this Section 2.15 and Section 3.10 hereof and the length of time the Senior Asset Sale Offer shall remain open; (2) the Offer Amount, the Purchase Price and the Purchase Date; (3) that any Security not tendered or accepted for payment shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the Purchase Price, any Security accepted for payment pursuant to the Senior Asset Sale Offer shall cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Security purchased pursuant to any Senior Asset Sale Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Purchase Date; (6) that Holders shall be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the termination of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that, if the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Trustee shall select the Securities to be purchased on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Trustee so that 20 only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased); (8) that Holders whose Securities were purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; and (9) the circumstances and relevant facts regarding such Asset Sale and any other information that would be material to a decision as to whether to tender a Security pursuant to the Senior Asset Sale Offer. On the Purchase Date, the Company shall, to the extent lawful, (i) accept for payment, on a PRO RATA basis to the extent necessary, an aggregate principal amount equal to the Offer Amount of Securities tendered pursuant to the Senior Asset Sale Offer, or if less than the Offer Amount has been tendered, all Securities or portion thereof so tendered, (ii) deposit with the Paying Agent an amount equal to the Purchase Price in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered payment in an amount equal to the Purchase Price for such Securities and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) a new Security to such Holder equal in principal amount to any unpurchased portion of the Securities surrendered, if any; PROVIDED that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Senior Asset Sale Offer on or as soon as practicable after the Purchase Date. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of Securities as a result of the Senior Asset Sale Offer. ARTICLE 3 COVENANTS SECTION 3.01. PAYMENT OF SECURITIES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Securities on the dates and in the manner provided in this Indenture and the Securities. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than five days following the date 21 of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest to be paid on the Securities. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the interest rate then applicable to the Securities to the extent lawful. In addition, it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates The Bank of New York, 101 Barclay Street, 21 West, New York, New York 10286 as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 3.03. COMMISSION REPORTS. (i) So long as any of the Securities remain outstanding, the Company shall provide to the Trustee within 15 days after the filing thereof with the Commission copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. All obligors on the Securities shall comply with the provisions provided for in TIA Section of TIA Section 314(a). Notwithstanding that the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the Company shall file with the Commission and provide to the Trustee (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any 22 successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF Operations" and a report thereon by the Company's certified public accountants; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND Analysis of Financial Condition and Results of Operations"; and (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form); PROVIDED, HOWEVER, that the Company shall not be in default of the provisions of this Section 3.03(i) for any failure to file reports with the Commission solely by the refusal of the Commission to accept the same for filing. Each of the financial statements contained in such reports shall be prepared in accordance with GAAP. (ii) The Trustee, at the Company's expense, shall promptly mail copies of all such annual reports, information, documents and other reports provided to the Trustee pursuant to Section 3.03(i) hereof to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. (iii) Whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability and make such information available to securities analysts and prospective investors upon request. (iv) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders under this Section 3.03. (v) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 3.04. COMPLIANCE CERTIFICATE. (i) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each entity has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes 23 to take with respect thereto), all without regard to periods of grace or notice requirements, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. (ii) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 3.03 above shall be accompanied by a written statement of the Company's certified independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any Subsidiary of the Company has violated any provisions of Article 3 or of Article 4 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (iii) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of (a) any Default or Event of Default or (b) any event of default under any other mortgage, indenture or instrument referred to in Section 5.01(v) hereof, an Officers' Certificate specifying such Default, Event of Default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 3.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except (i) as contested in good faith by appropriate proceedings and with respect to which appropriate reserves have been taken in accordance with GAAP or (ii) where the failure to effect such payment is not adverse in any material respect to the Holders. SECTION 3.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 3.07. LIMITATIONS ON RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the 24 Company's or any of its Subsidiaries' Equity Interests (other than (w) Physician Joint Venture Distributions, (x) dividends or distributions payable in Qualified Equity Interests of the Company, (y) dividends or distributions payable to the Company or any Subsidiary of the Company and (z) dividends or distributions by any Subsidiary of the Company payable to all holders of a class of Equity Interests of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Securities, except at the original final maturity date thereof or pursuant to the Refinancing; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the fair market value (as conclusively evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee within 60 days prior to the date of such Restricted Payment) of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to such Restricted Payment): (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Restricted Payment, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 3.09 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (v) of the next succeeding paragraph) made by the Company and its Subsidiaries after the date hereof, is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), PLUS (2) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary of the Company) since the date hereof of Qualified Equity Interests of the Company or of debt securities of the Company or any of its Subsidiaries that have been converted into or exchanged for such Qualified Equity Interests of the Company, PLUS (3) $20.0 million. 25 If no Default or Event of Default has occurred and is continuing or would occur as a consequence thereof, the foregoing provisions shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions hereof; (ii) the payment of cash dividends on any series of Disqualified Stock issued after the date hereof in an aggregate amount not to exceed the cash received by the Company since the date hereof upon issuance of such Disqualified Stock; (iii) the repurchase of the Performance Investment Plan investment options from the holders thereof; (iv) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Subsidiary in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (v) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange for or out of the net cash proceeds from the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (vi) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $5.0 million in any twelve-month period; and (vii) the making and consummation of (A) a Senior Subordinated Asset Sale Offer in accordance with the provisions of the Senior Subordinated Note Indenture with any Excess Proceeds that remain after consummation of a Senior Asset Sale Offer, within 120 days of the consummation of such Senior Asset Sale Offer, or (B) a Change of Control Offer with respect to the Senior Subordinated Notes in accordance with the provisions of the Senior Subordinated Note Indenture. 26 Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed. SECTION 3.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual Transfer Restriction, except for such Transfer Restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the date hereof, (b) this Indenture, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition or in violation of Section 3.09 hereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that the Consolidated Cash Flow of such Person shall not be taken into account in determining whether such acquisition was permitted by the terms hereof except to the extent that such Consolidated Cash Flow would be permitted to be dividends to the Company without the prior consent or approval of any third party, (e) customary non-assignment provisions in leases entered into in the ordinary course of business, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the ability of any of the Company's Subsidiaries to transfer the property so acquired to the Company or any of its Subsidiaries, (g) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (h) the New Credit Facility and related documentation as the same is in effect on the date hereof and as amended or replaced from time to time, PROVIDED that no such amendment or replacement is more restrictive as to 27 Transfer Restrictions than the New Credit Facility and related documentation as in effect on the date hereof. SECTION 3.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR") after the date hereof any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) and the Company may issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least (x) 2.25 to 1 if such incurrence or issuance occurs on or before March 31, 1996, or (y) 2.5 to 1 if such incurrence or issuance occurs at any time thereafter, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. Indebtedness consisting of reimbursement obligations in respect of a letter of credit shall be deemed to be incurred when the letter of credit is first issued. The Company shall not permit any of the International Subsidiaries to incur any Indebtedness other than Non-Recourse Debt. The foregoing provisions shall not apply to: (a) the incurrence by the Company of Senior Term Debt pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding not to exceed an amount equal to $1.8 billion less the aggregate amount of all repayments, optional or mandatory, of the principal of any Senior Term Debt (other than repayments that are immediately reborrowed) that have been made since the date hereof; (b) the incurrence by the Company of Senior Revolving Debt and letters of credit pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential reimbursement obligation of the Company with respect thereto) not to exceed an amount equal to $500.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce the commitments with respect to such Indebtedness pursuant to Section 3.10 hereof; (c) the incurrence by the Company of Indebtedness represented by the Securities; (d) the incurrence by the Company and its Subsidiaries of the Existing Indebtedness; 28 (e) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease, or refund, Indebtedness that was permitted by this Indenture to be incurred (including, without limitation, Existing Indebtedness); (f) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms hereof to be outstanding or any receivable or liability the payment of which is determined by reference to a foreign currency; PROVIDED that the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates; (g) the incurrence by the Company or any of its Subsidiaries of Physician Support Obligations; (h) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; (i) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by performance bonds, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of the Company or such Subsidiary; (j) the incurrence by any Subsidiary of the Company of Indebtedness, the aggregate principal amount of which, together with all other Indebtedness of the Company's Subsidiaries at the time outstanding (excluding the Existing Indebtedness until repaid or refinanced and excluding Physician Support Obligations), does not exceed the greater of (1) 10% of the Company's Stockholders' Equity as of the date of incurrence or (2) $10.0 million; PROVIDED that, in the case of clause (1) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred would have been at least (x) 2.25 to 1 if such incurrence occurs on or before March 31, 1996, or (y) 2.5 to 1 if such incurrence occurs at any time thereafter, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if such Indebtedness had been incurred at the beginning of such four-quarter period; and (k) the incurrence by the Company of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed $250.0 million. 29 SECTION 3.10. ASSET SALES. The Company shall not, and shall not permit any of its Subsidiaries to consummate an Asset Sale, unless (i) the Company (or the Subsidiary as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as conclusively determined by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) except in the case of a sale of Specified Assets, at least 80% of the consideration therefor received by the Company or such Subsidiary is in the form of cash; PROVIDED, HOWEVER, that for purposes of this provision, (x) the amount of (A) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet or in the notes thereto), of the Company or any Subsidiary (other than, in the case of an Asset Sale by the Company, liabilities that are by their terms subordinated to the Securities) that are assumed by the transferee of any such assets and (B) any securities or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (or as to which the Company or such Subsidiary has received at or prior to the consummation of the Asset Sale a commitment (which may be subject to customary conditions) from a nationally recognized investment, merchant or commercial bank to convert into cash within 90 days of the consummation of such Asset Sale and which are thereafter actually converted into cash within such 90-day period) shall be deemed to be cash (but shall not be deemed to be Net Proceeds for purposes of the following provisions until reduced to cash); and (y) the fair market value of any Non-Cash Consideration received by the Company or a Subsidiary in any Asset Sale shall be deemed to be cash (but shall not be deemed to be Net Proceeds for purposes of the following provisions until reduced to cash) to the extent that the aggregate fair market value (as conclusively determined by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of all Non-Cash Consideration (measured at the time received and without giving effect to any subsequent changes in value) held by the Company immediately after consummation of such Asset Sale does not exceed 10% of the Company's Stockholders' Equity as of the date of such consummation. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds (i) to purchase one or more Hospitals or Related Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Hospitals and/or one or more Related Businesses, (ii) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which the Company is permitted to be engaged pursuant to Section 3.15 hereof, (iii) to permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary or (iv) to permanently reduce Senior Revolving Debt (and to correspondingly reduce commitments with respect thereto), except that up to an aggregate of $200.0 million of Net Proceeds from Asset Sales may be applied after the date hereof to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the terms hereof. Any Net Proceeds from Asset Sales that are not so invested or applied shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders of Securities and holders of any other Indebtedness of the Company ranking on a parity with the Securities from time to time outstanding with similar provisions requiring the Company 30 to make an offer to purchase or to redeem such Indebtedness with the proceeds from any asset sales, PRO RATA in proportion to the respective principal amounts of the Securities and such other Indebtedness then outstanding (a "SENIOR ASSET SALE OFFER") to purchase the maximum principal amount of Securities and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "PURCHASE PRICE"), in accordance with the procedures set forth in Section 2.15 hereof. To the extent that the aggregate amount of Securities and such other Indebtedness tendered pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes, including an offer to purchase Senior Subordinated Notes pursuant to Section 4.10 of the Senior Subordinated Note Indenture. If the aggregate principal amount of Securities and such other Indebtedness surrendered by holders pursuant to a Senior Asset Sale Offer exceeds the amount of Excess Proceeds, the Securities and such other Indebtedness shall be purchased on a PRO RATA basis. Upon completion of a Senior Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. SECTION 3.11. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION") unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that could have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction was approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness of such Affiliate Transaction to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing; PROVIDED that (x) transactions or payments pursuant to any employment arrangements or employee or director benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (y) transactions between or among the Company and/or its Subsidiaries and (z) transactions permitted under Section 3.07 hereof, in each case, shall not be deemed to be Affiliate Transactions. 31 SECTION 3.12. LIMITATIONS ON LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien (except Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom unless all payments due hereunder and under the Securities are secured on an equal and ratable basis with the Obligations so secured until such time as such Obligations are no longer secured by a Lien. SECTION 3.13. CHANGE OF CONTROL. Upon the occurrence of a Change of Control Triggering Event, each Holder of Securities shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "CHANGE OF CONTROL PAYMENT") on a date that is not more than 90 days after the occurrence of such Change of Control Triggering Event (the "CHANGE OF CONTROL PAYMENT DATE"). Within 30 days following any Change of Control Triggering Event, the Company shall mail, or at the Company's request the Trustee shall mail, a notice of a Change of Control to each Holder (at its last registered address with a copy to the Trustee and the Paying Agent) offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. The Change of Control Offer shall remain open from the time of mailing until the close of business on the Business Day next preceding the Change of Control Payment Date. The notice, which shall govern the terms of the Change of Control Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer and shall state: (1) that the Change of Control Offer is being made pursuant to this Section 3.13 and that all Securities tendered will be accepted for payment; (2) the Change of Control Payment and the Change of Control Payment Date, which date shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; (3) that any Security not tendered will continue to accrue interest in accordance with the terms of this Indenture; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to any Change of Control Offer will be required to surrender the Security, with the form 32 entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; and (8) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information with respect to PRO FORMA historical financial information after giving effect to such Change of Control, information regarding the Person or Persons acquiring control and such Person's or Persons' business plans going forward) and any other information that would be material to a decision as to whether to tender a Security pursuant to the Change of Control Offer. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Securities or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered the Change of Control Payment for such Securities, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; PROVIDED that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities as a result of a Change of Control. 33 SECTION 3.14. CORPORATE EXISTENCE. Subject to Section 3.13 and Article 4 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 3.15. LINE OF BUSINESS The Company shall not, and shall not permit any of its Subsidiaries to, engage to any material extent in any business other than the ownership, operation and management of Hospitals and Related Businesses. SECTION 3.16. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY Subsidiaries The Company shall not permit any Subsidiary, directly or indirectly, to Guarantee or secure the payment of any other Indebtedness of the Company or any of its Subsidiaries (except Indebtedness of a Subsidiary of such Subsidiary or Physician Support Obligations) unless such Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture, in substantially the form attached hereto as Exhibit B, providing for the Guarantee of the payment of the Securities by such Subsidiary, which Guarantee shall be senior to or PARI PASSU with such Subsidiary's Guarantee of or pledge to secure such other Indebtedness. Any such Guarantee by a Subsidiary of the Securities shall provide by its terms that it shall be automatically and unconditionally released and discharged upon the sale or other disposition, by way of merger or otherwise, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Subsidiary, which sale or other disposition is made in compliance with, and the Net Proceeds therefrom are applied in accordance with, the applicable provisions hereof. The foregoing provisions shall not be applicable to any one or more Guarantees of up to $10.0 million in aggregate principal amount of Indebtedness of the Company at any time outstanding. SECTION 3.17. NO AMENDMENT TO SUBORDINATION PROVISIONS OF SENIOR Subordinated Note Indenture The Company shall not amend, modify or alter the Senior Subordinated Note Indenture in any way that would (i) increase the principal of, advance the final maturity date of or shorten the Weighted Average Life to Maturity of any Senior Subordinated Notes such that the final maturity date of the Senior Subordinated Notes is earlier than the 91st day following the final maturity date of the Securities or (ii) amend the provisions of Article 10 of the Senior 33 Subordinated Indenture (which relates to subordination) or any of the defined terms used therein in a manner that would be adverse to the Holders of the Securities. ARTICLE 4 SUCCESSORS SECTION 4.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the Obligations of the Company under this Indenture and the Securities pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 3.09 hereof. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i) through (iv) above, stating that the proposed transaction and such 35 supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. SECTION 4.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 4.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation), and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person has been named as the Company, herein. ARTICLE 5 DEFAULTS AND REMEDIES SECTION 5.01. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF DEFAULT": (i) default for 30 days in the payment when due of interest on the Securities; (ii) default in payment when due of the principal of or premium, if any, on the Securities at maturity or otherwise; (iii) failure by the Company to comply with the provisions of Sections 3.07, 3.09, 3.10, or 3.13 hereof; (iv) failure by the Company to comply with any other covenant or agreement in the Indenture or the Securities for the period and after the notice specified below; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee exists on the date hereof or is created after the date hereof, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, 36 together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; (vii) the Company or any Significant Subsidiary thereof pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability generally to pay its debts as the same become due; and (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary thereof in an involuntary case in which it is the debtor, (b) appoints a Custodian of the Company or any Significant Subsidiary thereof or for all or substantially all of the property of the Company or any Significant Subsidiary thereof, or (c) orders the liquidation of the Company or any Significant Subsidiary thereof, and the order or decree remains unstayed and in effect for 60 days. 37 The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (iv) is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in principal amount of the then outstanding Securities notify the Company and the Trustee in writing, of the Default and the Company does not cure the Default within 60 days after receipt of such notice. The written notice must specify the Default, demand that it be remedied and state that the notice is a "NOTICE OF DEFAULT." SECTION 5.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 5.01 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and any accrued and unpaid interest on all the Securities to be due and payable immediately. Upon such declaration the principal, premium, if any, and interest shall be due and payable immediately. If an Event of Default specified in clause (vii) or (viii) of Section 5.01 hereof occurs with respect to the Company or any Significant Subsidiary thereof such an amount shall IPSO FACTO become and be immediately due and payable without further action or notice on the part of the Trustee or any Holder. If an Event of Default occurs under this Indenture prior to the maturity of the Securities by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of such Securities prior to the date of maturity, then a premium with respect thereto (expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence) shall become and be immediately due and payable to the extent permitted by law upon the acceleration of such Securities if such Event of Default occurs during the twelve-month period beginning on March 1 of the years set forth below: YEAR PERCENTAGE ---- ---------- 1995.............................. 109.625% 1996.............................. 108.342% 1997.............................. 107.058% 1998.............................. 105.775% 1999.............................. 104.492% 2000.............................. 103.208% 2001.............................. 101.925% 2002.............................. 100.642% Any determination regarding the primary purpose of any such action or inaction, as the case may be, shall be made by and set forth in a resolution of the Board of Directors (including the concurrence of a majority of the independent directors of the Company then 38 serving) delivered to the Trustee after consideration of the business reasons for such action or inaction, other than the avoidance of payment of such premium or prohibition on redemption. In the absence of fraud, each such determination shall be final and binding upon the Holders of Securities. Subject to Section 6.01 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. SECTION 5.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 5.04. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on any Security. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 5.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability. The Trustee may take any other action which it deems proper which is not inconsistent with any such direction. SECTION 5.06. LIMITATION ON SUITS. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; 39 (ii) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the then outstanding Securities do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 5.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 5.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 5.01(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any other obligor for the whole amount of principal, premium, if any, and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover amounts due the Trustee under Section 6.07 hereof, including the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 5.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the 40 Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 6.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 5.10 upon five Business Days prior notice to the Company. SECTION 5.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 5.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. 41 ARTICLE 6 TRUSTEE SECTION 6.01. DUTIES OF TRUSTEE. (i) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (ii) Except during the continuance of an Event of Default known to the Trustee: (a) the duties of the Trustee shall be determined solely by the express provisions of this Indenture or the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provisions hereof are required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (iii) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) this paragraph does not limit the effect of paragraph (ii) of this Section; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.05 hereof. (iv) Whether or not therein expressly so provided every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (i), (ii), and (iii) of this Section. 42 (v) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity satisfactory to it against any loss, liability or expense. (vi) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Absent written instruction from the Company, the Trustee shall not be required to invest any such money. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (vii) The Trustee shall not be deemed to have knowledge of any matter unless such matter is actually known to a Responsible Officer. SECTION 6.02. RIGHTS OF TRUSTEE. (i) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (ii) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (iii) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (iv) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. A permissive right granted to the Trustee hereunder shall not be deemed an obligation to act. (v) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. SECTION 6.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 6.10 and 6.11 hereof. 43 SECTION 6.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, nor shall it be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision of this Indenture, nor shall it be responsible for the use or application of any money received by any Paying Agent other than the Trustee, nor shall it be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture other than its certificate of authentication. SECTION 6.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. SECTION 6.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each December 31 beginning with the December 31 following the date hereof, the Trustee shall mail to the Holders a brief report Company may not be subject to the dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange. SECTION 6.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the Company and Trustee shall agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities, damages, claims or expenses incurred by it arising out of or in connection with the acceptance of its duties and the administration of the trusts under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. 44 Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 6.07 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(vii) or (viii) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 6.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 6.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then 45 outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 6.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 6.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 6.08, the Company's obligations under Section 6.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 6.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC. If the Trustee or any Agent consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee or Agent. SECTION 6.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the occurred within the twelve months preceding the requirements of TIA Section 310(b). SECTION 6.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor 310(a)(1), (2) and (5). The Trustee is subject to TIA Section relationship shall be subject to TIA Section 311(a) to the extent indicated therein. 46 ARTICLE 7 DISCHARGE OF INDENTURE SECTION 7.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE Securities. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, with respect to the Securities, elect to have either Section 7.02 or 7.03 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article 7. SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.02, the Company shall be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 7.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 7.02, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 7.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.04, 2.06, 2.07, 2.10 and 3.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 6.07 hereof, and the Company's obligations in connection therewith and (iv) this Article 7. Subject to compliance with this Article 7, the Company may exercise its option under this Section 7.02 notwithstanding the prior exercise of its option under Section 7.03 hereof with respect to the Securities. SECTION 7.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.03, the Company shall be released from its obligations under the covenants contained in Sections 2.15, 3.07, 3.08, 3.09, 3.10, 3.11, 3.12, 3.13, 3.15, 3.16 and 3.17 and Article 4 hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by 47 reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 5.01(iii) hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under Section 7.01 hereof of the option applicable to this Section 7.03, Sections 5.01(iv) through 5.01(vi) hereof shall not constitute Events of Default. SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 7.02 or Section 7.03 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.10 who shall agree to comply with the provisions of this Article 7 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) cash in U.S. Dollars in an amount, or (b) non-callable Government Securities that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in U.S. Dollars in an amount, or (c) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest on such outstanding Securities on the stated maturity date of such principal or installment of principal, premium, if any, or interest. (ii) In the case of an election under Section 7.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred. (iii) In the case of an election under Section 7.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. 48 (iv) No Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or, insofar as Section 5.01(vii) or 5.01(viii) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (v) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound (other than a breach, violation or default resulting from the borrowing of funds to be applied to such deposit). (vi) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (vii) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 7.02 or 7.03 hereof was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. (viii) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel in the United States, each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 7.02 hereof or the Covenant Defeasance under Section 7.03 hereof (as the case may be) have been complied with as contemplated by this Section 7.04. SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 7.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 7.05, the "Trustee") pursuant to Section 7.04 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 7.04 hereof or the principal and interest received in respect thereof other 49 than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article 7 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any money or non-callable Government Securities held by it as provided in Section 7.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 7.04(i) hereof), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 7.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the NEW YORK TIMES and THE WALL STREET JOURNAL (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 7.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-callable Government Securities in accordance with Section 7.02 or 7.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 7.02 or 7.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 7.02 or 7.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the money held by the Trustee or Paying Agent. 50 ARTICLE 8 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 8.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iii) to provide for any supplemental indenture required pursuant to Section 3.16 hereof; (iv) to provide for the assumption of the Company's obligations to the Holders of the Securities in the case of a merger, consolidation or sale of assets pursuant to Article 4 hereof; (v) to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights hereunder of any such Holder; or (vi) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such supplemental indenture which affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 8.02. WITH CONSENT OF HOLDERS. Except as provided in the next succeeding paragraphs, this Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default or compliance with any provision of this Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). 51 Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 8.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. Subject to Sections 5.04 and 5.07 hereof, the Holders of a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. Without the consent of each Holder affected, however, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security; (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; (vi) make any change in Section 5.04 or 5.07 hereof; or (vii) make any change in this sentence of this Section 8.02. 52 SECTION 8.03. COMPLIANCE WITH TIA. Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 8.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.05 hereof or (ii) such other date as the Company shall designate. SECTION 8.05. NOTATION ON OR EXCHANGE OF SECURITIES. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment or waiver. SECTION 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 8 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 6.01, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it shall be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. 53 ARTICLE 9 MISCELLANEOUS SECTION 9.01. TIA CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 9.02. NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other's address: If to the Company: National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Telecopier No.: (310) 998-6700 Attention: Treasurer With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopier No.: (213) 687-5600 Attention: Thomas C. Janson, Jr. If to the Trustee: The Bank of New York 101 Barclay Street, 21 West New York, New York 10286 Telecopier No.: (212) 815-5915 Attention: Corporate Trust Trustee Administration The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if 54 telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Unless otherwise set forth above, any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or listed in TIA Section 311(b). A Trustee who has resigned or been removed to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 9.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. communication shall also be so mailed to any Person described in TIA Section with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 9.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 9.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 9.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 9.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; 55 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been satisfied; PROVIDED, HOWEVER, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 9.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 9.07. LEGAL HOLIDAYS. A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 9.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND Shareholders No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. SECTION 9.09. DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. 56 SECTION 9.10. GOVERNING LAW. The internal law of the State of New York, shall govern and be used to construe this Indenture and the Securities, without regard to the conflict of laws provisions thereof. SECTION 9.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 9.12. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 9.13. SEVERABILITY. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 9.14. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 9.15. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. 57 SIGNATURES Dated as of _______________ NATIONAL MEDICAL ENTERPRISES, INC. By: ------------------------------------- Name: Terence P. McMullen Title: Senior Vice President Attest: - ---------------------------- (SEAL) Richard B. Silver Dated as of _______________ THE BANK OF NEW YORK, as Trustee By: ------------------------------------- Name: Title: Attest: - --------------------------- (SEAL) 58 EXHIBIT A (Face of Security) 9-5/8% Senior Note due September 1, 2002 CUSIP: No. $____________ NATIONAL MEDICAL ENTERPRISES, INC. promises to pay to _________________________________________________________________________ or its registered assigns, the principal sum of ________________________________ Dollars on September 1, 2002. Interest Payment Dates: March 1 and September 1, commencing September 1, 1995. Record Dates: February 15 and August 15 (whether or not a Business Day). NATIONAL MEDICAL ENTERPRISES, INC. By: _________________________ A-1 Dated: __________, ____ (SEAL) Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: The Bank of New York, as Trustee By: ___________________________ Authorized Signatory A-2 (Back of Security) 9 5/8% SENIOR NOTE due September 1, 2002 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. INTEREST. National Medical Enterprises, Inc., a Nevada corporation (the "COMPANY"), promises to pay interest on the principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of 9/ /%. The Company shall pay interest semiannually in arrears on March 1 and September 1 of each year, commencing September 1, 1995 to Holders of record on the immediately preceding February 15 and August 15, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are cancelled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities the Holders of which have given wire transfer instructions, on or before the relevant record date, to the Paying Agent shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. A-3 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of March 1, 1995 (the "INDENTURE"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Securities. The Securities are unsecured general obligations of the Company. The Securities are limited to $300,000,000 in aggregate principal amount. 5. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Sections 3.10 and 3.13 of the Indenture (as described in paragraph 6 below), the Company shall have no mandatory redemption or sinking fund obligations with respect to the Securities. 6. REPURCHASE AT OPTION OF HOLDER. (i) If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. (ii) If the Company or a Subsidiary consummates an Asset Sale, within 365 days after the receipt of any Net Proceeds from such Asset Sale, the Company may apply such Net Proceeds (a) to purchase one or more Hospitals or Related Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Hospitals and/or one or more Related Businesses, (b) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which the Company is permitted to be engaged pursuant to Section 3.15 of the Indenture, (c) to permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary or (d) to permanently reduce Senior Revolving Debt (and to correspondingly reduce commitments with respect thereto), except that up to an aggregate of $200.0 million of Net Proceeds from Asset Sales may be applied after the date of the Indenture to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from any Asset Sale that are not so invested or applied shall be deemed to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders of Securities and holders of any other Indebtedness of the Company ranking on a parity with the Securities from time to time outstanding with similar provisions requiring the Company to make an offer to purchase or to redeem such Indebtedness with the proceeds from any asset sales, PRO RATA in proportion to the respective principal amounts of the Securities and such other Indebtedness then outstanding (a "SENIOR ASSET SALE OFFER") to purchase the maximum principal amount of Securities and such other Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase in accordance with the terms of the A-4 Indenture. To the extent that the aggregate amount of Securities and such other Indebtedness tendered pursuant to a Senior Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes, including an offer to purchase Senior Subordinated Notes pursuant to Section 4.10 of the Senior Subordinated Note Indenture. If the aggregate principal amount of Securities and such other Indebtedness surrendered by holders pursuant to a Senior Asset Sale Offer exceeds the amount of Excess Proceeds, the Securities and such other Indebtedness shall be purchased on a PRO RATA basis. Holders that are the subject of an offer to purchase shall receive a Senior Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 7. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities between a record date and the corresponding Interest Payment Date. 8. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 9. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for Securities) and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for Securities). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder of Securities): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Security, (iii) reduce the rate of or change the time for payment of interest on any Security, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration), (v) make any Security payable in money other than that stated in the Securities, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or premium, if any, or A-5 interest on the Securities or (vii) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for any supplemental indenture required pursuant to Section 3.16 of the Indenture, to provide for the assumption of the Company's obligations to Holders of the Securities in the case of a merger, consolidation or sale of assets, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Securities and Exchange Commission (the "COMMISSION") in order to effect or maintain the qualification of the Indenture under the TIA. 10. DEFAULTS AND REMEDIES. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities; (ii) a default in payment when due of the principal of or premium, if any, on the Securities, at maturity or otherwise; (iii) a failure by the Company to comply with the provisions described under the covenants "Limitations on Restricted Payments," "Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock," "Asset Sales," and "Change of Control;" (iv) a failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or Guarantee exists on the date of the Indenture, or is created after the date of the Indenture, which default (a) constitutes a Payment Default or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million entered by a court or courts or competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately (plus, in the case of an Event of Default that is the result of willful actions (or inactions) by or on behalf of the Company intended to avoid prohibitions on redemptions of the Securities contained in the Indenture or the Securities, an amount of premium applicable pursuant to the Indenture). Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitation, Holders of a majority in principal amount of the A-6 then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in such Holders' interest. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Securities. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 11. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets of the Company or its Subsidiaries, issue or sell Equity Interests of the Company's Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and enter into certain mergers and consolidations. 12. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 13. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND Shareholders. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 14. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by A-7 the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Attention: Treasurer A-8 ASSIGNMENT FORM To assign this Security, fill in the form below: For value received (i) or (we) hereby sell, assign and transfer this Security to _______________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint_______________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. _______________________________________________________________________________ Date: ______________ Your Signature:_______________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.* __________ *Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 3.10 or Section 3.13 of the Indenture, check the appropriate box: / / Section 3.10 / / Section 3.13 (Asset Sale) (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 3.10 or Section 3.13 of the Indenture, state the amount you elect to have purchased: $ _______________ Date:____________ Your Signature:_______________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.* __________ *Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-10 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONAL MEDICAL ENTERPRISES, INC. ___________________________________________ $300,000,000 9/ /% SENIOR NOTES due 2002 ___________________________________________ _________________________ INDENTURE Dated as of March 1, 1995 _________________________ _________________________ THE BANK OF NEW YORK _________________________ as Trustee - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE* TRUST INDENTURE ACT SECTION INDENTURE SECTION - ---------------- ----------------- 310 (a)(1)............................................ 6.10 (a)(2)............................................. 6.10 (a)(3)............................................. N.A. (a)(4)............................................. N.A. (a)(5)............................................. 6.10 (b) ............................................... 6.08; 6.10 (c) ............................................... N.A. 311 (a) .............................................. 6.11 (b) ............................................... 6.11 (c) ............................................... N.A. 312 (a)............................................... 2.05 (b)................................................ 9.03 (c) ............................................... 9.03 313 (a) .............................................. 6.06 (b)(1) ............................................ N.A. (b)(2) ............................................ 6.06 (c) ............................................... 6.06; 9.02 (d)................................................ 6.06 314 (a) .............................................. 3.03; 9.02 (b) ............................................... N.A. (c)(1)............................................. 9.04 (c)(2)............................................. 9.04 (c)(3)............................................. N.A. (d)................................................ N.A. (e) .............................................. 9.05 (f)................................................ N.A. 315 (a)...............................................6.01(iii)(b) (b)................................................ 6.05; 9.02 (c) .............................................. 6.01(i) (d)................................................ 6.01(iii) (e)................................................ 5.11 316 (a)(last sentence) ............................... 2.09 (a)(1)(a).......................................... 5.05 (a)(1)(b) ......................................... 5.04 (a)(2)............................................. N.A. (b) ............................................... 5.07 (c) ............................................... 2.13; 8.04 317 (a)(1) ........................................... 5.08 (a)(2)............................................. 5.09 (b) ............................................... 2.04 318 (a)............................................... 9.01 (b)................................................ N.A. (c)................................................ 9.01 N.A. means not applicable. ____________________________ *THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE. TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions................................ 1 Section 1.02. Other Definitions.......................... 13 Section 1.03. Incorporation by Reference of TIA.......... 14 Section 1.04. Rules of Construction...................... 14 ARTICLE 2 THE SECURITIES; OFFER TO PURCHASE PROCEDURES Section 2.01. Form and Dating............................ 15 Section 2.02. Execution and Authentication............... 15 Section 2.03. Registrar and Paying Agent................. 15 Section 2.04. Paying Agent to Hold Money in Trust........ 16 Section 2.05. Holder Lists............................... 16 Section 2.06. Transfer and Exchange...................... 16 Section 2.07. Replacement Securities..................... 17 Section 2.08. Outstanding Securities..................... 17 Section 2.09. Treasury Securities........................ 18 Section 2.10. Temporary Securities....................... 18 Section 2.11. Cancellation............................... 18 Section 2.12. Defaulted Interest......................... 18 Section 2.13. Record Date................................ 19 Section 2.14. CUSIP Number............................... 19 Section 2.15. Offer to Purchase By Application of Excess Proceeds....................................19 ARTICLE 3 COVENANTS Section 3.01. Payment of Securities...................... 21 Section 3.02. Maintenance of Office or Agency............ 22 Section 3.03. Commission Reports......................... 22 Section 3.04. Compliance Certificate..................... 23 Section 3.05. Taxes...................................... 24 Section 3.06. Stay, Extension and Usury Laws............. 24 Section 3.07. Limitations on Restricted Payments......... 24 Section 3.08. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries........ 27 Section 3.09. Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock............ 28 i Page Section 3.10. Asset Sales................................ 30 Section 3.11. Limitations on Transactions with Affiliates 31 Section 3.12. Limitations on Liens....................... 32 Section 3.13. Change of Control.......................... 32 Section 3.14. Corporate Existence........................ 34 Section 3.15. Line of Business........................... 34 Section 3.16. Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries............... 34 Section 3.17. No Amendment to Subordination Provisions of Senior Subordinated Note Indenture......... 34 ARTICLE 4 SUCCESSORS Section 4.01. Limitations On Mergers, Consolidations or Sales of Assets............................ 35 Section 4.02. Successor Corporation Substituted.......... 36 ARTICLE 5 DEFAULTS AND REMEDIES Section 5.01. Events of Default.......................... 36 Section 5.02. Acceleration............................... 38 Section 5.03. Other Remedies............................. 39 Section 5.04. Waiver of Past Defaults.................... 39 Section 5.05. Control by Majority........................ 39 Section 5.06. Limitation on Suits........................ 39 Section 5.07. Rights of Holders to Receive Payment....... 40 Section 5.08. Collection Suit by Trustee................. 40 Section 5.09. Trustee May File Proofs of Claim........... 40 Section 5.10. Priorities................................. 41 Section 5.11. Undertaking for Costs...................... 41 ARTICLE 6 TRUSTEE Section 6.01. Duties of Trustee.......................... 42 Section 6.02. Rights of Trustee.......................... 43 Section 6.03. Individual Rights of Trustee............... 43 Section 6.04. Trustee's Disclaimer....................... 44 Section 6.05. Notice of Defaults......................... 44 Section 6.06. Reports by Trustee to Holders.............. 44 Section 6.07. Compensation and Indemnity................. 44 Section 6.08. Replacement of Trustee..................... 45 Section 6.09. Successor Trustee or Agent by Merger, etc.. 46 ii Page Section 6.10. Eligibility; Disqualification.............. 46 Section 6.11. Preferential Collection of Claims Against Company.................................... 46 ARTICLE 7 DISCHARGE OF INDENTURE Section 7.01. Defeasance and Discharge of this Indenture and the Securities......................... 47 Section 7.02. Legal Defeasance and Discharge............. 47 Section 7.03. Covenant Defeasance........................ 47 Section 7.04. Conditions to Legal or Covenant Defeasance. 48 Section 7.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions................................. 49 Section 7.06. Repayment to Company....................... 50 Section 7.07. Reinstatement.............................. 50 ARTICLE 8 AMENDMENT, SUPPLEMENT AND WAIVER Section 8.01. Without Consent of Holders................. 51 Section 8.02. With Consent of Holders.................... 51 Section 8.03. Compliance with TIA........................ 53 Section 8.04. Revocation and Effect of Consents.......... 53 Section 8.05. Notation on or Exchange of Securities...... 53 Section 8.06. Trustee to Sign Amendments, etc............ 53 ARTICLE 9 MISCELLANEOUS Section 9.01. TIA Controls............................... 54 Section 9.02. Notices.................................... 54 Section 9.03. Communication by Holders with Other Holders 55 Section 9.04. Certificate and Opinion as to Conditions Precedent.................................. 55 Section 9.05. Statements Required in Certificate or Opinion.................................... 55 Section 9.06. Rules by Trustee and Agents................ 56 Section 9.07. Legal Holidays............................. 56 Section 9.08. No Personal Liability of Directors, Officer Employees Shareholders............. 56 Section 9.09. Duplicate Originals........................ 56 Section 9.10. Governing Law.............................. 57 Section 9.11. No Adverse Interpretation of Other Agreements................................. 57 Section 9.12. Successors................................. 57 Section 9.13. Severability............................... 57 iii Page Section 9.14. Counterpart Originals...................... 57 Section 9.15. Table of Contents, Headings, etc........... 57 EXHIBITS Exhibit A FORM OF SECURITY............................ A Exhibit B FORM OF SUPPLEMENTAL INDENTURE.............. B iv EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, between __________________ (the "Guarantor"), a subsidiary of National Medical Enterprises, Inc. (or its successor), a Nevada corporation (the "Company"), and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of March 1, 1995, providing for the issuance of an aggregate principal amount of $300,000,000 of 9-5/8% Senior Notes due 2002 (the "Securities"); WHEREAS, Section 3.16 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall guarantee the payment of the Securities pursuant to a Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company hereunder and thereunder, that: (a) the principal of, premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, B-1 by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed for whatever reason the Guarantor shall be obligated to pay the same immediately. An Event of Default under the Indenture or the Securities shall constitute an event of default under this Guarantee, and shall entitle the Holders of Securities to accelerate the Obligations of the Guarantor hereunder in the same manner and to the same extent as the Obligations of the Company. The Guarantor hereby agrees that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Guarantee will not be discharged except by complete performance of the Obligations contained in the Securities and the Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantor, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it shall not be entitled to, and hereby waives, any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby. The Guarantor further agrees that, as between the Guarantor, on one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 5 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 5 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Guarantee. 3. EXECUTION AND DELIVERY OF GUARANTEE. To evidence its Guarantee set forth in Section 2, the Guarantor hereby agrees that a notation of such Guarantee substantially in the form of EXHIBIT A shall be endorsed by an officer of such Guarantor on each Security authenticated and delivered by the Trustee and that this Supplemental Indenture shall be executed on behalf of such Guarantor, by manual or facsimile signature, by its President or one of its Vice Presidents. The Guarantor hereby agrees that its Guarantee set forth in Section 2 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer whose signature is on this Supplemental Indenture or on the Guarantee no longer holds that office at the time the Trustee authenticates the Security on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. B-2 The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors. 4. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Except as set forth in Articles 3 and 4 of the Indenture, nothing contained in this Supplemental Indenture or in the Securities shall prevent any consolidation or merger of the Guarantor with or into the Company or any Subsidiary of the Company that has executed and delivered a supplemental indenture substantially in the form hereof or shall prevent any sale or conveyance of the property of the Guarantor as an entirety or substantially as an entirety, to the Company or any such Subsidiary of the Company. (b) Except as provided in Section 4(a) hereof or in a transaction referred to in Section 5 hereof, the Guarantor shall not consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person unless (1) either (x) the Guarantor shall be the surviving Person of such merger or consolidation or (y) the surviving Person or transferee is a corporation, partnership or trust organized and existing under the laws of the United States, any state thereof or the District of Columbia and such surviving Person or transferee shall expressly assume all the obligations of the Guarantor under this Guarantee and the Indenture pursuant to a supplemental indenture substantially in the form hereof; (2) immediately after giving effect to such transaction (including the incurrence of any Indebtedness incurred or anticipated to be incurred in connection with such transaction) no Default or Event of Default shall have occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the Indenture, that the surviving Person agrees to be bound thereby, and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Guarantor, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Guarantor, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Guarantor. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Guarantor in accordance with this Section 4(b) hereof, the successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees had been issued at the date of the execution hereof. B-3 5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale, lease, conveyance or other disposition (by merger, consolidation or otherwise) of assets of the Guarantor (including, if applicable, disposition of all of the Capital Stock of the Guarantor), any Liens in favor of the Trustee in the assets sold, leased, conveyed or otherwise disposed of shall be released; PROVIDED that in the event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds therefrom are applied, in accordance with Section 3.10 of the Indenture. If the assets sold, leased, conveyed or otherwise disposed of (by merger, consolidation or otherwise) include all or substantially all of the assets of the Guarantor or all of the Capital Stock of the Guarantor in each case, in compliance with the terms of the Indenture, then the Guarantor shall be automatically and unconditionally released from and relieved of its Obligations under its Guarantee; PROVIDED that in the event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds therefrom are applied, in accordance with Section 3.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale, lease, conveyance or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation of Section 3.10 thereof, if applicable, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guarantor from its Obligations under its Guarantee. Nothing herein shall relieve the Company from its obligation to apply the proceeds of any Asset Sale as provided in Section 3.10 of the Indenture. 6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (a) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (b) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of the Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have executed and delivered a supplemental indenture substantially in the form hereof and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. 7. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under the Indenture, the term "Trustee" as used in this Supplemental Indenture shall in each case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Supplemental Indenture in place of the Trustee. B-4 8. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantor under the Securities, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 9. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. 10. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 11. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _________________ ___, ____ [Guarantor] By: ______________________________ Name: Title: The Bank of New York, as Trustee By: ______________________________ Name: Title: B-5 EXHIBIT A TO SUPPLEMENTAL INDENTURE GUARANTEE The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company to the Holders or the Trustee under the Securities or under the Indenture, that: (a) the principal of, and premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee under the Indenture or under the Securities will be promptly paid in full, all in accordance with the terms thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed, for whatever reason, the Guarantor shall be obligated to pay the same immediately. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in a Supplemental Indenture, dated as of _________ __, ____ to the Indenture, and reference is hereby made to the Indenture, as supplemented, for the precise terms of this Guarantee. This is a continuing Guarantee and shall remain in full force and effect and shall be binding upon the Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Securities and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders of Securities and, in the event of any transfer or assignment of rights by any Holder of Securities or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This a Guarantee of payment and not a guarantee of collection. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (a) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (b) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing B-6 Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have become Guarantors and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. [GUARANTOR] By:_________________________ Name: Title: B-7 EX-4.(B) 4 EXHIBIT 4(B) Exhibit 4(b) INDENTURE dated as of March 1, 1995 between National Medical Enterprises, Inc., a Nevada corporation (the "COMPANY"), and The Bank of New York, as trustee (the "TRUSTEE"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 10 1/8% Senior Subordinated Notes due 2005 (the "SECURITIES"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "AGENT" means any Registrar, Paying Agent or co-registrar. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (PROVIDED that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Section 4.13 and/or Article 5 hereof and not by Section 4.10 hereof), and (ii) the issuance or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $25.0 million or (b) for net proceeds in excess of $25.0 million. Notwithstanding the foregoing: (a) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (b) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, (c) a Restricted Payment that is permitted by Section 4.07 hereof and (d) a Hospital Swap shall not be deemed to be an Asset Sale. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any authorized committee thereof. "BUSINESS DAY" means any day other than a Legal Holiday. "CAPITAL LEASE" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment would be capitalized on a balance sheet of the lessee in accordance with GAAP. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capital Lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any Person or group (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than to a Person or group who, prior to such transaction, held a majority of the voting power of the voting stock of the Company, (ii) the acquisition by any Person or group, as defined above, of a direct or indirect interest in more than 50% of the voting power of the voting stock of the Company, by way of merger, consolidation or otherwise, or (iii) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change of Control and a Rating Decline. "COMMISSION" means the Securities and Exchange Commission. "COMPANY" means National Medical Enterprises, Inc., as obligor under the Securities, unless and until a successor replaces National Medical Enterprises, Inc., in accordance with Article 5 hereof and thereafter includes such successor. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period PLUS (i) an amount equal to any extraordinary loss of such Person PLUS any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), PLUS (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent such provision for taxes was included in computing such Consolidated Net 2 Income, PLUS (iii) the Fixed Charges of such Person and its Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income, PLUS (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP but excluding any one-time charge or expense incurred in order to consummate the Refinancing; PROVIDED that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date PLUS (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock), LESS all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made in accordance with GAAP as a result of the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, and excluding the cumulative effect of a change in accounting principles, all as determined in accordance with GAAP. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date hereof or (ii) was nominated for election or elected to such Board of Directors with the 3 approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Company. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to March 1, 2005. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date hereof, until such amounts are repaid, including all reimbursement obligations with respect to letters of credit outstanding as of the date hereof (other than letters of credit issued pursuant to the New Credit Facility). "FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period; PROVIDED, HOWEVER, that in the event that the Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period; and PROVIDED FURTHER that for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period, and (ii) the Consolidated Cash Flow and Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded. 4 "FIXED CHARGES" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letters of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, TIMES (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as in effect from time to time. "GOVERNMENT SECURITIES" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) foreign exchange contracts or currency swap agreements and (iii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency values. "HOLDER" means a Person in whose name a Security is registered. "HOSPITAL" means a hospital, outpatient clinic, long-term care facility or other facility that is used or useful in the provision of healthcare services. "HOSPITAL SWAP" means an exchange of assets by the Company or a Subsidiary of the Company for one or more Hospitals and/or one or more Related Businesses or for the 5 Capital Stock of any Person owning one or more Hospitals and/or one or more Related Businesses. "INDEBTEDNESS" means with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INTERNATIONAL SUBSIDIARIES" means International-NME, Inc., NME (Australia) Pty. Limited, and National Medical Enterprises Corp., and each of such Person's respective Subsidiaries. "INVESTMENT GRADE" means a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; PROVIDED that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company shall not be deemed to be an Investment. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). "METROCREST LETTER OF CREDIT FACILITY" means that certain letter of credit facility, dated as of February 28, 1995, by and among the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, in an aggregate principal amount of $91.35 million. 6 "MOODY'S" means Moody's Investors Services, Inc. and its successors. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "NET PROCEEDS" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any permitted Non-Cash Consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions) and any other expenses incurred or to be incurred by the Company or a Subsidiary as a direct result of the sale of such assets (including, without limitation, severance, relocation, lease termination and other similar expenses), taxes actually paid or payable as a result thereof, amounts required to be applied to the repayment of Indebtedness (other than Senior Term Debt or Senior Revolving Debt) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of February 28, 1995, by and among the Company and Morgan Guaranty Trust Company of New York and the other banks that are party thereto, providing for $1.8 billion in aggregate principal amount of Senior Term Debt and up to $500.0 million in aggregate principal amount of Senior Revolving Debt, including any related notes, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, extended, renewed, refunded, replaced or refinanced, in whole or in part, from time to time. "NON-CASH CONSIDERATION" means any non-cash consideration received by the Company or a Subsidiary of the Company in connection with an Asset Sale and any non-cash consideration received by the Company or any of its Subsidiaries upon disposition thereof. "NON-RECOURSE DEBT" means Indebtedness of an International Subsidiary (i) as to which neither the Company nor any of its Subsidiaries (other than the International Subsidiaries) (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness of the Company or any of its Subsidiaries), or (b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an International Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Subsidiaries (other than the International Subsidiaries) to declare a default on such other Indebtedness or cause the payment thereof to be accelerated 7 or payable prior to its stated maturity (except any such provisions set forth in Existing Indebtedness until the same is repaid or refinanced). "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFICERS" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary and any Vice President of the Company or any Subsidiary, as the case may be. "OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company, any Subsidiary or the Trustee. "PERFORMANCE INVESTMENT PLAN" means the 1989 Performance Investment Plan adopted by the Company's Board of Directors on March 10, 1989. "PERMITTED COLLATERAL" means, collectively, (i) all Capital Stock and other Equity Interests of the Company's present and future direct Subsidiaries, (ii) all intercompany Indebtedness owed to the Company and (iii) all Capital Stock and other Equity Interests in Westminster Health Care Holdings PLC owned by the Company or its Subsidiaries. "PERMITTED LIENS" means (i) Liens on Permitted Collateral securing Senior Term Debt of the Company under the New Credit Facility in an aggregate principal amount at any time outstanding not to exceed an amount equal to $1.8 billion less the aggregate amount of all repayments, optional or mandatory, of the principal of any Senior Term Debt (other than repayments that are immediately reborrowed) that have been made since the date hereof; (ii) Liens on Permitted Collateral securing Senior Revolving Debt and letters of credit of the Company incurred pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential reimbursement obligation of the Company with respect thereto) not to exceed an amount equal to $500.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce commitments with respect to such Indebtedness pursuant to Section 4.10 hereof since the date hereof; (iii) Liens in favor of the Company; (iv) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company or becomes a Subsidiary of the Company; PROVIDED that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into or consolidated with the Company or that becomes a Subsidiary of the Company; (v) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the 8 Company, PROVIDED that such Liens were in existence prior to the contemplation of such acquisition; (vi) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vii) Liens existing on the date hereof, including, without limitation, Liens on Permitted Collateral securing reimbursement obligations under the Metrocrest Letter of Credit Facility; (viii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (ix) other Liens on assets of the Company or any Subsidiary of the Company securing Indebtedness that is permitted by the terms hereof to be outstanding having an aggregate principal amount at any one time outstanding not to exceed 10% of the Stockholders' Equity of the Company; and (x) Liens to secure Permitted Refinancing Indebtedness incurred to refinance Indebtedness that was secured by a Lien permitted hereunder and that was incurred in accordance with the provisions hereof; PROVIDED that such Liens do not extend to or cover any property or assets of the Company or any Subsidiary other than assets or property securing the Indebtedness so refinanced. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, other Indebtedness of the Company or any of its Subsidiaries; PROVIDED that, except in the case of Indebtedness of the Company issued in exchange for, or the net proceeds of which are used solely to extend, refinance, renew, replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any premiums paid and reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Securities, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Securities on terms at least as favorable to the Holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust or unincorporated organization (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "PHYSICIAN JOINT VENTURE DISTRIBUTIONS" means distributions made by the Company or any of its Subsidiaries to any physician, pharmacist or other allied healthcare professional in connection with the unwinding, liquidation or other termination of any joint venture or similar arrangement between any such Person and the Company or any of its Subsidiaries. 9 "PHYSICIAN SUPPORT OBLIGATIONS" means any obligation or Guarantee incurred in the ordinary course of business by the Company or a Subsidiary of the Company in connection with any advance, loan or payment to, or on behalf of or for the benefit of any physician, pharmacist or other allied healthcare professional for the purpose of recruiting, redirecting or retaining the physician, pharmacist or other allied healthcare professional to provide service to patients in the service area of any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries; EXCLUDING, HOWEVER, compensation for services provided by physicians, pharmacists or other allied healthcare professionals to any Hospital or Related Business owned or operated by the Company or any of its Subsidiaries. "QUALIFIED EQUITY INTERESTS" shall mean all Equity Interests of the Company other than Disqualified Stock of the Company. "RATING AGENCIES" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both shall not make a rating of the Securities publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, shall be substituted for S&P or Moody's or both, as the case may be. "RATING CATEGORY" means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (E.G., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, shall constitute a decrease of one gradation). "RATING DATE" means the date which is 90 days prior to the earlier of (i) a Change of Control and (ii) the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control. "RATING DECLINE" means the occurrence on or within 90 days after the date of the first public notice of the occurrence of a Change of Control or of the intention by the Company to effect a Change of Control (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by any of the Rating Agencies) of: (a) in the event the Securities are rated by either Moody's or S&P on the Rating Date as Investment Grade, a decrease in the rating of the Securities by both Rating Agencies to a rating that is below Investment Grade, or (b) in the event the Securities are rated below Investment Grade by both Rating Agencies on the Rating Date, a decrease in the rating of the Securities by either Rating Agency by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "REFINANCING" has the meaning ascribed to it in the prospectus dated February 21, 1995 relating to the Securities. 10 "RELATED BUSINESS" means a healthcare business affiliated or associated with a Hospital or any business related or ancillary to the provision of healthcare services or the operation of a Hospital. "RESPONSIBLE OFFICER" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED INVESTMENT" means an Investment in any of the International Subsidiaries. "SECURITIES" means the securities described above, issued under this Indenture. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SENIOR ASSET SALE OFFER" means the offer to purchase Senior Notes made by the Company to holders of Senior Notes under Section 3.10 of the Senior Note Indenture. "SENIOR NOTES" means the 9 5/8% Senior Notes due 2002 of the Company in an aggregate principal amount of $300.0 million, issued pursuant to the Senior Note Indenture. "SENIOR NOTE INDENTURE" means the Indenture dated as of March 1, 1995 between the Company and The Bank of New York, as trustee, as amended or supplemented from time to time, under which the Senior Notes were issued. "SENIOR REVOLVING DEBT" means revolving credit loans outstanding from time to time under the New Credit Facility. "SENIOR TERM DEBT" means term loans outstanding from time to time under the New Credit Facility. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "S&P" means Standard & Poor's Corporation and its successors. "SPECIFIED ASSETS" means the Company's and its Subsidiaries' interest in The Hillhaven Corporation and Westminster Healthcare Holdings PLC owned as of the date hereof and the Capital Stock and assets of the International Subsidiaries. "STOCKHOLDERS' EQUITY" means, with respect to any Person as of any date, the stockholders' equity of such Person determined in accordance with GAAP as of the date of the 11 most recent available internal financial statements of such Person, and calculated on a pro forma basis to give effect to any acquisition or disposition by such Person consummated or to be consummated since the date of such financial statements and on or prior to the date of such calculation. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof); PROVIDED that no International Subsidiary shall be deemed to be a "Subsidiary" for any purpose hereunder for so long as such International Subsidiary: (a) has no Indebtedness other than Existing Indebtedness and Non-Recourse Debt; (b) is not a party to any agreement, contract, arrangement or understanding with the Company or any of its other Subsidiaries (other than International Subsidiaries) except any such agreement, contract, arrangement or understanding that (i) was in effect on the date hereof, or (ii) meets the requirements of Section 4.11 hereof; (c) is a Person with respect to which neither the Company nor any of its Subsidiaries (other than International Subsidiaries) has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified level of operating results except, in each case, any such obligation in existence on the date hereof or created pursuant to the terms of any Investment permitted by Section 4.07 hereof; and (d) has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Subsidiaries (other than International Subsidiaries). If, at any time, any International Subsidiary would fail to meet the foregoing requirements, it shall thereafter be deemed to be a Subsidiary for all purposes of this Indenture and any Indebtedness of such International Subsidiary shall be deemed to be incurred by a Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, the Company shall be in default of such covenant). "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 hereof. "TRANSFER RESTRICTION" means, with respect to the Company's Subsidiaries, any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries, or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries. 12 "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS. DEFINED IN TERM SECTION ---- ------- "Affiliate Transaction"..................... 4.11 "Bankruptcy Law"............................ 6.01 "Change of Control Offer"................... 4.13 "Change of Control Payment"................. 4.13 "Change of Control Payment Date"............ 4.13 "Commencement Date"......................... 3.09 "Covenant Defeasance"....................... 8.03 "Custodian"................................. 6.01 "Designated Senior Debt".................... 10.02 "Event of Default".......................... 6.01 "Excess Proceeds"........................... 4.10 "incur"..................................... 4.09 "Legal Defeasance".......................... 8.02 "Legal Holiday"............................. 11.07 "Notice of Default"......................... 6.01 "Offer Amount".............................. 3.09 "Offer Period".............................. 3.09 "Paying Agent".............................. 2.03 "Payment Blockage Notice"................... 10.04 "Purchase Date"............................. 3.09 "Purchase Price"............................ 4.10 "Registrar"................................. 2.03 "Representative"............................ 10.02 "Restricted Payments"....................... 4.07 13 "Senior Debt"............................... 10.02 "Senior Subordinated Asset Sale Offer"...... 4.10 SECTION 1.03. INCORPORATION BY REFERENCE OF TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Securities; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; "OBLIGOR" on the Securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by the Commission rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. 14 ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. The Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements approved as to form by the Company and required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. SECTION 2.02. EXECUTION AND AUTHENTICATION. An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Security has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Securities shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Securities for original issue up to the aggregate principal amount stated in paragraph 4 of the Securities. The aggregate principal amount of Securities outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain (i) an office or agency where Securities may be presented for registration of transfer or for exchange (including any co-registrar, the "REGISTRAR") and (ii) an office or agency where Securities may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any 15 Paying Agent, Registrar or co-registrar without prior notice to any Holder. The Company shall notify the Trustee and the Trustee shall notify the Holders of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.07 hereof. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Securities. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior to the due date of principal of, premium, if any, and interest on any Securities, the Company shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and interest becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Securities, and shall notify the Trustee of any Default by the Company in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Section Holders and shall otherwise comply with TIA Section 312(a). If the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders, including the aggregate principal amount of the Securities held by each thereof, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such trans- 16 actions are met; PROVIDED, HOWEVER, that any Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall issue and the Trustee shall authenticate Securities at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Company nor the Registrar shall be required to (i) issue, register the transfer of or exchange Securities during a period beginning at the opening of business on a Business Day 15 days before the day of any selection of Securities for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (ii) register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part or (iii) register the transfer or exchange of a Security between the record date and the next succeeding interest payment date. No service charge shall be made to any Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10 or 9.05 hereof, which shall be paid by the Company). Prior to due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of, premium, if any, and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. SECTION 2.07. REPLACEMENT SECURITIES. If any mutilated Security is surrendered to the Trustee or the Company, or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Security, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Security if the Trustee's requirements for replacements of Securities are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss which any of them may suffer if a Security is replaced. Each of the Company and the Trustee may charge for its expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. 17 If a Security is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the principal amount of any Security is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.09 hereof, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. SECTION 2.09. TREASURY SECURITIES. In determining whether the Holders of the required principal amount of Securities then outstanding have concurred in any demand, direction, waiver or consent, Securities owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, waiver or consent, only Securities that a Responsible Officer actually knows to be so owned shall be so considered. Notwithstanding the foregoing, Securities that are to be acquired by the Company or an Affiliate of the Company pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Company or an Affiliate of the Company until legal title to such Securities passes to the Company or such Affiliate, as the case may be. SECTION 2.10. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company and the Trustee consider appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers of the Company, shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. SECTION 2.11. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such cancelled Securities to the Company. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. 18 SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the related payment date, in each case at the rate provided in the Securities and in Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.13. RECORD DATE. The record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or Trustee is not the permitted under this Indenture shall be determined as provided for in TIA Section 316(c). SECTION 2.14. CUSIP NUMBER. The Company in issuing the Securities may use a "CUSIP" number, and if it does so, the Trustee shall use the CUSIP number in notices to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Securities to be redeemed and (iv) the redemption price. If the Company is required to make an offer to purchase Securities pursuant to the provisions of Section 4.10 or 4.13 hereof, it shall furnish to the Trustee an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the purchase shall occur, (ii) the purchase date, (iii) the principal amount of Securities to be purchased, (iv) the purchase price and (v) a statement to the effect that (a) the Company or one of its Subsidiaries has effected an Asset Sale and the conditions set forth in Section 4.10 hereof have been satisfied 19 or (b) a Change of Control has occurred and the conditions set forth in Section 4.13 hereof have been satisfied, as applicable. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If less than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed among the Holders in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are then listed, or, if the Securities are not so listed, on a PRO RATA basis, by lot or by such method the Trustee shall deem fair and appropriate; PROVIDED that Securities with a principal amount of $1,000 shall not be redeemed in part. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of them selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Securities of a Holder are to be redeemed, the entire outstanding amount of Securities held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. In the event the Company is required to make an offer to purchase Securities pursuant to Sections 3.09 and 4.10 hereof and the amount of the Excess Proceeds from the Asset Sale are not evenly divisible by $1,000, the Trustee shall promptly refund to the Company any remaining Excess Proceeds. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed by first class mail a notice of redemption to each Holder of Securities to be redeemed at its registered address. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion shall be issued; (4) the name and address of the Paying Agent; 20 (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Securities called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities and/or Section of this Indenture pursuant to which the Securities called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company shall have delivered to the Trustee, at least 40 days prior to the redemption date, unless the Trustee shall agree to a shorter period, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. The notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the Holder of any Security shall not affect the validity of the proceeding for the redemption of any other Security. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Securities called for redemption become due and payable on the redemption date at the redemption price plus accrued and unpaid interest, if any, to such date. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of, and accrued interest on, all Securities to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of (including any applicable premium), and accrued interest on, all Securities to be redeemed. On and after the redemption date, interest ceases to accrue on the Securities or the portions of Securities called for redemption. If a Security is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Security was registered at the close of business on such record date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.01 hereof. 21 SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Security equal in principal amount to the unredeemed portion of the Security surrendered. SECTION 3.07. OPTIONAL REDEMPTION. On or after March 1, 2000, the Company may redeem all or any portion of the Securities at the redemption prices (expressed as a percentage of the principal amount thereof), as set forth in the immediately succeeding paragraph, plus accrued and unpaid interest, if any, to the redemption date. The redemption price (expressed as a percentage of the principal amount) shall be as follows, if the Securities are redeemed during the twelve-month period beginning on March 1 of the following years: YEAR PERCENTAGE ---- ---------- 2000............................................ 105.063% 2001............................................ 103.375% 2002............................................ 101.688% 2003 and thereafter............................. 100.000% SECTION 3.08. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Sections 4.10 and 4.13 hereof, the Company shall have no mandatory redemption or sinking fund obligations with respect to the Securities. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that the Company shall commence a Senior Subordinated Asset Sale Offer pursuant to Section 4.10 hereof, it shall follow the procedures specified below. No later than the date on which the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall notify the Trustee of such Senior Subordinated Asset Sale Offer and provide the Trustee with an Officers' Certificate setting forth, in addition to the information to be included therein pursuant to Section 4.10 hereof, the calculations used in determining the amount of Net Proceeds to be applied to the purchase of Securities. The Company shall commence or cause to be commenced the Senior Subordinated Asset Sale Offer on a date no later than 10 Business Days after such notice (the "COMMENCEMENT DATE"). The Senior Subordinated Asset Sale Offer shall remain open for at least 20 Business Days after the Commencement Date relating to such Senior Subordinated Asset Sale Offer and shall remain open for no more than such 20 Business Days, except to the extent 22 required by applicable law (as so extended, the "OFFER PERIOD"). No later than one Business Day after the termination of the Offer Period (the "PURCHASE Date"), the Company shall purchase the principal amount (the "OFFER AMOUNT") of Securities required to be purchased in such Senior Subordinated Asset Sale Offer pursuant to Section 4.10 hereof or, if less than the Offer Amount has been tendered, all Securities tendered in response to the Senior Subordinated Asset Sale Offer, in each case for an amount in cash equal to the Purchase Price. If the Purchase Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest shall be paid to the Person in whose name a Security is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Securities pursuant to the Senior Subordinated Asset Sale Offer. On the Commencement Date of any Senior Subordinated Asset Sale Offer, the Company shall send, or at the Company's request the Trustee shall send, by first class mail, a notice to each of the Holders at their last registered address, with a copy to the Trustee and the Paying Agent, offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. Such notice, which shall govern the terms of the Senior Subordinated Asset Sale Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Senior Subordinated Asset Sale Offer and shall state: (1) that the Senior Subordinated Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Senior Subordinated Asset Sale Offer shall remain open; (2) the Offer Amount, the Purchase Price and the Purchase Date; (3) that any Security not tendered or accepted for payment shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the Purchase Price, any Security accepted for payment pursuant to the Senior Subordinated Asset Sale Offer shall cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Security purchased pursuant to any Senior Subordinated Asset Sale Offer shall be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Purchase Date; (6) that Holders shall be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, 23 receives, not later than the close of business on the Business Day next preceding the termination of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that, if the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Trustee shall select the Securities to be purchased on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Trustee so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased); (8) that Holders whose Securities were purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; and (9) the circumstances and relevant facts regarding such Asset Sale and any other information that would be material to a decision as to whether to tender a Security pursuant to the Senior Subordinated Asset Sale Offer. On the Purchase Date, the Company shall, to the extent lawful, (i) accept for payment, on a PRO RATA basis to the extent necessary, an aggregate principal amount equal to the Offer Amount of Securities tendered pursuant to the Senior Subordinated Asset Sale Offer, or if less than the Offer Amount has been tendered, all Securities or portion thereof so tendered, (ii) deposit with the Paying Agent an amount equal to the Purchase Price in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered payment in an amount equal to the Purchase Price for such Securities and the Trustee shall promptly authenticate and mail or deliver (or cause to be transferred by book entry) a new Security to such Holder equal in principal amount to any unpurchased portion of the Securities surrendered, if any; provided that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Senior Subordinated Asset Sale Offer on or as soon as practicable after the Purchase Date. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of Securities as a result of the Senior Subordinated Asset Sale Offer. 24 ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Securities on the dates and in the manner provided in this Indenture and the Securities. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary of the Company, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than five days following the date of payment, any money (including accrued interest) that exceeds such amount of principal, premium, if any, and interest to be paid on the Securities. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the interest rate then applicable to the Securities to the extent lawful. In addition, it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates The Bank of New York, 101 Barclay Street, 21 West, New York, New York 10286 as one such office or agency of the Company in accordance with Section 2.03 hereof. 25 SECTION 4.03. COMMISSION REPORTS. (i) So long as any of the Securities remain outstanding, the Company shall provide to the Trustee within 15 days after the filing thereof with the Commission copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. All obligors on the Securities shall comply with the provisions provided for in TIA Section of TIA Section 314(a). Notwithstanding that the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Commission, the Company shall file with the Commission and provide to the Trustee (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form), including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and a report thereon by the Company's certified public accountants; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form) including a "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; and (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form) containing the information required to be contained therein (or required in any successor or comparable form); PROVIDED, HOWEVER, that the Company shall not be in default of the provisions of this Section 4.03(i) for any failure to file reports with the Commission solely by the refusal of the Commission to accept the same for filing. Each of the financial statements contained in such reports shall be prepared in accordance with GAAP. (ii) The Trustee, at the Company's expense, shall promptly mail copies of all such annual reports, information, documents and other reports provided to the Trustee pursuant to Section 4.03(i) hereof to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. (iii) Whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability and make such information available to securities analysts and prospective investors upon request. (iv) The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Trustee may be required to deliver to the Holders under this Section 4.03. (v) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). 26 SECTION 4.04. COMPLIANCE CERTIFICATE. (i) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each entity has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto), all without regard to periods of grace or notice requirements, and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Securities is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. (ii) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's certified independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any Subsidiary of the Company has violated any provisions of Article 4 or of Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (iii) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of (a) any Default or Event of Default or (b) any event of default under any other mortgage, indenture or instrument referred to in Section 6.01(v) hereof, an Officers' Certificate specifying such Default, Event of Default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except (i) as contested in good faith by appropriate proceedings and with respect to which appropriate reserves have been taken in accordance with GAAP or (ii) where the failure to effect such payment is not adverse in any material respect to the Holders. 27 SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Subsidiaries' Equity Interests (other than (w) Physician Joint Venture Distributions, (x) dividends or distributions payable in Qualified Equity Interests of the Company, (y) dividends or distributions payable to the Company or any Subsidiary of the Company and (z) dividends or distributions by any Subsidiary of the Company payable to all holders of a class of Equity Interests of such Subsidiary on a PRO RATA basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company; (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Securities, except at the original final maturity date thereof or pursuant to the Refinancing; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the fair market value (as conclusively evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee within 60 days prior to the date of such Restricted Payment) of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to such Restricted Payment): (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the most recently ended four full fiscal quarter period for which internal financial statements are available immediately preceding the date of such Restricted Payment, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (v) of the next succeeding paragraph) made by the 28 Company and its Subsidiaries after the date hereof, is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), PLUS (2) 100% of the aggregate net cash proceeds received by the Company from the issue or sale (other than to a Subsidiary of the Company) since the date hereof of Qualified Equity Interests of the Company or debt securities of the Company or any of its Subsidiaries that have been converted into or exchanged for such Qualified Equity Interests of the Company, PLUS (3) $20.0 million. If no Default or Event of Default has occurred and is continuing or would occur as a consequence thereof, the foregoing provisions shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions hereof; (ii) the payment of cash dividends on any series of Disqualified Stock issued after the date hereof in an aggregate amount not to exceed the cash received by the Company since the date hereof upon issuance of such Disqualified Stock; (iii) the repurchase of the Performance Investment Plan investment options from the holders thereof; (iv) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Subsidiary in exchange for, or out of the net cash proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; (v) the defeasance, redemption or repurchase of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in exchange for or out of the net cash proceeds from the substantially concurrent sale (other than to a Subsidiary of the Company) of Qualified Equity Interests of the Company; PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(2) of the preceding paragraph; 29 (vi) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement; PROVIDED that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $5.0 million in any twelve-month period; and (vii) the making and consummation of (a) a Senior Subordinated Asset Sale Offer in accordance with the provisions of this Indenture with any Excess Proceeds that remain after consummation of a Senior Asset Sale Offer, within 120 days of the consummation of such Senior Asset Sale Offer, or (b) a Change of Control Offer with respect to the Securities in accordance with the provisions of this Indenture. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed. SECTION 4.08. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual Transfer Restriction, except for such Transfer Restrictions existing under or by reason of: (a) Existing Indebtedness as in effect on the date hereof, (b) this Indenture, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition or in violation of Section 4.09 hereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that the Consolidated Cash Flow of such Person shall not be taken into account in determining whether such acquisition was permitted by the terms hereof except to the extent that such Consolidated Cash Flow would be permitted to be dividends to the Company without the prior consent or approval of any third party, (e) customary non-assignment provisions in leases entered into in the ordinary course of business, 30 (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the ability of any of the Company's Subsidiaries to transfer the property so acquired to the Company or any of its Subsidiaries, (g) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, or (h) the New Credit Facility and related documentation as the same is in effect on the date hereof and as amended or replaced from time to time, provided that no such amendment or replacement is more restrictive as to Transfer Restrictions than the New Credit Facility and related documentation as in effect on the date hereof. SECTION 4.09. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR") after the date hereof any Indebtedness (including Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) and the Company may issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least (x) 2.25 to 1 if such incurrence or issuance occurs on or before March 31, 1996, or (y) 2.5 to 1 if such incurrence or issuance occurs at any time thereafter, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. Indebtedness consisting of reimbursement obligations in respect of a letter of credit shall be deemed to be incurred when the letter of credit is first issued. The Company shall not permit any of the International Subsidiaries to incur any Indebtedness other than Non-Recourse Debt. The foregoing provisions shall not apply to: (a) the incurrence by the Company of Senior Term Debt pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding not to exceed an amount equal to $1.8 billion less the aggregate amount of all repayments, optional or mandatory, of the principal of any Senior Term Debt (other than repayments that are immediately reborrowed) that have been made since the date hereof; 31 (b) the incurrence by the Company of Senior Revolving Debt and letters of credit pursuant to the New Credit Facility in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential reimbursement obligation of the Company with respect thereto) not to exceed an amount equal to $500.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied to permanently reduce the commitments with respect to such Indebtedness pursuant to Section 4.10 hereof; (c) the incurrence by the Company of Indebtedness represented by the Securities; (d) the incurrence by the Company and its Subsidiaries of the Existing Indebtedness; (e) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease, or refund, Indebtedness that was permitted by this Indenture to be incurred (including, without limitation, Existing Indebtedness); (f) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms hereof to be outstanding or any receivable or liability the payments of which is determined by reference to a foreign currency; PROVIDED that the notional principal amount of any such Hedging Obligation does not exceed the principal amount of the Indebtedness to which such Hedging Obligation relates; (g) the incurrence by the Company or any of its Subsidiaries of Physician Support Obligations; (h) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; (i) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by performance bonds, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of the Company or such Subsidiary; (j) the incurrence by any Subsidiary of the Company of Indebtedness, the aggregate principal amount of which, together with all other Indebtedness of the Company's Subsidiaries at the time outstanding (excluding the Existing Indebtedness until repaid or refinanced and excluding Physician Support Obligations), does not exceed the greater of (1) 10% of the Company's Stockholders' Equity as of the date of incurrence or (2) $10.0 32 million; PROVIDED that, in the case of clause (1) only, the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Indebtedness is incurred would have been at least (x) 2.25 to 1 if such incurrence occurs on or before March 31, 1996, or (y) 2.5 to 1 if such incurrence occurs at any time thereafter, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if such Indebtedness had been incurred at the beginning of such four-quarter period; and (k) the incurrence by the Company of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount at any time outstanding not to exceed $250.0 million. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Subsidiaries to consummate an Asset Sale, unless (i) the Company (or the Subsidiary as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (as conclusively determined by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) except in the case of a sale of Specified Assets, at least 80% of the consideration therefor received by the Company or such Subsidiary is in the form of cash; PROVIDED, HOWEVER, that for purposes of this provision, (x) the amount of (a) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet or in the notes thereto), of the Company or any Subsidiary (other than, in the case of an Asset Sale by the Company, liabilities that are by their terms subordinated to the Securities that are assumed by the transferee of any such assets and (b) any securities or other obligations received by the Company or any such Subsidiary from such transferee that are immediately converted by the Company or such Subsidiary into cash (or as to which the Company or such Subsidiary has received at or prior to the consummation of the Asset Sale a commitment (which may be subject to customary conditions) from a nationally recognized investment, merchant or commercial bank to convert into cash within 90 days of the consummation of such Asset Sale and which are thereafter actually converted into cash within such 90-day period) shall be deemed to be cash (but shall not be deemed to be Net Proceeds for purposes of the following provisions until reduced to cash); and (y) the fair market value of any Non-Cash Consideration received by the Company or a Subsidiary in any Asset Sale shall be deemed to be cash (but shall not be deemed to be Net Proceeds for purposes of the following provisions until reduced to cash) to the extent that the aggregate fair market value (as conclusively determined by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of all Non-Cash Consideration (measured at the time received and without giving effect to any subsequent changes in value) held by the Company immediately after consummation of such Asset Sale does not exceed 10% of the Company's Stockholders' Equity as of the date of such consummation. Within 465 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds (i) to purchase one or more Hospitals or Related 33 Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Hospitals and/or one or more Related Businesses, (ii) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which the Company is permitted to be engaged pursuant to Section 4.15 hereof, (iii) to permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary, (iv) to permanently reduce Senior Revolving Debt (and to correspondingly reduce commitments with respect thereto), except that up to an aggregate of $200.0 million of Net Proceeds from Asset Sales may be applied after the date hereof to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto, or (v) to repurchase Senior Notes or redeem or repurchase other Senior Debt. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the terms hereof. Any Net Proceeds from Asset Sales that are not so invested or applied shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders of Securities (a "SENIOR SUBORDINATED ASSET SALE OFFER") to purchase the maximum principal amount of Securities that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "PURCHASE PRICE"), in accordance with the procedures set forth in Section 3.09 hereof. To the extent that the aggregate amount of Securities tendered pursuant to a Senior Subordinated Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Securities surrendered by holders pursuant to a Senior Subordinated Asset Sale Offer exceeds the amount of Excess Proceeds, the Securities shall be purchased on a PRO RATA basis. Upon completion of a Senior Subordinated Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION") unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that could have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction was approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness of such Affiliate Transaction to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing; PROVIDED that (x) transactions or payments pursuant to any employment arrangements or employee or director benefit plans entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Subsidiary, (y) transactions between or among the 34 Company and/or its Subsidiaries and (z) transactions permitted under Section 4.07 hereof, in each case, shall not be deemed to be Affiliate Transactions. SECTION 4.12. LIMITATIONS ON LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien to secure Indebtedness that is PARI PASSU with or subordinated in right of payment to the Securities (except Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom unless all payments due hereunder and under the Securities are secured on an equal and ratable basis with the Obligations so secured until such time as such Obligations are no longer secured by a Lien. SECTION 4.13. CHANGE OF CONTROL. Upon the occurrence of a Change of Control Triggering Event, each Holder of Securities shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon to the date of purchase (the "CHANGE OF CONTROL PAYMENT") on a date that is not more than 90 days after the occurrence of such Change of Control Triggering Event (the "CHANGE OF CONTROL PAYMENT DATE"). Within 30 days following any Change of Control Triggering Event, the Company shall mail, or at the Company's request the Trustee shall mail, a notice of a Change of Control to each Holder (at its last registered address with a copy to the Trustee and the Paying Agent) offering to repurchase the Securities held by such Holder pursuant to the procedure specified in such notice. The Change of Control Offer shall remain open from the time of mailing until the close of business on the Business Day next preceding the Change of Control Payment Date. The notice, which shall govern the terms of the Change of Control Offer, shall contain all instructions and materials necessary to enable the Holders to tender Securities pursuant to the Change of Control Offer and shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.13 and that all Securities tendered will be accepted for payment; (2) the Change of Control Payment and the Change of Control Payment Date, which date shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; (3) that any Security not tendered will continue to accrue interest in accordance with the terms of this Indenture; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to the 35 Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Security purchased pursuant to any Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day next preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the Business Day next preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Security purchased; (7) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; and (8) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information with respect to PRO FORMA historical financial information after giving effect to such Change of Control, information regarding the Person or Persons acquiring control and such Person's or Persons' business plans going forward) and any other information that would be material to a decision as to whether to tender a Security pursuant to the Change of Control Offer. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Securities or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers' Certificate stating the aggregate principal amount of Securities or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Securities so tendered the Change of Control Payment for such Securities, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; PROVIDED that each such new Security shall be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.13, but in any event within 90 days following a Change of Control Triggering Event, the Company shall either repay 36 all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Securities required by this Section 4.13. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Securities as a result of a Change of Control. SECTION 4.14. CORPORATE EXISTENCE. Subject to Section 4.13 and Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.15. LINE OF BUSINESS. The Company shall not, and shall not permit any of its Subsidiaries to, engage to any material extent in any business other than the ownership, operation and management of Hospitals and Related Businesses. SECTION 4.16. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. The Company shall not permit any Subsidiary, directly or indirectly, to Guarantee or secure the payment of any other Indebtedness of the Company or any of its Subsidiaries (except Indebtedness of a Subsidiary of such Subsidiary or Physician Support Obligations) unless such Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture, in substantially the form attached hereto as Exhibit B, providing for the Guarantee of the payment of the Securities by such Subsidiary, which Guarantee shall be subordinated to such Subsidiary's Guarantee of or pledge to secure such other Indebtedness to the same extent as the Securities are subordinated to such other Indebtedness under this Indenture. Any such Guarantee by a Subsidiary of the Securities shall provide by its terms that it shall be automatically and unconditionally released and discharged upon the sale or other disposition, by way of merger or otherwise, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Subsidiary, which sale or other disposition is made in compliance with, and the Net Proceeds therefrom are applied in accordance with, the 37 applicable provisions hereof. The foregoing provisions shall not be applicable to any one or more Guarantees of up to $10.0 million in aggregate principal amount of Indebtedness of the Company at any time outstanding. SECTION 4.17. NO SENIOR SUBORDINATED DEBT. The Company shall not incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Securities. ARTICLE 5 SUCCESSORS SECTION 5.01. LIMITATIONS ON MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the Obligations of the Company under this Indenture and the Securities pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (a) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (b) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness 38 pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel, covering clauses (i) through (iv) above, stating that the proposed transaction and such supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation), and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person has been named as the Company, herein. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following constitutes an "Event of Default": (i) default for 30 days in the payment when due of interest on the Securities, whether or not such payment is prohibited by the provisions of Article 10 hereof; (ii) default in payment when due of the principal of or premium, if any, on the Securities at maturity, upon redemption or otherwise, whether or not such payment is prohibited by the provisions of Article 10 hereof; (iii) failure by the Company to comply with the provisions of Sections 4.07, 4.09, 4.10 or 4.13 hereof; (iv) failure by the Company to comply with any other covenant or agreement in the Indenture or the Securities for the period and after the notice specified below; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant 39 Subsidiaries), whether such Indebtedness or Guarantee exists on the date hereof or is created after the date hereof, which default (a) constitutes a failure to pay principal at final maturity or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other Indebtedness that has not been paid at final maturity or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; (vii) the Company or any Significant Subsidiary thereof pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, or (e) admits in writing its inability generally to pay its debts as the same become due; and (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Significant Subsidiary in an involuntary case in which it is the debtor, (b) appoints a Custodian of the Company or any Significant Subsidiary thereof or for all or substantially all of the property of the Company or any Significant Subsidiary thereof, or (c) orders the liquidation of the Company or any Significant Subsidiary thereof, and the order or decree remains unstayed and in effect for 60 days. 40 The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (iv) is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in principal amount of the then outstanding Securities notify the Company and the Trustee in writing, of the Default and the Company does not cure the Default within 60 days after receipt of such notice. The written notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and any accrued and unpaid interest on all the Securities to be due and payable immediately. Upon such declaration the principal, premium, if any, and interest shall be due and payable immediately (together with the premium referred to in Section 6.01 hereof, if applicable). If an Event of Default specified in clause (vii) or (viii) of Section 6.01 hereof occurs with respect to the Company or any Significant Subsidiary thereof, such an amount shall IPSO FACTO become and be immediately due and payable without further action or notice on the part of the Trustee or any Holder. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to Section 3.07 hereof, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. If an Event of Default occurs prior to March 1, 2000 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Securities prior to March 1, 2000 pursuant to Section 3.07 hereof, then, a premium with respect thereto (expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence, plus accrued interest, if any, to the date of payment) shall become and be immediately due and payable to the extent permitted by law upon the accelerations of such Securities for each of the years beginning on March 1 of the years set forth below: YEAR PERCENTAGE ---- ---------- 1995 110.125% 1996 109.113% 1997 108.100% 41 1998 107.088% 1999 106.075% Any determination regarding the primary purpose of any such action or inaction, as the case may be, shall be made by and set forth in a resolution of the Board of Directors (including the concurrence of a majority of the independent directors of the Company then serving) delivered to the Trustee after consideration of the business reasons for such action or inaction, other than the avoidance of such prohibition on redemption. In the absence of fraud, each such determination shall be final and binding upon the Holders of Securities. Subject to Section 7.01 hereof, the Trustee shall be entitled to rely on the determination set forth in any such resolutions delivered to the Trustee. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under this Indenture, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on any Security. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders or that may involve the Trustee in personal liability. The Trustee may take any other action which it deems proper which is not inconsistent with any such direction. 42 SECTION 6.06. LIMITATION ON SUITS. A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the then outstanding Securities do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 5.01(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any other obligor for the whole amount of principal, premium, if any, and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover amounts due the Trustee under Section 7.07 hereof, including the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including 43 any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties which the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10 upon five Business Days prior notice to the Company. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable 44 attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Securities. ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (i) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (ii) Except during the continuance of an Event of Default known to the Trustee: (a) the duties of the Trustee shall be determined solely by the express provisions of this Indenture or the TIA and the Trustee need perform only those duties that are specifically set forth in this Indenture or the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and (b) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provisions hereof are required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (iii) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) this paragraph does not limit the effect of paragraph (ii) of this Section; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and 45 (c) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (iv) Whether or not therein expressly so provided every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (i), (ii), and (iii) of this Section. (v) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity satisfactory to it against any loss, liability or expense. (vi) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Absent written instruction from the Company, the Trustee shall not be required to invest any such money. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (vii) The Trustee shall not be deemed to have knowledge of any matter unless such matter is actually known to a Responsible Officer. SECTION 7.02. RIGHTS OF TRUSTEE. (i) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (ii) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (iii) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (iv) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. A permissive right granted to the Trustee hereunder shall not be deemed an obligation to act. (v) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. 46 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, nor shall it be accountable for the Company's use of the proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision of this Indenture, nor shall it be responsible for the use or application of any money received by any Paying Agent other than the Trustee, nor shall it be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each December 31 beginning with the December 31 following the date hereof, the Trustee shall mail to the Holders a brief report dated as of such report date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the Company and Trustee shall agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to 47 the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities, damages, claims or expenses incurred by it arising out of or in connection with the acceptance of its duties and the administration of the trusts under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vii) or (viii) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or 48 (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE OR AGENT BY MERGER, ETC. If the Trustee or any Agent consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee or Agent. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by federal or state authority and shall have a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). 49 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. DEFEASANCE AND DISCHARGE OF THIS INDENTURE AND THE SECURITIES. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, with respect to the Securities, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Securities upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) of this Section 8.02, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Securities to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (ii) the Company's obligations with respect to such Securities under Sections 2.04, 2.06, 2.07, 2.10 and 4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.07 hereof, and the Company's obligations in connection therewith and (iv) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof with respect to the Securities. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall be released from its obligations under the covenants contained in Sections 3.09, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 4.17 and Article 5 hereof with respect to the outstanding Securities on and after the date the conditions set forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Securities shall 50 thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(iii) hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, Sections 6.01(iv) through 6.01(vi) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to application of either Section 8.02 or Section 8.03 hereof to the outstanding Securities: (i) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who shall agree to comply with the provisions of this Article 8 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (a) cash in U.S. Dollars in an amount, or (b) non-callable Government Securities that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in U.S. Dollars in an amount, or (c) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest on the outstanding Securities on the stated maturity date of such principal or installment of principal, premium, if any, or interest or on the applicable redemption date, as the case may be, and the Company shall specify whether the Securities are being defeased to maturity or to a particular redemption date (in which case the Company shall issue an irrevocable notice of redemption as of a specified date that will be delivered by the Trustee in accordance with the redemption provisions of this Indenture). (ii) In the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal 51 Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred. (iii) In the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States confirming that the Holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred. (iv) No Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or, insofar as Section 6.01(vii) or 6.01(viii) hereof is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (v) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound (other than a breach, violation or default resulting from the borrowing of funds to be applied to such deposit). (vi) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. (vii) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit made by the Company pursuant to its election under Section 8.02 or 8.03 hereof was not made by the Company with the intent of preferring the Holders of the Securities over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others. (viii) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel in the United States, each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 8.02 hereof or the Covenant Defeasance under Section 8.03 hereof (as the case may be) have been complied with as contemplated by this Section 8.04. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 in respect 52 of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(i) hereof), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its written request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the NEW YORK TIMES and THE WALL STREET JOURNAL (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any U.S. Dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; PROVIDED, 53 HOWEVER, that, if the Company makes any payment of principal of, premium, if any, or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Security to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; (ii) to provide for uncertificated Securities in addition to or in place of certificated Securities; (iii) to provide for any supplemental indenture required pursuant to Section 4.16 hereof; (iv) to provide for the assumption of the Company's obligations to the Holders of the Securities in the case of a merger, consolidation or sale of assets pursuant to Article 5 hereof; (v) to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights hereunder of any Holder; or (vi) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into such supplemental indenture which affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS. Except as provided in the next succeeding paragraphs, this Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Securities), and any existing default 54 or compliance with any provision of this Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for such Securities). Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. Without the consent of each Holder affected, however, an amendment or waiver may not (with respect to any Security held by a non-consenting Holder): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities (other than provisions relating to covenants in Sections 4.10 and 4.13 hereof); (iii) reduce the rate of or change the time for payment of interest on any Security; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration); (v) make any Security payable in money other than that stated in the Securities; 55 (vi) make any change in Section 6.04 or 6.07 hereof; (vii) waive a redemption payment with respect to any Security (other than a payment required under Section 4.10 or 4.13 hereof); or (viii) make any change in this sentence of this Section 9.02. Notwithstanding the foregoing, any amendment to the provisions of Article 10 hereof shall require the consent of the Holders of at least 75% in aggregate principal amount of the Securities then outstanding if such amendment would adversely affect the rights of the Holders of the Securities. SECTION 9.03. COMPLIANCE WITH TIA. Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.05 hereof or (ii) such other date as the Company shall designate. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities 56 or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 7.01 hereof, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or Supplemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors approves it. ARTICLE 10 SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Security agrees, that the Indebtedness evidenced by the Security is subordinated in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or Guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. SECTION 10.02. CERTAIN DEFINITIONS. "Designated Senior Debt" means (i) so long as any Obligations are outstanding under the New Credit Facility, such Obligations and (ii) thereafter, any other Senior Debt permitted hereunder the principal amount of which is $100.0 million or more and that has been designated by the Company as "Designated Senior Debt". "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Senior Debt" means (i) the Senior Term Debt and the Senior Revolving Debt, (ii) the Senior Notes, (iii) any other Indebtedness that is permitted to be incurred by the Company under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Securities and (iv) all Obligations with respect to any of the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. A distribution may consist of cash, securities or other property, by set-off or otherwise. SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. 57 Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest accruing after the commencement of any such proceeding at the rate specified in the applicable Senior Debt, whether or not allowed or allowable as a claim in such proceeding) before the Holders shall be entitled to receive any payment with respect to the Securities, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the Holders would be entitled shall be made to the holders of Senior Debt (except (a) that Holders may receive securities that (i) are subordinated at least to the same extent as the Securities to Senior Debt and any securities issued in exchange for Senior Debt, (ii) are unsecured (except to the extent the Securities are secured), (iii) are not Guaranteed by any Subsidiary of the Company (except to the extent the Securities are so Guaranteed), and (iv) have a Weighted Average Life to Maturity and final maturity that are not shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to holders of Senior Debt under the New Credit Facility pursuant to a plan of reorganization or readjustment and (b) payments made from the trust described in Section 8.04). SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT. The Company may not make any payment upon or in respect of the Securities (except in securities that (i) are subordinated to at least the same extent as the Securities to Senior Debt and any securities issued in exchange for Senior Debt, (ii) are unsecured (except to the extent the Securities are secured), (iii) are not Guaranteed by any Subsidiary of the Company (except to the extent the Securities are so Guaranteed), and (iv) have a Weighted Average Life to Maturity and final maturity that are not shorter than the Weighted Average Life to Maturity of the Securities or any securities issued to Holders of Senior Debt under the New Credit Facility pursuant to a plan of reorganization or readjustment or from the trust described in Section 8.04 hereof) if; (i) a default in the payment of the principal of, premium, if any or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice"), for so long as any Obligations are outstanding under the New Credit Facility, from the Representative thereunder and, thereafter, from the holders or Representative of any Designated Senior Debt. No new period of payment blockage may be commenced within 360 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. 58 The Company may and shall resume payments on the Securities: (1) in the case of a payment default, upon the date on which such default is cured or waived, and (2) in the case of a nonpayment default referred to in Section 10.04(ii) hereof, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. SECTION 10.05. ACCELERATION OF SECURITIES. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Securities at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Securities to violate this Article, but failure to give such notice shall not affect the subordination of the Securities to the Senior Debt as provided in this Article. SECTION 10.08. SUBROGATION. 59 After all Senior Debt is paid in full and until the Securities are paid in full, Holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Securities) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt. A distribution made under this Article to holders of Senior Debt that otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the Company on the Securities. SECTION 10.09. RELATIVE RIGHTS. This Article defines the relative rights of Holders and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; (2) affect the relative rights of Holders and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders. If the Company fails because of this Article to pay principal of or interest on a Security on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. 60 SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Securities, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Securities to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of a Security by the Holder's acceptance thereof authorizes and directs the Trustee on the Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for any and all such purposes. SECTION 10.14. AMENDMENTS. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt. ARTICLE 11 MISCELLANEOUS SECTION 11.01. TIA CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 11.02. NOTICES. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the other's address: 61 If to the Company: National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Telecopier No.: (310) 998-6700 Attention: Treasurer With a copy to: Skadden, Arps, Slate, Meagher & Flom 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Telecopier No.: (213) 687-5600 Attention: Thomas C. Janson, Jr. If to the Trustee: The Bank of New York 101 Barclay Street, 21 West New York, New York 10286 Telecopier No.: (212) 815-5915 Attention: Corporate Trust Trustee Administration The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Unless otherwise set forth above, any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. 62 SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been satisfied; PROVIDED, HOWEVER, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. 63 SECTION 11.07. LEGAL HOLIDAYS. A "LEGAL HOLIDAY" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. SECTION 11.09. DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. SECTION 11.10. GOVERNING LAW. The internal law of the State of New York shall govern and be used to construe this Indenture and the Securities, without regard to the conflict of laws provisions thereof. SECTION 11.11. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.12. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.13. SEVERABILITY. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 64 SECTION 11.14. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. 65 SIGNATURES Dated as of _______________ NATIONAL MEDICAL ENTERPRISES, INC. By: ------------------------------------- Name: Terence P. McMullen Title: Senior Vice President Attest: ___________________________ (SEAL) Richard B. Silver Dated as of _______________ THE BANK OF NEW YORK, as Trustee By: ------------------------------------- Name: Title: Attest: ____________________________ (SEAL) 66 EXHIBIT A (Face of Security) 10 1/8% Senior Subordinated Note due March 1, 2005 CUSIP: No. $____________ NATIONAL MEDICAL ENTERPRISES, INC. promises to pay to _________________________________________________________________________ or its registered assigns, the principal sum of ________________________________ Dollars on March 1, 2005. Interest Payment Dates: March 1 and September 1, commencing September 1, 1995. Record Dates: February 15 and August 15 (whether or not a Business Day). NATIONAL MEDICAL ENTERPRISES, INC. By: _________________________ Dated: __________, ____ (SEAL) Trustee's Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture: The Bank of New York, as Trustee By: ___________________________ Authorized Signatory A-2 (Back of Security) 10 1/8% SENIOR SUBORDINATED NOTE due March 1, 2005 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. INTEREST. National Medical Enterprises, Inc., a Nevada corporation (the "COMPANY"), promises to pay interest on the principal amount of this Security at the rate and in the manner specified below. The Company shall pay interest in cash on the principal amount of this Security at the rate per annum of 10 1/8%. The Company shall pay interest semiannually in arrears on March 1 and September 1 of each year, commencing September 1, 1995 to Holders of record on the immediately preceding February 15 and August 15, respectively, or if any such date of payment is not a Business Day on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Securities. To the extent lawful, the Company shall pay interest on overdue principal at the rate of 1% per annum in excess of the interest rate then applicable to the Securities; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. METHOD OF PAYMENT. The Company shall pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date next preceding the Interest Payment Date, even if such Securities are cancelled after such record date and on or before such Interest Payment Date. The Holder hereof must surrender this Security to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Principal, premium, if any, and interest shall be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holder's registered address. Notwithstanding the foregoing, all payments with respect to Securities the Holders of which have given wire transfer instructions, on or before the relevant record date, to the Paying Agent shall be made by wire transfer of immediately available funds to the accounts specified by such Holders. 3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Holder. The Company and any of its Subsidiaries may act in any such capacity. A-3 4. INDENTURE. The Company issued the Securities under an Indenture, dated as of March 1, 1995 (the "INDENTURE"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Securities. The Securities are unsecured general obligations of the Company. The Securities are limited to $900,000,000 in aggregate principal amount. 5. OPTIONAL REDEMPTION. On or after March 1, 2000, the Company may redeem all or any portion of the Securities at a redemption price (expressed as a percentage of the principal amount thereof), as set forth in the immediately succeeding paragraph, plus accrued and unpaid interest, if any, to the redemption date. The redemption price as a percentage of the principal amount shall be as follows, if the Securities are redeemed during the twelve-month period beginning on March 1 of the following years: YEAR PERCENTAGE ---- ---------- 2000.................................... 105.063 % 2001.................................... 103.375 % 2002.................................... 101.688 % 2003 and thereafter..................... 100.000 % 6. MANDATORY REDEMPTION. Subject to the Company's obligation to make an offer to repurchase Securities under certain circumstances pursuant to Sections 4.10 and 4.13 of the Indenture (as described in paragraph 7 below), the Company shall have no mandatory redemption or sinking fund obligations with respect to the Securities. 7. REPURCHASE AT OPTION OF HOLDER. (i) If there is a Change of Control Triggering Event, the Company shall offer to repurchase on the Change of Control Payment Date all outstanding Securities at 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the Change of Control Payment Date. Holders that are subject to an offer to purchase shall receive a Change of Control Offer from the Company prior to any related Change of Control Payment Date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. (ii) If the Company or a Subsidiary consummates an Asset Sale, within 465 days after the receipt of any Net Proceeds from such Asset Sale, the Company may apply such Net Proceeds (a) to purchase one or more Hospitals or Related Businesses and/or a controlling interest in the Capital Stock of a Person owning one or more Hospitals and/or one or more Related Businesses, (b) to make a capital expenditure or to acquire other tangible assets, in each case, that are used or useful in any business in which the Company is permitted to be engaged pursuant to Section 4.15 of the Indenture, (c) to permanently reduce Senior Term Debt or Existing Indebtedness of a Subsidiary, (d) to permanently reduce Senior Revolving Debt (and A-4 to correspondingly reduce commitments with respect thereto), except that up to an aggregate of $200.0 million of Net Proceeds from Asset Sales may be applied after the date of the Indenture to reduce Senior Revolving Debt without a corresponding reduction in commitments with respect thereto or (e) to repurchase Senior Notes or redeem or repurchase other Senior Debt. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not so invested or applied shall be deemed to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company shall make an offer to all Holders of Securities (a "SENIOR SUBORDINATED ASSET SALE OFFER") to purchase the maximum principal amount of Securities that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase, in accordance with the terms of the Indenture. To the extent that the aggregate amount of Securities tendered pursuant to a Senior Subordinated Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Securities surrendered by Holders pursuant to a Senior Subordinated Asset Sale Offer exceeds the amount of Excess Proceeds, the Securities shall be purchased on a PRO RATA basis. Holders that are the subject of an offer to purchase shall receive a Senior Subordinated Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Securities purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below. 8. SUBORDINATION. The Securities are subordinated to Senior Debt (as defined in the Indenture), which includes any Indebtedness arising under or in connection with (a) the Senior Notes, (b) the New Credit Facility (but only to the extent permitted under Section 4.09 of the Indenture), and (c) all other Indebtedness permitted by the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Securities and all Obligations (as defined in the Indenture) of the Company with respect to any of the foregoing. To the extent provided in the Indenture, Senior Debt must be paid before the Securities may be paid. The Company agrees, and each Holder by accepting a Security consents and agrees, to the subordination provided in the Indenture and authorizes the Trustee to give it effect. 9. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities may be redeemed in part but only in whole multiples of $1,000, unless all of the Securities held by a Holder are to be redeemed. On and after the redemption date, interest ceases to accrue on Securities or portions of them called for redemption. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in registered form without coupons, and in denominations of $1,000 and integral multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Securities between a record date and the corresponding Interest Payment Date. A-5 11. PERSONS DEEMED OWNERS. Prior to due presentment to the Trustee for registration of the transfer of this Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name this Security is registered as its absolute owner for the purpose of receiving payment of principal of, premium, if any, and interest on this Security and for all other purposes whatsoever, whether or not this Security is overdue, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. The registered Holder of a Security shall be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVERS. Except as provided in the next succeeding paragraphs, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange offer for Securities) and any existing default or compliance with any provision of the Indenture or the Securities may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities (including consents obtained in connection with a tender offer or exchange offer for Securities). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Securities held by a non-consenting Holder of Securities): (i) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Security or alter the provisions with respect to the redemption of the Securities (other than provisions relating to covenants in Sections 4.10 and 4.13 of the Indenture), (iii) reduce the rate of or change the time for payment of interest on any Security, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Securities, (except a rescission of acceleration of the Securities by the Holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such acceleration), (v) make any Security payable in money other than that stated in the Securities, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Securities to receive payments of principal of or premium, if any, or interest on the Securities, (vii) waive a redemption payment with respect to any Security (other than a payment required under Section 4.10 or 4.13 of the Indenture) or (viii) make any change in the foregoing amendment and waiver provisions. Any amendment to the provisions of Article 10 of the Indenture shall require the consent of the Holders of at least 75% in aggregate principal amount of the Securities then outstanding if such amendment would adversely affect the rights of the Holders of the Securities. Notwithstanding the foregoing, without the consent of any Holder of Securities, the Company and the Trustee may amend or supplement the Indenture or the Securities to cure any ambiguity, defect or inconsistency, to provide for uncertificated Securities in addition to or in place of certificated Securities, to provide for any supplemental indenture required pursuant to Section 4.16 of the Indenture, to provide for the assumption of the Company's obligations to Holders of the Securities in the case of a merger, consolidation or sale of assets, to make any change that would provide any additional rights or benefits to the Holders of the Securities or that does not adversely affect the legal rights under the Indenture of any such Holder, or to A-6 comply with requirements of the Securities and Exchange Commission (the "COMMISSION") in order to effect or maintain the qualification of the Indenture under the TIA. 13. DEFAULTS AND REMEDIES. Events of Default under the Indenture include: (i) a default for 30 days in the payment when due of interest on the Securities, whether or not such payment is prohibited by the provisions of Article 10 of the Indenture; (ii) a default in payment when due of the principal of or premium, if any, on the Securities, at maturity, upon redemption or otherwise, whether or not such payment is prohibited by the provisions of Article 10 of the Indenture; (iii) a failure by the Company to comply with the provisions described under the covenants "Limitations on Restricted Payments," "Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock," "Asset Sales," and "Change of Control;" (iv) a failure by the Company for 60 days after notice to comply with any of its other agreements in the Indenture or the Securities; (v) any default that occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or Guarantee exists on the date of the Indenture, or is created after the date of the Indenture, which default (a) constitutes a failure to pay principal at final maturity or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness that has not been paid at final maturity or that has been so accelerated, aggregates $25.0 million or more; (vi) failure by the Company or any of its Significant Subsidiaries to pay a final judgment or final judgments aggregating in excess of $25.0 million entered by a court or courts or competent jurisdiction against the Company or any of its Significant Subsidiaries if such final judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days after their entry; and (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities by written notice to the Company and the Trustee, may declare all the Securities to be due and payable immediately (plus, in the case of an Event of Default that is the result of willful actions (or inactions) by or on behalf of the Company intended to avoid prohibitions on, or premiums related to, redemptions of the Securities contained in the Indenture or the Securities, an amount of premium that would have been applicable pursuant to the Indenture). Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary thereof, all outstanding Securities shall become due and payable without further action or notice. Holders of the Securities may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to certain limitation, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Securities notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in such Holders' interest. The Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Securities waive any existing Default or Event of Default and its consequences under the A-7 Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Securities. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions, repurchase Equity Interests or subordinated indebtedness, create certain liens, enter into certain transactions with affiliates, sell assets of the Company or its Subsidiaries, issue or sell Equity Interests of the Company's Subsidiaries, issue Guarantees of Indebtedness by the Company's Subsidiaries and enter into certain mergers and consolidations. 15. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 16. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND Shareholders. No director, officer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 17. AUTHENTICATION. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. A-8 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Attention: Treasurer A-9 ASSIGNMENT FORM To assign this Security, fill in the form below: For value received, (I) or (we) hereby sell, assign and transfer this Security to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and do hereby irrevocably constitute and appoint______________________________ Attorney to transfer this Security on the books of the Company with full power of substitution in the premises. ______________________________________________________________________________ Date: ______________ Your Signature:______________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.* __________ *Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Security purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, check the appropriate box: / / Section 4.10 / / Section 4.13 (Asset Sale) (Change of Control) If you want to have only part of the Security purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the amount you elect to have purchased: $ _______________ Date:____________ Your Signature:______________________________ (Sign exactly as your name appears on the face of this Security) Signature Guarantee.* __________ *Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-11 EXECUTION COPY ________________________________________________________________________________ ________________________________________________________________________________ NATIONAL MEDICAL ENTERPRISES, INC. ______________________________________ $900,000,000 10 1/8% SENIOR SUBORDINATED NOTES due 2005 _____________________________________ ______________________ INDENTURE Dated as of March 1, 1995 ______________________ ________________________________________ THE BANK OF NEW YORK ________________________________________ as Trustee ________________________________________________________________________________ ________________________________________________________________________________ CROSS-REFERENCE TABLE* TRUST INDENTURE ACT SECTION INDENTURE SECTION - --------------- ----------------- 310 (a)(1)............................................ 7.10 (a)(2)............................................. 7.10 (a)(3)............................................. N.A. (a)(4)............................................. N.A. (a)(5)............................................. 7.10 (b) ............................................... 7.08; 7.10 (c) ............................................... N.A. 311 (a) .............................................. 7.11 (b) ............................................... 7.11 (c) ............................................... N.A. 312 (a)............................................... 2.05 (b)................................................ 11.03 (c) ............................................... 11.03 313 (a) .............................................. 7.06 (b)(1) ............................................ N.A. (b)(2) ............................................ 8.06 (c) ...............................................7.06; 11.02 (d)................................................ 7.06 314 (a) ..............................................4.03; 11.02 (b) ............................................... N.A. (c)(1)............................................. 11.04 (c)(2)............................................. 11.04 (c)(3)............................................. N.A. (d)................................................ N.A. (e) .............................................. 11.05 (f)................................................ N.A. 315 (a)...............................................7.01(ii)(b) (b)................................................7.05; 11.02 (c) .............................................. 7.01(i) (d)................................................ 7.01(iii) (e)................................................ 6.11 316 (a)(last sentence) ............................... 2.09 (a)(1)(a).......................................... 6.05 (a)(1)(b) ......................................... 6.04 (a)(2)............................................. N.A. (b) ............................................... 6.07 (c) ............................................... 2.13; 8.04 317 (a)(1) ........................................... 6.08 (a)(2)............................................. 6.09 (b) ............................................... 2.04 318 (a)............................................... 11.01 (b)................................................ N.A. (c)................................................ 11.01 N.A. means not applicable. ____________________________ *THIS CROSS-REFERENCE TABLE IS NOT PART OF THE INDENTURE. TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions................................ 1 Section 1.02. Other Definitions.......................... 13 Section 1.03. Incorporation by Reference of TIA.......... 14 Section 1.04. Rules of Construction...................... 14 ARTICLE 2 THE SECURITIES Section 2.01. Form and Dating............................ 15 Section 2.02. Execution and Authentication............... 15 Section 2.03. Registrar and Paying Agent................. 15 Section 2.04. Paying Agent to Hold Money in Trust........ 16 Section 2.05. Holder Lists............................... 16 Section 2.06. Transfer and Exchange...................... 16 Section 2.07. Replacement Securities..................... 17 Section 2.08. Outstanding Securities..................... 17 Section 2.09. Treasury Securities........................ 18 Section 2.10. Temporary Securities....................... 18 Section 2.11. Cancellation............................... 18 Section 2.12. Defaulted Interest......................... 19 Section 2.13. Record Date................................ 19 Section 2.14. CUSIP Number............................... 19 ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee......................... 19 Section 3.02. Selection of Securities to Be Redeemed..... 20 Section 3.03. Notice of Redemption....................... 20 Section 3.04. Effect of Notice of Redemption............. 21 Section 3.05. Deposit of Redemption Price................ 21 Section 3.06. Securities Redeemed in Part................ 22 Section 3.07. Optional Redemption........................ 22 Section 3.08. Mandatory Redemption....................... 22 Section 3.09. Offer to Purchase By Application of Excess Proceeds................................... 22 i Page ARTICLE 4 COVENANTS Section 4.01. Payment of Securities...................... 25 Section 4.02. Maintenance of Office or Agency............ 25 Section 4.03. Commission Reports......................... 26 Section 4.04. Compliance Certificate..................... 27 Section 4.05. Taxes...................................... 27 Section 4.06. Stay, Extension and Usury Laws............. 28 Section 4.07. Limitations on Restricted Payments......... 28 Section 4.08. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries........ 30 Section 4.09. Limitations on Incurrence of Indebtedness and Issuance of Preferred Stock............ 31 Section 4.10. Asset Sales................................ 33 Section 4.11. Limitations on Transactions with Affiliates 34 Section 4.12. Limitations on Liens....................... 35 Section 4.13. Change of Control.......................... 35 Section 4.14. Corporate Existence........................ 37 Section 4.15. Line of Business........................... 37 Section 4.16. Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries............... 37 Section 4.17. No Senior Subordinated Debt................ 38 ARTICLE 5 SUCCESSORS Section 5.01. Limitations On Mergers, Consolidations or Sales of Assets............................ 38 Section 5.02. Successor Corporation Substituted.......... 39 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default.......................... 39 Section 6.02. Acceleration............................... 41 Section 6.03. Other Remedies............................. 42 Section 6.04. Waiver of Past Defaults.................... 42 Section 6.05. Control by Majority........................ 42 Section 6.06. Limitation on Suits........................ 43 Section 6.07. Rights of Holders to Receive Payment....... 43 Section 6.08. Collection Suit by Trustee................. 43 Section 6.09. Trustee May File Proofs of Claim........... 44 Section 6.10. Priorities................................. 44 Section 6.11. Undertaking for Costs...................... 45 ii Page ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee.......................... 45 Section 7.02. Rights of Trustee.......................... 46 Section 7.03. Individual Rights of Trustee............... 47 Section 7.04. Trustee's Disclaimer....................... 47 Section 7.05. Notice of Defaults......................... 47 Section 7.06. Reports by Trustee to Holders.............. 47 Section 7.07. Compensation and Indemnity................. 48 Section 7.08. Replacement of Trustee..................... 48 Section 7.09. Successor Trustee or Agent by Merger, etc.. 49 Section 7.10. Eligibility; Disqualification.............. 49 Section 7.11. Preferential Collection of Claims Against Company.................................... 50 ARTICLE 8 DISCHARGE OF INDENTURE Section 8.01. Defeasance and Discharge of this Indenture and the Securities......................... 50 Section 8.02. Legal Defeasance and Discharge............. 50 Section 8.03. Covenant Defeasance........................ 51 Section 8.04. Conditions to Legal or Covenant Defeasance. 51 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions................................. 53 Section 8.06. Repayment to Company....................... 53 Section 8.07. Reinstatement.............................. 54 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders................. 54 Section 9.02. With Consent of Holders.................... 55 Section 9.03. Compliance with TIA........................ 56 Section 9.04. Revocation and Effect of Consents.......... 56 Section 9.05. Notation on or Exchange of Securities...... 57 Section 9.06. Trustee to Sign Amendments, etc............ 57 ARTICLE 10 SUBORDINATION Section 10.01. Agreement to Subordinate.................. 57 Section 10.02. Certain Definitions....................... 57 Section 10.03. Liquidation; Dissolution; Bankruptcy...... 58 iii Page Section 10.04. Default on Designated Senior Debt......... 58 Section 10.05. Acceleration of Securities................ 59 Section 10.06. When Distribution Must Be Paid Over....... 59 Section 10.07. Notice by Company......................... 60 Section 10.08. Subrogation............................... 60 Section 10.09. Relative Rights........................... 60 Section 10.10. Subordination May Not Be Impaired by Company................................... 60 Section 10.11. Distribution or Notice to Representative.. 60 Section 10.12. Rights of Trustee and Paying Agent........ 61 Section 10.13. Authorization to Effect Subordination..... 61 Section 10.14. Amendments................................ 61 ARTICLE 11 MISCELLANEOUS Section 11.01. TIA Controls.............................. 61 Section 11.02. Notices................................... 62 Section 11.03. Communication by Holders with Other Holders................................... 63 Section 11.04. Certificate and Opinion as to Conditions Precedent................................. 63 Section 11.05. Statements Required in Certificate or Opinion................................... 63 Section 11.06. Rules by Trustee and Agents............... 64 Section 11.07. Legal Holidays............................ 64 Section 11.08. No Personal Liability of Directors, Officers, Employees and Shareholders...... 64 Section 11.09. Duplicate Originals....................... 64 Section 11.10. Governing Law............................. 64 Section 11.11. No Adverse Interpretation of Other Agreements................................ 64 Section 11.12. Successors................................ 64 Section 11.13. Severability.............................. 65 Section 11.14. Counterpart Originals..................... 65 Section 11.15. Table of Contents, Headings, etc.......... 65 EXHIBITS Exhibit A FORM OF SECURITY............................ A Exhibit B FORM OF SUPPLEMENTAL INDENTURE.............. B iv EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, between __________________ (the "Guarantor"), a subsidiary of National Medical Enterprises, Inc. (or its successor), a Nevada corporation (the "Company"), and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of March 1, 1995, providing for the issuance of an aggregate principal amount of $900,000,000 of 10 1/8% Senior Subordinated Notes due 2005 (the "Securities"); WHEREAS, Section 4.16 of the Indenture provides that under certain circumstances the Company is required to cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall guarantee the payment of the Securities pursuant to a Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Securities as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company hereunder and thereunder, that: (a) the principal of, premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, that same will be promptly paid in full when due or B-1 performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed for whatever reason the Guarantor shall be obligated to pay the same immediately. An Event of Default under the Indenture or the Securities shall constitute an event of default under this Guarantee, and shall entitle the Holders of Securities to accelerate the Obligations of the Guarantor hereunder in the same manner and to the same extent as the Obligations of the Company. The Guarantor hereby agrees that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Securities or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Guarantee will not be discharged except by complete performance of the Obligations contained in the Securities and the Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantor, any amount paid by either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. The Guarantor agrees that it shall not be entitled to, and hereby waives, any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby. The Guarantor further agrees that, as between the Guarantor, on one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of this Guarantee. 3. Execution and Delivery of Guarantee. To evidence its Guarantee set forth in Section 2, the Guarantor hereby agrees that a notation of such Guarantee substantially in the form of EXHIBIT A shall be endorsed by an officer of such Guarantor on each Security authenticated and delivered by the Trustee and that this Supplemental Indenture shall be executed on behalf of such Guarantor, by manual or facsimile signature, by its President or one of its Vice Presidents. The Guarantor hereby agrees that its Guarantee set forth in Section 2 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer whose signature is on this Supplemental Indenture or on the Guarantee no longer holds that office at the time the Trustee authenticates the Security on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. B-2 The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors. 4. GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Except as set forth in Articles 4 and 5 of the Indenture, nothing contained in this Supplemental Indenture or in the Securities shall prevent any consolidation or merger of the Guarantor with or into the Company or any Subsidiary of the Company that has executed and delivered a supplemental indenture substantially in the form hereof or shall prevent any sale or conveyance of the property of the Guarantor as an entirety or substantially as an entirety, to the Company or any such Subsidiary of the Company. (b) Except as provided in Section 4(a) hereof or in a transaction referred to in Section 5 hereof, the Guarantor shall not consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person unless (1) either (x) the Guarantor shall be the surviving Person of such merger or consolidation or (y) the surviving Person or transferee is a corporation, partnership or trust organized and existing under the laws of the United States, any state thereof or the District of Columbia and such surviving Person or transferee shall expressly assume all the obligations of the Guarantor under this Guarantee and the Indenture pursuant to a supplemental indenture substantially in the form hereof; (2) immediately after giving effect to such transaction (including the incurrence of any Indebtedness incurred or anticipated to be incurred in connection with such transaction) no Default or Event of Default shall have occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the Indenture, that the surviving Person agrees to be bound thereby, and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Guarantor, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Guarantor, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Guarantor. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Guarantor in accordance with this Section 4(b) hereof, the successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees had been issued at the date of the execution hereof. B-3 5. RELEASES FOLLOWING SALE OF ASSETS. Concurrently with any sale, lease, conveyance or other disposition (by merger, consolidation or otherwise) of assets of the Guarantor (including, if applicable, disposition of all of the Capital Stock of the Guarantor), any Liens in favor of the Trustee in the assets sold, leased, conveyed or otherwise disposed of shall be released; PROVIDED that in the event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds therefrom are applied, in accordance with Section 4.10 of the Indenture. If the assets sold, leased, conveyed or otherwise disposed of (by merger, consolidation or otherwise) include all or substantially all of the assets of the Guarantor or all of the Capital Stock of the Guarantor in each case, in compliance with the terms of the Indenture, then the Guarantor shall be automatically and unconditionally released from and relieved of its Obligations under its Guarantee; PROVIDED that in the event of an Asset Sale, such Asset Sale is effected, and the Net Proceeds therefrom are applied, in accordance with Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale, lease, conveyance or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation of Section 4.10 thereof, if applicable, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guarantor from its Obligations under its Guarantee. Nothing herein shall relieve the Company from its obligation to apply the proceeds of any Asset Sale as provided in Section 4.10 of the Indenture. 6. LIMITATION ON GUARANTOR LIABILITY. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (a) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (b) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). In making any determination as to the solvency or sufficiency of capital of the Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have executed and delivered a supplemental indenture substantially in the form hereof and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. 7. "TRUSTEE" TO INCLUDE PAYING AGENT. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting under the Indenture, the term "Trustee" as used in this Supplemental Indenture shall in each case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Supplemental Indenture in place of the Trustee. B-4 8. SUBORDINATION. The Obligations of the Guarantor to the Holders of the Securities and to the Trustee pursuant to this Guarantee are subordinated to the Guarantor's Guarantee of or pledge to secure [the Indebtedness giving rise to the requirement to execute this Guarantee pursuant to Section 4.16 of the Indenture] to the same extent as the Securities are subordinated to such other Indebtedness under the Indenture. 9. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantor under the Securities, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Securities by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 10. NEW YORK LAW TO GOVERN. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture. 11. COUNTERPARTS The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 12. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _________________ ___, ____ [Guarantor] By: ______________________________ Name: Title: The Bank of New York, as Trustee By: ______________________________ Name: Title: B-5 EXHIBIT A TO SUPPLEMENTAL INDENTURE GUARANTEE The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Securities or the Obligations of the Company to the Holders or the Trustee under the Securities or under the Indenture, that: (a) the principal of, and premium, if any, and interest on the Securities will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on overdue principal, premium, if any, and (to the extent permitted by law) interest on any interest on the Securities and all other payment Obligations of the Company to the Holders or the Trustee under the Indenture or under the Securities will be promptly paid in full, all in accordance with the terms thereof; and (b) in case of any extension of time of payment or renewal of any Securities or any of such other payment Obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when due of any amount so guaranteed, for whatever reason, the Guarantor shall be obligated to pay the same immediately. The obligations of the Guarantor to the Holders of Securities and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in a Supplemental Indenture, dated as of _________ __, ____ to the Indenture, and reference is hereby made to the Indenture, as supplemented, for the precise terms of this Guarantee. This is a continuing Guarantee and shall remain in full force and effect and shall be binding upon the Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Securities and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders of Securities and, in the event of any transfer or assignment of rights by any Holder of Securities or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This a Guarantee of payment and not a guarantee of collection. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized signatories. For purposes hereof, the Guarantor's liability will be that amount from time to time equal to the aggregate liability of the Guarantor hereunder, but shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Securities and the Indenture and (ii) the amount, if any, which would not have (a) rendered the Guarantor "insolvent" (as such term is defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of New York) or (b) left it with unreasonably small capital at the time its Guarantee of the Securities was entered into, after giving effect to the incurrence of existing B-6 Indebtedness immediately prior to such time; PROVIDED that it shall be a presumption in any lawsuit or other proceeding in which the Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of the Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii). The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of the Guarantor to contribution from other Subsidiaries of the Company that have become Guarantors and any other rights the Guarantor may have, contractual or otherwise, shall be taken into account. The Obligations of the Guarantor to the Holders of the Securities and to the Trustee pursuant to this Guarantee are subordinated to the Guarantor's Guarantee of or pledge to secure [the Indebtedness giving rise to the requirement to execute this Guarantee pursuant to Section 4.16 of the Indenture] to the same extent as the Securities are subordinated to such other Indebtedness under the Indenture. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. [GUARANTOR] By:_________________________ Name: Title: B-7 EX-10.(A) 5 EXHIBIT 10(A) Exhibit 10(a) CONFORMED COPY $2,300,000,000 CREDIT AGREEMENT dated as of February 28, 1995 among National Medical Enterprises, Inc. The Lenders Party Hereto Morgan Guaranty Trust Company of New York Bank of America National Trust and Savings Association The Bank of New York Bankers Trust Company as Arranging Agents and Morgan Guaranty Trust Company of New York as Administrative Agent ------------------- Arranged by: J.P. Morgan Securities Inc. BA Securities, Inc. The Bank of New York BT Securities Corporation as Co-Arrangers TABLE OF CONTENTS* Page ---- ARTICLE I DEFINITIONS SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . 2 SECTION 1.02. Accounting Terms and Determinations . . . . . . . 28 SECTION 1.03. Tranches and Types of Borrowings. . . . . . . . . 28 ARTICLE II THE CREDITS SECTION 2.01. Term Commitments. . . . . . . . . . . . . . . . . 28 SECTION 2.02. Revolving Credit Commitments. . . . . . . . . . . 29 SECTION 2.03. Notice of Syndicated Borrowing. . . . . . . . . . 29 SECTION 2.04. Notice to Lenders; Funding of Syndicated Loans . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 2.05. Notes . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 2.06. Scheduled Amortization and Mandatory Prepayments of Term Loans . . . . . . . . . . . . 32 SECTION 2.07. Maturity and Mandatory Prepayments of Revolving Credit Loans. . . . . . . . . . . . . . 35 SECTION 2.08. Optional Prepayments. . . . . . . . . . . . . . . 36 SECTION 2.09. Notice of Syndicated Prepayment . . . . . . . . . 36 SECTION 2.10. Interest Rates. . . . . . . . . . . . . . . . . . 37 SECTION 2.11. Method of Electing Interest Rates . . . . . . . . 38 SECTION 2.12. Commitment Fees . . . . . . . . . . . . . . . . . 40 SECTION 2.13. Termination or Reduction of Commitments . . . . . 40 SECTION 2.14. Letters of Credit . . . . . . . . . . . . . . . . 41 SECTION 2.15. General Provisions as to Payments . . . . . . . . 49 SECTION 2.16. Funding Losses. . . . . . . . . . . . . . . . . . 50 - --------------------------- * The Table of Contents is not a part of this Agreement. i Page ---- SECTION 2.17. Computation of Interest and Fees. . . . . . . . . 50 SECTION 2.18. Swingline Loans.. . . . . . . . . . . . . . . . . 51 ARTICLE III CONDITIONS SECTION 3.01. Closing . . . . . . . . . . . . . . . . . . . . . 53 SECTION 3.02. Release of NME's Existing Security Interests and NME Hospitals' Existing Guarantees. . . . . . . . . . . . . . . . . . . . 58 SECTION 3.03. Borrowings. . . . . . . . . . . . . . . . . . . . 59 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power . . . . . . . . . . 60 SECTION 4.02. Corporate and Governmental Authorization; No Contravention . . . . . . . . . 60 SECTION 4.03. Binding Effect. . . . . . . . . . . . . . . . . . 60 SECTION 4.04. Priority of Security Interests. . . . . . . . . . 60 SECTION 4.05. Financial Information . . . . . . . . . . . . . . 61 SECTION 4.06. Litigation. . . . . . . . . . . . . . . . . . . . 62 SECTION 4.07. Compliance with ERISA . . . . . . . . . . . . . . 63 SECTION 4.08. Compliance with Laws. . . . . . . . . . . . . . . 63 SECTION 4.09. Environmental Matters . . . . . . . . . . . . . . 63 SECTION 4.10. Taxes . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 4.11. Subsidiaries. . . . . . . . . . . . . . . . . . . 64 SECTION 4.12. Not an Investment Company . . . . . . . . . . . . 65 SECTION 4.13. Full Disclosure . . . . . . . . . . . . . . . . . 65 SECTION 4.14. Certain Documents . . . . . . . . . . . . . . . . 65 SECTION 4.15. Legality of Acquisition; Representations in Merger Agreement Correct . . . . . . . . . . . 65 SECTION 4.16. No Stock Payments.. . . . . . . . . . . . . . . . 66 SECTION 4.17. Hospital Sales. . . . . . . . . . . . . . . . . . 66 ii Page ---- ARTICLE V COVENANTS SECTION 5.01. Information . . . . . . . . . . . . . . . . . . . 66 SECTION 5.02. Payment of Obligations. . . . . . . . . . . . . . 71 SECTION 5.03. Maintenance of Property; Insurance. . . . . . . . 71 SECTION 5.04. Conduct of Business, Maintenance of Existence and Limitation on Mergers and Sales of Assets . . . . . . . . . . . . . . . . . 71 SECTION 5.05. Compliance with Laws. . . . . . . . . . . . . . . 73 SECTION 5.06. Inspection of Property, Books and Records . . . . . . . . . . . . . . . . . . . . . 73 SECTION 5.07. Fixed Charge Ratio. . . . . . . . . . . . . . . . 73 SECTION 5.08. Debt Ratio. . . . . . . . . . . . . . . . . . . . 74 SECTION 5.09. Adjusted Consolidated Net Worth . . . . . . . . . 74 SECTION 5.10. Limitations on Debt . . . . . . . . . . . . . . . 74 SECTION 5.11. Capital Expenditures. . . . . . . . . . . . . . . 76 SECTION 5.12. Restricted Payments . . . . . . . . . . . . . . . 76 SECTION 5.13. Investments . . . . . . . . . . . . . . . . . . . 76 SECTION 5.14. Negative Pledge . . . . . . . . . . . . . . . . . 77 SECTION 5.15. Leases. . . . . . . . . . . . . . . . . . . . . . 79 SECTION 5.16. Asset Sales . . . . . . . . . . . . . . . . . . . 80 SECTION 5.17. Hospital Swaps. . . . . . . . . . . . . . . . . . 81 SECTION 5.18. Restrictions on Other Agreements. . . . . . . . . 81 SECTION 5.19. No Change of Accounting Practices. . . . . . . . 82 SECTION 5.20. No Sales of Receivables . . . . . . . . . . . . . 82 SECTION 5.21. Use of Proceeds . . . . . . . . . . . . . . . . . 82 SECTION 5.22. Restriction on Prepaying or Extending Other Debt. . . . . . . . . . . . . . . . . . . . 83 SECTION 5.23. Limitation on Activities. . . . . . . . . . . . . 83 SECTION 5.24. Senior Status . . . . . . . . . . . . . . . . . . 84 SECTION 5.25. Loans to AMI. . . . . . . . . . . . . . . . . . . 84 ARTICLE VI DEFAULTS SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . 84 SECTION 6.02. Notice of Default . . . . . . . . . . . . . . . . 88 SECTION 6.03. Cash Cover. . . . . . . . . . . . . . . . . . . . 88 iii Page ---- ARTICLE VII THE AGENTS SECTION 7.01. Appointment and Authorization . . . . . . . . . . 88 SECTION 7.02. Agents and Affiliates . . . . . . . . . . . . . . 89 SECTION 7.03. Action by any Administrative Agent. . . . . . . . 89 SECTION 7.04. Consultation with Experts . . . . . . . . . . . . 89 SECTION 7.05. Liability of the Agents . . . . . . . . . . . . . 89 SECTION 7.06. Indemnification . . . . . . . . . . . . . . . . . 90 SECTION 7.07. Credit Decision . . . . . . . . . . . . . . . . . 90 SECTION 7.08. Successor Administrative Agent. . . . . . . . . . 90 SECTION 7.09. Agents' Fees. . . . . . . . . . . . . . . . . . . 91 SECTION 7.10. Arranging Agents. . . . . . . . . . . . . . . . . 91 SECTION 7.11. Security Agreement. . . . . . . . . . . . . . . . 91 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. . . . . . . . . . . . . . . 91 SECTION 8.02. Illegality. . . . . . . . . . . . . . . . . . . . 92 SECTION 8.03. Increased Cost and Reduced Return . . . . . . . . 93 SECTION 8.04. Taxes . . . . . . . . . . . . . . . . . . . . . . 95 SECTION 8.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans . . . . . . . . . . . . . . . . 97 ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . 98 SECTION 9.02. No Waivers. . . . . . . . . . . . . . . . . . . . 98 SECTION 9.03. Expenses; Indemnification . . . . . . . . . . . . 99 SECTION 9.04. Sharing of Set-Offs . . . . . . . . . . . . . . . 99 SECTION 9.05. Amendments and Waivers. . . . . . . . . . . . . . 100 SECTION 9.06. Successors and Assigns. . . . . . . . . . . . . . 102 iv Page ---- SECTION 9.07. No Reliance on Margin Stock as Collateral. . . . . . . . . . . . . . . . . . . . 104 SECTION 9.08. Confidentiality . . . . . . . . . . . . . . . . . 104 SECTION 9.09. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . 105 SECTION 9.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. . . . . . . . . . . . . . . . . . . 105 SECTION 9.11. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . 105 v Commitment Schedule Pricing Schedule Schedule 4.06 - Pending Litigation Schedule 4.07 - Erisa Exceptions Exhibit A-1 - Term Note Exhibit A-2 - Revolving Credit Note Exhibit A-3 - Swingline Note Exhibit B - Security Agreement Exhibit C - Senior Officer's Closing Certificate Exhibit D-1 - Opinion of Gibson, Dunn & Crutcher, Special Counsel for the Borrower Exhibit D-2 - Opinion of Skadden, Arps, Slate, Meagher & Flom, Special Counsel for the Borrower Exhibit D-3 - Opinion of Maples & Calder, Special Counsel for NME Cayman Exhibit E - Opinion of Scott Brown, General Counsel for the Borrower Exhibit F - Opinion of Internal Counsel for AM Holdings Exhibit G - Opinion of Special Counsel for the Administrative Agent Exhibit H - Assignment and Assumption Agreement Exhibit I - List of Existing Letters of Credit vi CREDIT AGREEMENT AGREEMENT dated as of February 28, 1995 among NATIONAL MEDICAL ENTERPRISES, INC., the LENDERS party hereto, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, THE BANK OF NEW YORK and BANKERS TRUST COMPANY, as Arranging Agents, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent. WHEREAS, terms used in these recitals have the meanings assigned to them in Section 1.01 hereof; WHEREAS, the Borrower has agreed to acquire AM Holdings and its Subsidiaries pursuant to the Merger Agreement; WHEREAS, concurrently with the Merger or within 60 days thereafter, the Borrower desires to purchase, redeem or otherwise refinance up to $626,000,000 of its own outstanding Debt and up to $1,091,000,000 of the outstanding Debt of AMI, a wholly-owned subsidiary of AM Holdings; WHEREAS, the Borrower desires to borrow Term Loans in the aggregate amount of $1,800,000,000 to enable it to (i) purchase, redeem or otherwise refinance such outstanding Debt of the Borrower and AMI, (ii) obtain a portion of the cash to be paid for the shares of AM Holdings as provided in the Merger Agreement and (iii) pay transaction costs incurred in connection with the foregoing transactions; WHEREAS, the Borrower desires to have available to it a revolving credit facility in the aggregate amount of $500,000,000 pursuant to which it may (i) borrow to finance the Acquisition, (ii) borrow to meet the working capital needs of the Borrower and its Subsidiaries after the Acquisition is consummated and (iii) obtain Letters of Credit to replace certain letters of credit now outstanding and to meet the needs of the Borrower and its Subsidiaries for further letters of credit in the ordinary course of business after the Acquisition is consummated; WHEREAS, this Agreement is intended by the Borrower to replace NME's Existing Credit Agreement, which in turn was intended by the Borrower to replace the credit agreement described therein as the "Existing Credit Agreement"; and WHEREAS, the obligations of the Borrower under this Agreement are to be secured under the Security Agreement equally and ratably with its obligations under the Advance Account Agreement, the Overdraft Facility Agreement and the Metrocrest Reimbursement Agreement; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "Acquisition" means the acquisition of AM Holdings by the Borrower as described in the Merger Agreement. "Additional Letter of Credit" means any letter of credit issued hereunder by an LC Issuing Bank on or after the Closing Date. "Adjusted Consolidated Net Worth" means, at any date, the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries minus the amount (if any) by which their Consolidated Intangible Assets exceed $2,650,000,000, all determined as of such date. "Consolidated Intangible Assets" means, at any date, the sum of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to November 30, 1994 in the book value of any asset and (ii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses and other intangible assets, all determined as of such date with respect to the Borrower and its Consolidated Subsidiaries. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.10(b). "Administrative Agent" means Morgan Guaranty Trust Company of New York, in its capacity as Administrative Agent 2 for the Lenders hereunder, and its successors in such capacity. "Administrative Questionnaire" means, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Lender. "Advance Account Agreement" means the Advance Account Agreement dated as of December 16, 1993 between the Borrower and Bank of America N.T. & S.A., as amended from time to time. "Affiliate" means, with respect to any Person, (i) any Person that directly, or indirectly through one or more intermediaries, controls such Person (a "Controlling Person") or (ii) any Person which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management of a Person by voting securities, by contract or otherwise. "Agents" means the Arranging Agents, the Collateral Agent and the Administrative Agent, and "Agent" means any one of them. "AM Holdings" means American Medical Holdings, Inc., a Delaware corporation, and its successors. "AM Holdings' Latest Form 10-Q" means AM Holdings' quarterly report on Form 10-Q for the quarter ended November 30, 1994, as filed with the SEC pursuant to the Exchange Act. "AMI" means American Medical International, Inc., a Delaware corporation, and its successors. "AMI Post-1991 Debt Securities" means AMI's 11% Senior Notes due 2000, 9 1/2% Senior Subordinated Notes due 2006, 13 1/2% Senior Subordinated Notes due 2001, 15% Junior Subordinated Debentures due 2005 and outstanding at November 30, 1994, in the aggregate face amount of approximately $568,700,000. "AMI Redemptions" means the redemption by AMI of all of its 11 1/4% Sinking Funds Debentures due 2015 and its 9 1/2% Convertible Subordinated Debentures due 2001, as described under the heading "The Merger and Financing -- Related Transactions" in the Prospectus. 3 "AMI Tender Offers" means tender offers and consent solicitations to purchase for cash any and all of the AMI Post-1991 Debt Securities, 6 1/2% Dual Currency Notes due 1997 and 5% Swiss Franc Bonds due 1996 as described under the heading "The Merger and Financing -- Related Transactions" in the Prospectus. "AMI's Existing Credit Agreement" means the Credit and Guaranty Agreement dated as of August 18, 1993 among AMI and AM Holdings, the lenders referred to therein, Chemical Bank as Administrative Agent, The Bank of Nova Scotia as Co-Administrative Agent, and The Long Term Credit Bank of Japan, Ltd., as Co-Administrative Agent, as in effect immediately before the Closing Date. "AMI's Existing Security Agreements" means the Holding Security Agreement, the Collateral Trust Security Agreement, the Borrower Pledge and Security Agreement and the Finco Guaranty and Security Agreement, as each of such terms is defined in AMI's Existing Credit Agreement. "Applicable Lending Office" means, with respect to any Lender, (i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "Arranging Agents" means Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, in their respective capacities as Arranging Agents for the Lenders hereunder, and their respective successors in such capacities, and "Arranging Agent" means any one of them. "Asset Sale" means any Disposition of any asset by the Borrower or any Included Subsidiary, except: (i) any Disposition of an asset to the Borrower or an Included Subsidiary; (ii) any Disposition of an asset resulting from a Casualty Event; (iii) any Disposition in the ordinary course of business of any asset other than an Equity Interest in another Person; (iv) any Disposition that constitutes a Hospital Sale or Hospital Swap; 4 (v) any Disposition of a Designated Investment; or (vi) any dissolution, liquidation or winding-up of a Person in which the Borrower or any Included Subsidiary has an Equity Interest. The term "Asset Sale" shall also include any merger or consolidation which the Borrower elects to treat as an Asset Sale pursuant to Section 5.04(d). "Assignee" has the meaning set forth in Section 9.06(c). "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means (i) a Syndicated Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Section 2.18(g) or Article VIII, (ii) a Swingline Loan or (iii) an overdue amount which was a Base Rate Loan immediately before it became overdue. "Base Rate Margin" means a rate per annum determined in accordance with the Pricing Schedule. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means National Medical Enterprises, Inc., a Nevada corporation, and its successors. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for its Fiscal Quarter ended November 30, 1994, as filed with the SEC pursuant to the Exchange Act. "Borrowing" has the meaning set forth in Section 1.03. "Casualty Event" means (i) any destruction of or damage to property through one or more related events for which any of the Combined Companies may be entitled to receive insurance proceeds or restitution payments or (ii) any condemnation of property, or any transfer or other 5 disposition of property in lieu of condemnation, for which any of the Combined Companies may be entitled to receive a condemnation award or other compensation. "Casualty Proceeds" means, with respect to any Casualty Event, all insurance proceeds (except proceeds of business interruption insurance), restitution payments, condemnation awards and other compensation received by the Borrower or any Included Subsidiary in respect thereof. "Closing Date" means the date on or after the Effective Date on which the Merger is consummated and all the other conditions set forth in Section 3.01 have been satisfied (or waived in accordance with Section 9.05). "Collateral" has the meaning set forth in Section 1 of the Security Agreement. "Collateral Agent" means Morgan Guaranty Trust Company of New York, in its capacity as Collateral Agent under the Security Agreement, and its successors in such capacity. "Combined Basis", when used with respect to determining any amount, means that such amount is to be determined by combining (i) the relevant amount determined with respect to the Borrower and its Consolidated Subsidiaries on a consolidated basis and (ii) the relevant amount determined with respect to AM Holdings and its Consolidated Subsidiaries on a consolidated basis. "Combined Companies" means the Borrower and its Consolidated Subsidiaries and AM Holdings and its Consolidated Subsidiaries. Unless the context otherwise requires, whenever an amount is to be determined hereunder with respect to the Combined Companies, such amount shall be determined (i) as of any time or for any period before the Merger is consummated, on a Combined Basis and (ii) as of any time or for any period after the Merger is consummated, for the Borrower and its Consolidated Subsidiaries on a consolidated basis. "Commitment" means a Term Commitment, a Revolving Credit Commitment or the Swingline Commitment and "Commitments" means all or any combination of them. "Commitment Fee Rate" means a rate per annum determined in accordance with the Pricing Schedule. "Commitment Schedule" means the Commitment Schedule attached hereto. 6 "Consolidated Capital Expenditures" means, for any period, the gross amount of all additions to property, plant and equipment of the Borrower and its Consolidated Subsidiaries for such period; PROVIDED that (i) for any portion of such period before the Closing Date, "Consolidated Capital Expenditures" shall be determined on a Combined Basis, (ii) Consolidated Capital Expenditures shall not include any Hospital Purchase to the extent that Unexpended Proceeds of Hospital Sales and Casualty Events are applied (or deemed to be applied) to pay for such Hospital Purchase pursuant to subsection (b) or (g) of Section 2.06, (iii) Consolidated Capital Expenditures shall not include amounts spent to restore, repair or replace property affected by a Casualty Event, up to the amount of Casualty Proceeds received with respect to such Casualty Event, and (iv) subject to clause (ii), if the Borrower acquires a going concern business after the Closing Date, "Consolidated Capital Expenditures" shall include (x) the book value of the property, plant and equipment of such business immediately before such acquisition and (y) the amount (if any) by which such property, plant and equipment are written up in connection with such acquisition, PROVIDED that this clause (iv) shall not apply to the Acquisition. "Consolidated EBITDA" means, for any period, the sum of (i) the consolidated net income of the Borrower and its Consolidated Subsidiaries for such period plus (ii) to the extent deducted in determining such consolidated net income, the sum of (A) interest expense, (B) income taxes and (C) depreciation, amortization and other similar non-cash charges; PROVIDED that (x) for any portion of such period before the Closing Date, Consolidated EBITDA shall be determined on a Combined Basis and (y) Consolidated EBITDA shall be calculated so as to exclude the effect of (1) any gain or loss that is classified as extraordinary in accordance with GAAP and (2) any gain or loss from any Asset Sale, Hospital Sale, Hospital Swap or Disposition of a Designated Investment. "Consolidated Interest Expense" means, for any period, the consolidated interest expense of the Borrower and its Consolidated Subsidiaries for such period; PROVIDED that, if such period begins before the Closing Date and ends 7 after the Closing Date, Consolidated Interest Expense for such period will be calculated by annualizing the consolidated interest expense of the Borrower and its Consolidated Subsidiaries for the portion of such period which is on and after the Closing Date (i.e., by multiplying such consolidated interest expense by a fraction of which the numerator is 365 days and the denominator is the number of days in such period on and after the Closing Date). "Consolidated Plant, Property and Equipment" means, at any time, the consolidated plant, property and equipment shown on a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of the most recent Fiscal Year ended prior to such time; PROVIDED that, if such Fiscal Year ended before the Closing Date, such consolidated plant, property and equipment shall be determined on a Combined Basis. "Consolidated Rental Expense" means, for any period, the consolidated rental expense of the Borrower and its Consolidated Subsidiaries for such period; PROVIDED that, for any portion of such period before the Closing Date, "Consolidated Rental Expense" shall be determined on a Combined Basis. "Consolidated Subsidiary" means, as to any Person at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if such statements were prepared as of such date. Unless otherwise specified, "Consolidated Subsidiary" means a Consolidated Subsidiary of the Borrower. "Continuing Director" means (i) any individual who is a director of the Borrower on the date of this Agreement and (ii) any individual who becomes a director of the Borrower after the date of this Agreement and is elected or nominated for election as a director of the Borrower by a majority of the individuals who were Continuing Directors immediately before such election or nomination. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business and deferred compensation payable to members of management of such Person, (iv) all obligations of such Person as lessee which are capitalized in accordance with GAAP and (v) all 8 Guarantees by such Person of obligations of other Persons of the types described in the foregoing clauses (i) through (iv), inclusive (any such Guarantee to be included in any calculation of the amount of such Person's Debt at an amount equal to the principal amount guaranteed thereby). If such Person Guarantees Debt of another Person by causing a letter of credit to be issued in support thereof, the "Debt" of such Person includes (without duplication) such Person's obligations to reimburse the issuing bank for drawings in respect of principal under such letter of credit. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Designated International Subsidiaries" means (i) International-NME, Inc., a California corporation, and its successors and (ii) NME (Australia) Pty. Limited, an Australian corporation, and its successors. "Designated Investment" means (i) any Investment beneficially owned by the Borrower or any Subsidiary in Hillhaven, Westminster or any Designated International Subsidiary or (ii) any Investment acquired by the Borrower or any Subsidiary upon any Disposition of a Designated Investment. "Disposition" means, with respect to any asset, any sale, transfer, disposition, exchange, liquidation or other comparable transaction resulting in a realization of all or part of the value of such asset. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close; PROVIDED that, when used in Section 2.14 with respect to any action to be taken by or with respect to any LC Issuing Bank, the term "Domestic Business Day" shall not include any day on which commercial banks are authorized by law to close in the jurisdiction where the LC Office of such LC Issuing Bank is located. "Domestic Lending Office" means, as to each Lender, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Lender may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. 9 "Effective Date" means the date this Agreement becomes effective in accordance with Section 9.11. "Environmental Laws" means any and all federal, state and local statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, 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, Hazardous Substances or wastes or the clean-up or other remediation thereof. "Equity Interest" means (i) in the case of a corporation, any shares of its capital stock, (ii) in the case of a partnership, any partnership interest (whether general or limited), (iii) in the case of any other business entity, any participation or other interest in the equity or profits thereof or (iv) any warrant, option or other right to acquire any Equity Interest described in the foregoing clauses (i), (ii) and (iii), other than a right to convert a debt security into, or exchange a debt security for, any such Equity Interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, its Included Subsidiaries and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Included Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Lender, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or Affiliate of such Lender as it may hereafter designate as 10 its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. "Euro-Dollar Loan" means (i) a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Syndicated Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 2.10(b) on the basis of an Adjusted London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.10(b). "Event of Default" has the meaning set forth in Section 6.01. "Excess Casualty Proceeds" has the meaning set forth in Section 2.06(g). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Subsidiaries" means (i) the Designated International Subsidiaries and their respective Subsidiaries, (ii) NME Psychiatric and its Subsidiaries, other than its Subsidiaries owning on-campus psychiatric facilities to be retained, and (iii) any Immaterial Subsidiaries. "Existing Letters of Credit" means the letters of credit issued before the Closing Date pursuant to AMI's Existing Credit Agreement and listed in Exhibit I hereto. "Extension of Credit" means the making of a Loan or the issuance or extension of a Letter of Credit. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the 11 Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, PROVIDED that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "Final Maturity Date" means August 31, 2001 or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "Financial Obligations" of any Person means at any date, without duplication: (i) all Debt of such Person, (ii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument or to make any payment pursuant to a Hedging Obligation, (iii) all Debt that is secured by a Lien on any asset of such Person but is not otherwise an obligation of such Person, PROVIDED that the amount of any Financial Obligation described in this clause (iii) shall be deemed to be equal to the lesser of the amount of the relevant Debt or the book value of the asset or assets of such Person securing such Debt, and (iv) all Guarantees by such Person of Financial Obligations of other Persons of the types described in clauses (i) and (ii) of this definition. "Financing Documents" means this Agreement (including the Schedules and Exhibits hereto), the Notes and the Security Agreement, and "Financing Document" means any one of them. "Finco" means American Medical Finance Company, a Delaware corporation, and its successors. "First Tier Subsidiary" means any Subsidiary in which any Equity Interest is held directly by the Borrower. 12 "Fiscal Quarter" means a fiscal quarter of the Borrower. "Fiscal Year" means a fiscal year of the Borrower. "GAAP" means at any time generally accepted accounting principles as then in effect in the United States, applied on a basis consistent (except for changes with which the Borrower's independent public accountants have concurred) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries theretofore delivered to the Lenders. "Group of Loans" means at any time a group of Syndicated Loans of the same Tranche consisting of (i) all Loans of such Tranche which are Base Rate Loans at such time or (ii) all Loans of such Tranche which are Euro-Dollar Loans having the same Interest Period at such time; PROVIDED that, if a Loan of any particular Lender is converted to or made as a Base Rate Loan pursuant to Section 8.02 or 8.05, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other payment obligation of any other Person, including without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other payment obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other payment obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. 13 "HealthSouth" means HealthSouth Rehabilitation Corporation, a Delaware corporation, and its successors. "Hedging Obligation" means, with respect to any Person, any obligation of such Person under (i) any interest rate swap agreement, interest rate cap agreement or interest rate collar agreement, (ii) any foreign exchange contract or currency swap agreement or (iii) any other agreement or arrangement of a type designed to protect a Person against fluctuations in interest rates or currency exchange rates. "Hillhaven" means The Hillhaven Corporation, a Nevada corporation, and its successors. "Hospital" means a hospital, outpatient clinic, long-term care facility, Medical Office Building or other comparable facility that is used or useful in providing healthcare services. "Hospital Assets" means one or more Hospitals and/or Equity Interests in a Person that owns one or more Hospitals. The term "Hospital Assets" shall also include, with respect to each Hospital, any Related Business that is purchased or sold together with such Hospital and/or Equity Interests in a Person that owns such Hospital, but not any Related Business that is purchased or sold separately. "Hospital Purchase" means any purchase or other acquisition of Hospital Assets by the Borrower or an Included Subsidiary from any Person other than the Borrower and its Affiliates. "Hospital Sale" means any sale or other disposition of Hospital Assets by the Borrower or any Included Subsidiary after the Closing Date to any Person other than the Borrower or a Wholly-Owned Included Subsidiary. "Hospital Swap" means an exchange of one or more Hospital Assets owned by the Borrower or any Included Subsidiary for one or more Hospital Assets owned by one or more Persons other than the Borrower and its Affiliates. If a transaction involves both such an exchange of Hospital Assets and payment of other consideration, such transaction shall be deemed to be a Hospital Swap only to the extent that it involves such an exchange of Hospital Assets. "Immaterial Subsidiary" mean (i) a Subsidiary that is not actively engaged in business and has assets of less than $5,000,000 and liabilities of less than $5,000,000, (ii) a Subsidiary that is actively engaged in business and 14 has assets of less than $1,000,000 and liabilities of less than $1,000,000 or (iii) Assured Investors Life Company, until the date on which the California Department of Insurance approves the pledge by the Borrower to the Collateral Agent under the Security Agreement of all of the capital stock thereof. "Included Subsidiary" means any Subsidiary that is not an Excluded Subsidiary. "Indemnitee" has the meaning set forth in Section 9.03(b). "Interest Period" means, with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clauses (c) and (d) below, end on the last Euro-Dollar Business Day of a calendar month; (c) in the case of Revolving Credit Euro-Dollar Loans, any Interest Period which would otherwise end after the Final Maturity Date shall end on the Final Maturity Date; and (d) in the case of Term Euro-Dollar Loans, if any Interest Period includes a date on which a payment of principal of the Term Loans is required to be made pursuant to Section 2.06(a) but does not end on such date, then (i) the principal amount (if any) of each Term Euro-Dollar Loan required to be repaid on such date shall have an Interest Period ending on such date and (ii) the remainder (if any) of each such Term Euro-Dollar Loan shall have an Interest Period 15 determined as set forth above. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "International Non-Recourse Debt" means Debt of a Designated International Subsidiary as to which (i) neither the Borrower nor any Included Subsidiary (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Debt), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) is the lender; and (ii) no default in respect thereof (including any right that the holders thereof may have to take enforcement action against an Excluded Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Debt of the Borrower or any Included Subsidiary (except any such Debt outstanding as of the close of business on the Closing Date as permitted by subsection (d) or (e) of Section 5.10) to declare a default on such other Debt or cause it to become payable prior to its stated maturity. "Investment" means, with respect to any Person, any investment by such Person in any other Person (including an Affiliate) in the form of direct or indirect loans, Guarantees of Debt or other payment obligations, advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; PROVIDED that an acquisition of assets, Equity Interests or other securities by the Borrower shall not be deemed to be an Investment to the extent that the consideration given by it for such acquisition consists of its own common stock. "Investment Grade Rating" means a rating of senior long-term unsecured debt securities of the Borrower as (i) BBB- or higher by S&P or (ii) Baa3 or higher by Moody's. "LC Fee Rate" means a rate per annum determined in accordance with the Pricing Schedule. "LC Indemnitees" has the meaning set forth in Section 2.14(n). "LC Issuing Bank" means Morgan Guaranty Trust Company of New York, each Lender listed in Exhibit I hereto as the issuer of an Existing Letter of Credit and any other 16 Lender which the Borrower shall have designated as an "LC Issuing Bank" by notice to the Administrative Agent with the consent of the Arranging Agents (which consent shall not be unreasonably withheld), each in its capacity as an LC Issuing Bank under the letter of credit facility described in Section 2.14. "LC Office" means, with respect to any LC Issuing Bank, the office at which it books any Letter of Credit issued by it. "Lenders" means the Term Lenders, the Revolving Credit Lenders and the Swingline Bank. "Letter of Credit" means any Existing Letter of Credit or Additional Letter of Credit. "Letter of Credit Liabilities" means, at any time, the sum, without duplication, of (i) the aggregate amount that is (or may thereafter become) available for drawing under all Letters of Credit outstanding at such time plus (ii) the aggregate unpaid amount of all Reimbursement Obligations outstanding at such time. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For purposes of this Agreement, the Borrower or any Included Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Term Loan, a Revolving Credit Loan or a Swingline Loan and "Loans" means all or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.10(b). "Material Adverse Effect" means (i) a material adverse effect on the business, operations, properties, financial condition or prospects of the Combined Companies, considered as a whole, (ii) an adverse effect on the validity, perfection or priority of any Lien created or purported to be created by the Security Agreement or (iii) an adverse effect on the validity or enforceability of any material provision of any Financing Document. 17 "Material Commitments" means one or more commitments or other contractual agreements (except the Commitments) of one or more Persons to make loans or advances or otherwise extend credit to the Borrower and/or one or more Included Subsidiaries, arising in one or more related transactions, in an aggregate amount exceeding $25,000,000. "Material Financial Obligations" means non-contingent Financial Obligations (other than the Notes and the Letter of Credit Liabilities) of the Borrower and/or one or more Included Subsidiaries, arising in one or more related transactions, in an aggregate principal or face amount exceeding $25,000,000; PROVIDED that, for purposes of this definition and clauses (g) and (h) of Section 6.01, (i) contingent obligations of the Borrower or any Included Subsidiary to reimburse a bank or other Person for amounts not yet drawn under a letter of credit or similar instrument shall be deemed to be non-contingent (and to have been accelerated) if they are required to be prepaid or cash collateralized as a result of a default under the relevant reimbursement agreement and (ii) contingent obligations of the Borrower or any Included Subsidiary under any Hedging Obligation shall be deemed to be non-contingent (and to have been accelerated) if such Hedging Obligation is terminated by reason of a default by the Borrower or any Included Subsidiary. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "Medical Office Building" means any facility which is used or useful in providing healthcare services primarily because the offices of doctors are located therein. "Medical Office Sale-Leaseback Transaction" means any Sale-Leaseback Transaction with respect to one or more Medical Office Buildings. "Merger" means the merger of AM Holdings into AMH Acquisition Co. as provided in the Merger Agreement. "Merger Agreement" means the Merger Agreement dated as of October 10, 1994 among the Borrower, AM Holdings and AMH Acquisition Co., a wholly-owned Subsidiary of the Borrower. "Metrocrest Bank" means each bank that is a party to the Metrocrest Reimbursement Agreement from time to time. 18 "Metrocrest Bonds" means the bonds issued by the Metrocrest Hospital Authority to finance facilities leased and operated by NME Hospitals Dallas, Inc., a Delaware corporation. "Metrocrest Issuing Bank" means The Bank of New York, in its capacity as Issuing Bank and Agent under the Metrocrest Reimbursement Agreement, and its successors in such capacity. "Metrocrest Reimbursement Agreement" means the Letter of Credit and Reimbursement Agreement dated as of November 1, 1994 among the Borrower, the banks party thereto, and The Bank of New York, as Issuing Bank and Agent thereunder, as amended from time to time. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Net Cash Proceeds" means, with respect to (i) any Hospital Sale, (ii) any Disposition of a Designated Investment, (iii) any Asset Sale, (iv) any Medical Office Sale-Leaseback Transaction or (v) any sale of Equity Interests (each of the foregoing being a "Sale"), the cash proceeds received by the Borrower or any Included Subsidiary in respect of such Sale (including, without limitation, cash received pursuant to, or upon any sale or other disposition of, any instrument evidencing an obligation of the purchaser to make payments to the Borrower or such Subsidiary), minus (w) any expenses reasonably incurred by the Borrower or such Subsidiary in respect of such Sale, (x) any taxes paid or payable by the Borrower or such Subsidiary in respect of such Sale, (y) the principal amount of any Debt which is secured by a Lien on any of the assets sold in such Sale and repaid upon consummation of such Sale and (z) in the case of any Disposition of any Investment in Hillhaven, the portion (if any) of such cash proceeds that the Borrower is obligated to pay to 19 Horizon Healthcare under arrangements publicly disclosed prior to the date hereof; PROVIDED that the amounts referred to in (w) and (x) shall be determined on the basis of a certificate prepared in good faith by a Senior Officer of the Borrower. "NME Cayman" means N.M.E. International (Cayman) Limited, a Cayman Islands company, and its successors. "NME Hospitals" means NME Hospitals, Inc., a Delaware corporation, and its successors. "NME Non-Recourse Debt" means Debt of the Borrower or any Included Subsidiary incurred to finance Capital Expenditures permitted by Section 5.11; PROVIDED that the lender or other obligee of such Debt has no recourse (except for breach of representations, warranties and/or covenants customary in asset- based financing) to assets of the Borrower or any Subsidiary other than the assets financed by such Capital Expenditures and cash flows attributable thereto. "NME Properties Corp." means NME Properties Corp., a Tennessee corporation, and its successors. "NME Properties, Inc." means NME Properties, Inc., a Delaware corporation, and its successors. "NME Tender Offers" means tender offers by NME to purchase for cash any and all of an aggregate of approximately $169,500,000 principal amount of NME's outstanding Medium Term Notes, with maturities ranging from 1996 to 1998, as described under the heading "The Merger and Financing -- Related Transactions" in the Prospectus. "NME's Existing Credit Agreement" means the $464,700,000 Credit Agreement dated as of April 13, 1994 among the Borrower, as Borrower and Account Party, Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and Morgan Guaranty Trust Company of New York as Banks, and Morgan Guaranty Trust Company of New York, as the Issuing Bank and Administrative Agent, as in effect immediately before the Closing Date. "NME's Existing Security Agreement" means the Security Agreement dated as of April 13, 1994 between NME and Morgan Guaranty Trust Company of New York, as Agent, under which the outstanding common stock of NME Hospitals is pledged to secure NME's obligations under NME's Existing Credit Agreement and the Metrocrest Reimbursement Agreement. 20 "NME Psychiatric" means NME Psychiatric Properties, Inc., a Delaware corporation, and its successors. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A-1, A-2 or A-3 hereto, issued hereunder to evidence the obligation of the Borrower to repay the Term Loans, the Revolving Credit Loans and the Swingline Loans, respectively, and "Note" means any one of such promissory notes. "Notice of Borrowing" means a Notice of Syndicated Borrowing (as defined in Section 2.03) or a Notice of Swingline Borrowing (as defined in Section 2.18(b)). "Notice of Interest Rate Election" has the meaning set forth in Section 2.11. "Outstanding Revolving Credit Amounts" means, with respect to any Revolving Credit Lender at any time, (i) the outstanding principal amount of each of its Revolving Credit Loans, (ii) its Revolving Credit Percentage of each of the outstanding Letter of Credit Liabilities and (iii) each outstanding participation in Swingline Loans (if any) held by it pursuant to Section 2.18(g), all determined at such time after giving effect to any prior assignments by or to such Revolving Credit Lender pursuant to Section 9.06(c). "Overdraft Facility Agreement" means the Financing Facility Agreement dated as of December 16, 1992 between the Borrower and Bank of America N.T. & S.A., as amended by the First Amendment thereto dated as of September 27, 1993 and further amended from time to time after the date hereof. "Parent" means, with respect to any Lender, any Person controlling such Lender. "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Performance Investment Plan" means the 1989 Performance Investment Plan adopted by the Borrower's board of directors on March 10, 1989. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or 21 organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Level" has the meaning set forth in the Pricing Schedule. "Pricing Schedule" means the Pricing Schedule attached hereto. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Prospectus" means the preliminary prospectus included in Amendment No.1 to the registration statement on Form S-3 relating to the offering and sale of the Senior Notes and the Subordinated Notes, as filed by the Borrower with the SEC on January 30, 1995. "Rate Period" has the meaning set forth in the Pricing Schedule. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Obligations" means, at any time, all obligations of the Borrower to reimburse the LC Issuing Banks pursuant to Section 2.14 for amounts paid by the LC Issuing Banks in respect of drawings under Letters of Credit, including any portion of any such obligation to which a Lender has become subrogated pursuant to clause (i) of Section 2.14(k). "Related Business" means, in relation to any Hospital, a healthcare business affiliated or associated with such Hospital or any business related or ancillary to any healthcare business operated at such Hospital. 22 "Required Lenders" means at any time the Required Term Lenders and the Required Revolving Credit Lenders. "Required Revolving Credit Lenders" means, at any time, Revolving Credit Lenders having more than 50% of the Revolving Credit Exposures at such time. "Required Term Lenders" means, at any time, Term Lenders holding Notes evidencing more than 50% of the aggregate outstanding principal amount of the Term Loans at such time or, if no Term Loans are then outstanding, having more than 50% in aggregate amount of the Term Commitments at such time. "Revolving Credit Availability Period" means the period from and including the Closing Date to but excluding the Final Maturity Date. "Revolving Credit Commitment" means (i) with respect to any Lender listed on the Commitment Schedule, the amount set forth opposite its name on the Commitment Schedule as its Revolving Credit Commitment or (ii) with respect to any Assignee, the amount of the transferor Lender's Revolving Credit Commitment assigned to such Assignee pursuant to Section 9.06(c), in each case as such amount may be reduced from time to time pursuant to Section 2.13 or changed as a result of an assignment pursuant to Section 9.06(c). "Revolving Credit Exposure" means, with respect to any Revolving Credit Lender at any time, (i) its Revolving Credit Commitment at such time or (ii) if its Revolving Credit Commitment shall have terminated, the sum of its Outstanding Revolving Credit Amounts at such time. "Revolving Credit Lender" means each lender having a Revolving Credit Commitment set forth opposite its name on the Commitment Schedule, each Assignee which becomes a Revolving Credit Lender pursuant to Section 9.06(c), and their respective successors. "Revolving Credit Loan" means a loan made by a Revolving Credit Lender pursuant to Section 2.02 or Section 2.18(g); PROVIDED that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "Revolving Credit Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "Revolving Credit Percentage" means, with respect to any Revolving Credit Lender at any time, the percentage 23 equivalent to a fraction the numerator of which is the amount of such Lender's Revolving Credit Commitment at such time and the denominator of which is the aggregate amount of all the Revolving Credit Commitments at such time. "S&P" means Standard & Poors' Ratings Group. "Sale-Leaseback Transaction" means any arrangement with any Person pursuant to which the Borrower or any Included Subsidiary leases, for a term exceeding one year, any property that has been or is to be sold or otherwise transferred by the Borrower or any Included Subsidiary directly or indirectly to such Person. "SEC" means the United States Securities and Exchange Commission. "Secured Obligations" has the meaning set forth in Section 1 of the Security Agreement. "Security Agreement" means a Security Agreement among the Borrower, NME Cayman and the Collateral Agent, substantially in the form of Exhibit B hereto, as such agreement may be amended from time to time in accordance with the terms thereof. "Senior Notes" means senior unsecured notes of the Borrower having the terms and conditions described in the Prospectus, with such changes (if any) as shall be satisfactory to the Arranging Agents. "Senior Officer of the Borrower" means an Executive Vice President, a Senior Vice President or the Treasurer of the Borrower. "South Miami Hospitals" means South Miami Hospitals, Inc., a Florida corporation, and its successors. "Subordinated Notes" means subordinated notes of the Borrower having the terms and conditions described in the Prospectus, with such changes (if any) as shall be satisfactory to the Arranging Agents. "Subsidiary" means, as to any Person, any corporation or other entity of which Equity Interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. Unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. 24 "Super-Majority Term Lenders" means, at any time, Term Lenders holding Notes evidencing more than 75% of the aggregate outstanding principal amount of the Term Loans at such time or, if no Term Loans are then outstanding, having more than 75% in aggregate amount of the Term Commitments at such time. "Swingline Bank" means Morgan Guaranty Trust Company of New York, in its capacity as the Swingline Bank under the swingline facility described in Section 2.18, and its successors in such capacity. "Swingline Commitment" means the obligation of the Swingline Bank to make Swingline Loans to the Borrower in aggregate principal amount at any one time outstanding not to exceed $10,000,000. "Swingline Loan" means a loan made by the Swingline Bank pursuant to Section 2.18(a). "Swingline Loan Availability Period" means the period from and including the Closing Date to but excluding the Swingline Maturity Date. "Swingline Maturity Date" means the day that is 30 days before the Final Maturity Date. "Syndicated Borrowing" means a Term Borrowing pursuant to Section 2.01 or a Revolving Credit Borrowing pursuant to Section 2.02 or Section 2.18(g). "Syndicated Loan" means any Term Loan or Revolving Credit Loan. "Temporary Cash Investment" means any Investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by S&P and P-1 by Moody's, (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any Lender, or of any other bank or trust company which is organized under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $1,000,000,000 or (iv) repurchase agreements with respect to securities described in clause (i) above entered into with an office located in the United States of any Lender or any bank or trust company meeting the criteria specified in clause (iii) above; PROVIDED in each case that such Investment matures within one year from the date of acquisition thereof by the Borrower or an Included Subsidiary. 25 "Term Commitment" means (i) with respect to any Lender listed on the Commitment Schedule, the amount set forth opposite its name on the Commitment Schedule as its Term Commitment or (ii) with respect to any Assignee, the amount of the transferor Lender's Term Commitment assigned to such Assignee pursuant to Section 9.06(c), in each case as such amount may be reduced from time to time pursuant to Section 2.13 or changed as a result of an assignment pursuant to Section 9.06(c). "Term Exposure" means, with respect to any Term Lender at any time, the sum of (i) the aggregate principal amount of its Term Loans outstanding at such time and (ii) the unused amount of its Term Commitment (if then in effect) at such time, all determined after giving effect to any assignments by or to such Term Lender pursuant to Section 9.06(c). "Term Lender" means each lender having a Term Commitment set forth opposite it name on the Commitment Schedule, each Assignee which becomes a Term Lender pursuant to Section 9.06(c), and their respective successors. "Term Loan" means a loan made by a Lender pursuant to Section 2.01; PROVIDED that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "Term Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "Term Loan Amortization Dates" means the dates listed in Section 2.06(a) on which scheduled repayments of the Term Loans are to be made. "Term Loan Amortization Payments" means, at any time, the scheduled repayments of the Term Loans to be made on the Term Loan Amortization Dates pursuant to Section 2.06(a), as the amounts of such scheduled repayments shall have theretofore been reduced pursuant to Section 2.06. "Term Loan Availability Period" means the period from and including the Closing Date to and including May 31, 1995. "Total Credit Exposure" means with respect to any Lender at any time, an amount equal to the sum of (i) its Term Exposure at such time and (ii) its Revolving Credit Exposure at such time. 26 "Total Debt" means at any date, without duplication, all Debt of the Borrower and its Included Subsidiaries, other than Guarantees by the Borrower or any Included Subsidiary in effect on November 30, 1994 of Debt of Hillhaven or HealthSouth that was outstanding on November 30, 1994. "Tranche" (i) when used with respect to a Loan, refers to the determination whether such Loan is a Term Loan, a Revolving Credit Loan or a Swingline Loan and (ii) when used with respect to a Commitment, refers to the determination whether such Commitment is a Term Commitment, a Revolving Credit Commitment or the Swingline Commitment. "Type" refers to the determination whether a Loan is a Base Rate Loan or a Euro-Dollar Loan. "Unexpended Proceeds of Hospital Sales and Casualty Events" means at any time the aggregate amount of all Net Cash Proceeds of Hospital Sales and Excess Casualty Proceeds theretofore received by the Borrower and its Included Subsidiaries which have not yet been either reinvested in Hospital Purchases or applied to prepay Term Loans pursuant to subsection (b) or (g) of Section 2.06. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "Westminster" means Westminster Health Care Holdings PLC, a United Kingdom public limited company, and its successors. "Wholly-Owned Included Subsidiary" means any Included Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. 27 SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time; PROVIDED that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP as in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. SECTION 1.03. TRANCHES AND TYPES OF BORROWINGS. The term "Borrowing" denotes the aggregation of Loans of the same Tranche and Type to be made to the Borrower pursuant to Article II on the same date and, in the case of Euro-Dollar Loans, having the same Interest Period. Borrowings are classified for purposes of this Agreement by reference to either or both of the Tranche and Type of the Loans comprising such Borrowing (E.G., a "Term Borrowing" is a Borrowing comprised of Term Loans, a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans and a "Term Euro-Dollar Borrowing" is a Borrowing comprised of Term Loans that are Euro-Dollar Loans). ARTICLE II THE CREDITS SECTION 2.01. TERM COMMITMENTS. Each Term Lender severally agrees, on the terms and conditions set forth in this Agreement, to make term loans to the Borrower pursuant to this Section from time to time during the Term Loan Availability Period; PROVIDED that the aggregate principal amount of all such term loans made by such Term Lender shall not exceed its Term Commitment. Each Borrowing under this Section shall be made from the several Term Lenders ratably in proportion to their respective Term Commitments. Each such Borrowing shall be in an aggregate principal amount of $50,000,000 or any larger multiple of $10,000,000; PROVIDED that any such Borrowing may be in the aggregate amount of the unused Term Commitments. The Term Commitments are not revolving in nature, and amounts of the Term Loans repaid or prepaid may not be reborrowed. 28 SECTION 2.02. REVOLVING CREDIT COMMITMENTS. Each Revolving Credit Lender severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time during the Revolving Credit Availability Period; PROVIDED that such Lender's Outstanding Revolving Credit Amounts shall not, in the aggregate, at any time exceed its Revolving Credit Commitment. Each such Borrowing shall be made from the several Revolving Credit Lenders ratably in proportion to their respective Revolving Credit Commitments. Each such Borrowing shall be in an aggregate amount of $10,000,000 or any larger multiple of $1,000,000; PROVIDED that (i) any such Borrowing may be in the aggregate amount of the unused Revolving Credit Commitments and (ii) if such Borrowing is made on the Swingline Maturity Date, such Borrowing may be in the aggregate amount of the Swingline Loans outstanding on such date. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.09, prepay Revolving Credit Loans and reborrow at any time during the Revolving Credit Availability Period under this Section. SECTION 2.03. NOTICE OF SYNDICATED BORROWING. The Borrower shall give the Administrative Agent notice (a "Notice of Syndicated Borrowing") not later than (x) 11:00 A.M. (New York City time) on the date of each Base Rate Borrowing pursuant to Section 2.01 or 2.02 and (y) 1:00 P.M. (New York City time) on the third Euro-Dollar Business Day before each Euro-Dollar Borrowing pursuant to Section 2.01 or 2.02, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) the Tranche and Type of Loans comprising such Borrowing, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto. Each Interest Period specified in a Notice of Syndicated Borrowing shall comply with the provisions of the definition of Interest Period. SECTION 2.04. NOTICE TO LENDERS; FUNDING OF SYNDICATED LOANS. (a) Upon receipt of a Notice of 29 Syndicated Borrowing pursuant to Section 2.03, the Administrative Agent shall promptly notify each Term Lender or Revolving Credit Lender (as appropriate) of the contents thereof and of such Lender's share of such Borrowing. Such Notice of Syndicated Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing pursuant to Section 2.01 or 2.02, each Term Lender or Revolving Credit Lender, as the case may be, shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article III has not been satisfied, the Administrative Agent shall (i) apply the funds so received from the Lenders to repay all Swingline Loans (if any) then outstanding, together with interest accrued thereon, and (ii) make the remainder of such funds available to the Borrower at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Syndicated Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its share of such Borrowing available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable to such Borrowing pursuant to Section 2.10 and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan included in such Borrowing for purposes of this Agreement. If the Borrower shall repay such corresponding amount, such repayment shall not affect any rights the Borrower may have against any defaulting Lender. 30 SECTION 2.05. NOTES. (a) The Borrower's obligation to repay each Tranche of Loans of each Lender shall be evidenced by a single Note payable to the order of such Lender for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Lender's Loans of such Tranche. (b) Each Lender may, by notice to the Borrower and the Administrative Agent, request that each Type of Loans of such Lender of a particular Tranche be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A-1 or A-2 hereto, as the case may be, with appropriate modifications to reflect the fact that it evidences solely a Type of Loans of the relevant Tranche. Each reference in this Agreement to a "Note" or the "Notes" of such Lender shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Lender's Notes pursuant to Section 3.01(i), the Administrative Agent shall forward such Notes to such Lender. Each Lender shall record the date, amount, Tranche and Type of each Loan made by it and the date and amount of each payment of principal made with respect thereto, and may, if such Lender so elects in connection with any transfer or enforcement of any of its Notes, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan evidenced thereby then outstanding; PROVIDED that the failure of any Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower under any of the Financing Documents. Each Lender is hereby irrevocably authorized by the Borrower so to endorse its Notes and to attach to and make a part of any Note a continuation of any such schedule as and when required. 31 SECTION 2.06. SCHEDULED AMORTIZATION AND MANDATORY PREPAYMENTS OF TERM LOANS. (a) SCHEDULED AMORTIZATION. On each date set forth below, the Borrower shall repay, and there shall become due and payable, the aggregate principal amount of Term Loans set forth below opposite such date: Term Loan Term Loan Amortization Dates Amortization Payments ------------------ --------------------- August 31, 1995 $45,000,000 November 30, 1995 45,000,000 February 29, 1996 45,000,000 May 31, 1996 45,000,000 August 31, 1996 45,000,000 November 30, 1996 45,000,000 February 28, 1997 45,000,000 May 31, 1997 45,000,000 August 31, 1997 56,250,000 November 30, 1997 56,250,000 February 28, 1998 56,250,000 May 31, 1998 56,250,000 August 31, 1998 78,750,000 November 30, 1998 78,750,000 February 28, 1999 78,750,000 May 31, 1999 78,750,000 August 31, 1999 90,000,000 November 30, 1999 90,000,000 February 29, 2000 90,000,000 May 31, 2000 90,000,000 August 31, 2000 101,250,000 November 30, 2000 101,250,000 February 28, 2001 101,250,000 May 31, 2001 101,250,000 August 31, 2001 135,000,000 PROVIDED that in any event all the outstanding Term Loans shall be repaid in full not later than the Final Maturity Date. Any mandatory prepayment of Term Loans pursuant to any other subsection of this Section shall reduce the amounts of subsequent Term Loan Amortization Payments as 32 provided in said subsection, and any optional prepayment of Term Loans pursuant to Section 2.08 shall reduce the amounts of subsequent Term Loan Amortization Payments as provided in Section 2.08. (b) HOSPITAL SALES. If the Borrower or any Included Subsidiary receives any Net Cash Proceeds of a Hospital Sale and fails to apply such Net Cash Proceeds, within 360 days after its receipt thereof, to pay for one or more Hospital Purchases, the Borrower shall, on the first Euro-Dollar Business Day after the end of such 360-day period, prepay an aggregate principal amount of the Term Loans equal to the portion of such Net Cash Proceeds that was not applied to Hospital Purchases within such 360-day period. Net Cash Proceeds shall be deemed to have been applied to pay for a Hospital Purchase if, within such 360 day period, the Borrower or such Subsidiary (i) pays in cash the purchase price with respect to such Hospital Purchase, (ii) pays the principal of a promissory note or similar obligation constituting part of the consideration for such Hospital Purchase, (iii) pays any Debt that was outstanding prior to such Hospital Purchase and secured by a Lien on any or all of the assets being acquired or (iv) repays the principal of any Revolving Credit Loans borrowed to finance such Hospital Purchase. If at any time during the relevant 360-day period the Borrower determines that all or any part of any Net Cash Proceeds of a Hospital Sale will not be applied to pay for Hospital Purchases within such 360-day period, the Borrower shall, within five Euro- Dollar Business Days after making such determination, prepay an aggregate principal amount of Term Loans equal to the amount of such Net Cash Proceeds as to which such determination has been made (whereupon the amount to be prepaid pursuant to this subsection on the first Euro-Dollar Business Day after the end of such 360-day period will be correspondingly reduced). Any prepayment of Term Loans pursuant to this subsection shall reduce ratably the amounts of all subsequent Term Loan Amortization Payments. (c) DISPOSITIONS OF AND DISTRIBUTIONS ON DESIGNATED INVESTMENTS. If (i) the Borrower or any Subsidiary receives any Net Cash Proceeds from any Disposition (to a Person other than the Borrower or a Wholly-Owned Included Subsidiary) of any Designated Investment or (ii) the Borrower receives any extraordinary dividend or distribution on any Equity Interest in any Designated International Subsidiary (other than a dividend or distribution of Net Cash Proceeds referred to in clause (i)), the Borrower shall, substantially concurrently with the receipt of such Net Cash Proceeds, dividend or distribution, prepay an aggregate principal amount of Term 33 Loans equal to the sum of (x) 75% of such Net Cash Proceeds, dividend or distribution plus (y) any portion of the remaining 25% of such Net Cash Proceeds, dividend or distribution that is not required to be applied to prepay Revolving Credit Loans pursuant to Section 2.07(b). Any prepayment of Term Loans pursuant to this subsection shall (i) reduce the five Term Loan Amortization Payments due from August 31, 2000 to August 31, 2001, inclusive, in inverse order of maturity, until such five Term Loan Amortization Payments have been paid in full, and (ii) thereafter reduce ratably the amounts of all other Term Loan Amortization Payments to become due after the relevant Net Cash Proceeds are received. (d) SALES OF OTHER ASSETS. If the Borrower or any Subsidiary receives any Net Cash Proceeds of any Asset Sale, the Borrower shall, within five Euro-Dollar Business Days after such Net Cash Proceeds are received, prepay an aggregate principal amount of Term Loans equal to such Net Cash Proceeds. Any prepayment of Term Loans pursuant to this subsection shall reduce ratably the amounts of all subsequent Term Loan Amortization Payments. (e) ISSUANCE OR SALE OF EQUITY. If the Borrower or any Included Subsidiary receives (i) any Net Cash Proceeds from the issuance or sale of Equity Interests in the Borrower or such Subsidiary or (ii) any repayment of inter-company loans upon the exercise of options outstanding under the Borrower's Performance Investment Plan, the Borrower shall, within five Euro- Dollar Business Days after such Net Cash Proceeds or repayment are received, prepay an aggregate principal amount of Term Loans equal to such Net Cash Proceeds or repayment; PROVIDED that this subsection shall not apply to (i) any issuance or sale of Equity Interests to the Borrower or a Wholly-Owned Included Subsidiary or (ii) any Net Cash Proceeds of any issuance or sale of common stock of the Borrower to be issued as part of the consideration for the Acquisition. Any prepayment of Term Loans pursuant to this subsection shall reduce ratably the amounts of all subsequent Term Loan Amortization Payments. (f) CASUALTY EVENTS. If a Casualty Event occurs on or after the Closing Date, and if at any time after it occurs the Borrower or any Included Subsidiary receives Casualty Proceeds in respect thereof which exceed the expected cost of any restoration, repair or replacement of the property affected thereby by $250,000 or more (whether as a result of a determination not to restore, repair or replace or otherwise), the Borrower shall promptly notify the Administrative Agent of the receipt of such excess 34 Casualty Proceeds ("Excess Casualty Proceeds") and the amount thereof. Within 360 days after the receipt thereof, the Borrower shall cause such Excess Casualty Proceeds to be applied either (i) to pay for one or more Hospital Purchases or (ii) to prepay Term Loans, in all respects as if such Excess Casualty Proceeds were Net Cash Proceeds of a Hospital Sale subject to the provisions of subsection (b) of this Section. Any prepayment of Term Loans pursuant to this subsection shall reduce ratably the amounts of all subsequent Term Loan Amortization Payments. (g) SALE/LEASEBACKS. If the Borrower or any Included Subsidiary receives any Net Cash Proceeds of any Medical Office Sale-Leaseback Transaction, the Borrower shall, within five Euro-Dollar Business Days after such Net Cash Proceeds are received, prepay an aggregate principal amount of Term Loans equal to such Net Cash Proceeds. Any prepayment of Term Loans pursuant to this subsection shall reduce ratably the amounts of all subsequent Term Loan Amortization Payments. (h) MINIMUM AMOUNT TO BE PREPAID. If the aggregate principal amount of Term Loans to be prepaid pursuant to subsection (b), (c), (d), (e), (f) or (g) of this Section on any day is less than $10,000,000, such prepayment shall be deferred until the first day on which both (i) the cumulative aggregate unpaid principal amount to be prepaid pursuant to all said subsections is at least $10,000,000 and (ii) an Interest Period applicable to any Group of Term Loans ends. SECTION 2.07. MATURITY AND MANDATORY PREPAYMENTS OF REVOLVING CREDIT LOANS. (a) MATURITY. Each Revolving Credit Loan shall mature, and the principal amount thereof shall be due and payable, on the Final Maturity Date. (b) MANDATORY PREPAYMENTS. If (i) the Borrower or any Subsidiary receives any Net Cash Proceeds from any Disposition (to a Person other than the Borrower or a Wholly-Owned Included Subsidiary) of any Designated Investment or (ii) the Borrower receives any extraordinary dividend or distribution on any Equity Interest in any Designated International Subsidiary (other than a dividend or distribution of Net Cash Proceeds referred to clause (i)), the Borrower shall, substantially concurrently with the receipt of such Net Cash Proceeds, dividend or distribution, prepay an aggregate principal amount of the Revolving Credit Loans equal to the lesser of (x) 25% of such Net Cash Proceeds, dividend or distribution or (y) the aggregate principal amount of the Revolving Credit Loans then outstanding; PROVIDED that the aggregate principal 35 amount of Revolving Credit Loans repaid by the Borrower pursuant to this subsection shall not exceed $200,000,000 on a cumulative basis. No prepayment of Revolving Credit Loans pursuant to this Section 2.07(b) shall reduce the Revolving Credit Commitments. SECTION 2.08. OPTIONAL PREPAYMENTS OF SYNDICATED LOANS. The Borrower may at its option, by Notice of Syndicated Prepayment given in accordance with Section 2.09, prepay any Group of Loans (subject, in the case of a Group of Euro-Dollar Loans, to Section 2.16), in each case in whole at any time, or from time to time in part in amounts aggregating at least $10,000,000, by paying the principal amount to be prepaid together with interest accrued thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Lenders included in such Group of Loans. Any prepayment of the Term Loans pursuant to this subsection shall be applied first, to reduce the amount of the next succeeding Term Loan Amortization Payment until it is paid in full, and thereafter, to reduce ratably the amounts of all subsequent Term Loan Amortization Payments. SECTION 2.09. NOTICE OF SYNDICATED PREPAYMENT. (a) The Borrower shall give the Administrative Agent notice (a "Notice of Syndicated Prepayment") not later than (x) 11:00 A.M. (New York City time) on the date of each prepayment of Syndicated Base Rate Loans and (y) 1:00 P.M. (New York City time) on the third Euro-Dollar Business Day before each prepayment of Euro-Dollar Loans, specifying: (i) the date of such prepayment, which shall be a Domestic Business Day in the case of a prepayment of Base Rate Loans or a Euro-Dollar Business Day in the case of a prepayment of Euro-Dollar Loans, (ii) the aggregate amount of such prepayment, and (iii) the Group or Groups of Loans to which such prepayment is to be applied. If the Borrower fails to specify the Group or Groups of Loans to which any such prepayment is to be applied, such Group or Groups of Loans shall be selected by the Administrative Agent. Each repayment or prepayment of Syndicated Loans shall be applied ratably to the Loans included in the Group or Groups of Loans selected by the Borrower or the Administrative Agent, as the case may be. (b) Upon receipt of a Notice of Syndicated Prepayment, the Administrative Agent shall promptly notify 36 each relevant Lender of the contents thereof and of such Lender's ratable share of such prepayment and such Notice of Syndicated Prepayment shall not thereafter be revocable by the Borrower; PROVIDED that, in the case of a prepayment required by Section 2.06(c) or 2.07(b), the Notice of Syndicated Prepayment may be conditioned on the closing of the sale of the relevant Investment. SECTION 2.10. INTEREST RATES. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Loan is made to but excluding the date it becomes due, at a rate per annum equal to the sum of the Base Rate for such day plus the Base Rate Margin (if any) for such day. Such interest shall be payable in arrears on the last Domestic Business Day of each calendar month and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such amount is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, three months after the first day thereof. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar 37 Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid, at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan at the date such payment was due. (d) Each Euro-Dollar Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated hereby. If any Euro-Dollar Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Euro-Dollar Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. 38 SECTION 2.11. METHOD OF ELECTING INTEREST RATES. (a) The Loans included in each Syndicated Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Syndicated Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article VIII), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Administrative Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; PROVIDED that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $10,000,000 or any larger multiple of $1,000,000. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted to Euro- Dollar Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. 39 Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Administrative Agent shall promptly notify each relevant Lender of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Administrative Agent for any Group of Euro-Dollar Loans, such Loans shall be converted to Base Rate Loans on the last day of the then current Interest Period applicable thereto. SECTION 2.12. COMMITMENT FEES. (a) TERM COMMITMENTS. The Borrower shall pay to the Administrative Agent, for the account of the Term Lenders ratably in proportion to their Term Commitments, a commitment fee for each day at the Commitment Fee Rate on the aggregate unused amount of the Term Commitments on such day. Such commitment fee shall accrue from and including the Effective Date to but excluding the last day of the Term Loan Availability Period (or any earlier date on which the Term Commitments are fully utilized or terminate in their entirety). (b) REVOLVING CREDIT COMMITMENTS. The Borrower shall pay to the Administrative Agent, for the account of the Revolving Credit Lenders ratably in proportion to their Revolving Credit Commitments, a commitment fee for each day at the Commitment Fee Rate on the amount by which the aggregate Revolving Credit Commitments exceed the aggregate Outstanding Revolving Credit Amounts on such day. Such commitment fee shall accrue from and including the Effective Date to but excluding the Final Maturity Date (or any earlier date on which the Revolving Credit Commitments terminate in their entirety). (c) PAYMENTS. Fees accrued under this Section shall be payable quarterly on each March 31, June 30, September 30 and December 31 and on the date on which the Term Commitments or Revolving Credit Commitments, as the case may be, terminate in their entirety. SECTION 2.13. TERMINATION OR REDUCTION OF COMMITMENTS. (a) TERM COMMITMENTS. During the Term Loan Availability Period, the Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Term Commitments at any time or (ii) ratably reduce from time to time, by an aggregate amount of $10,000,000 or any multiple of $1,000,000 in excess thereof, 40 the aggregate unused amount of the Term Commitments. Unless previously terminated, the Term Commitments shall terminate at the end of the Term Loan Availability Period. (b) REVOLVING CREDIT COMMITMENTS. The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Revolving Credit Commitments at any time, if there are no Outstanding Revolving Credit Amounts and no outstanding Swingline Loans at such time, or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any multiple of $1,000,000 in excess thereof, the aggregate amount of the Revolving Credit Commitments in excess of the sum of (x) the aggregate Outstanding Revolving Credit Amounts of all the Revolving Credit Lenders plus (y) the aggregate principal amount of all Swingline Loans outstanding at such time. Unless previously terminated, the Revolving Credit Commitments shall terminate at the close of business on the Final Maturity Date. (c) SWINGLINE COMMITMENT. The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, terminate the Swingline Commitment at any time, if no Swingline Loans are outstanding at such time. Unless previously terminated, the Swingline Commitment shall terminate at the close of business on the Swingline Maturity Date. SECTION 2.14. LETTERS OF CREDIT. (a) EXISTING LETTERS OF CREDIT. On the Closing Date, each LC Issuing Bank that has issued an Existing Letter of Credit shall be deemed, without further action by any party hereto, to have sold to each Revolving Credit Lender, and each such Lender shall be deemed, without further action by any party hereto, to have purchased from such LC Issuing Bank, a participation in such Existing Letter of Credit and the related Letter of Credit Liabilities equal to such Lender's Revolving Credit Percentage thereof. The Borrower and the banks party hereto that are also party to AMI's Existing Credit Agreement agree that, concurrently with such sale, the participations in the Existing Letters of Credit sold to such banks under AMI's Existing Credit Agreement shall be automatically cancelled without further action by any of the parties thereto. On and after the Closing Date each Existing Letter of Credit shall constitute a Letter of Credit for all purposes hereof. (b) ISSUANCE OF ADDITIONAL LETTERS OF CREDIT. Any LC Issuing Bank may, but shall not be obligated to, issue letters of credit for the account of the Borrower from time to time pursuant to this subsection (b) during the period from and including the Closing Date to but excluding 41 the date that is 30 days before the Final Maturity Date; PROVIDED that, immediately after each such letter of credit is issued: (i) the aggregate amount of the Letter of Credit Liabilities then outstanding will not exceed $100,000,000 and (ii) in the case of each Revolving Credit Lender, the sum of (x) all its Outstanding Revolving Credit Amounts and (y) its Revolving Credit Percentage of all outstanding Swingline Loans will not exceed its Revolving Credit Commitment. Upon the issuance by any LC Issuing Bank of an Additional Letter of Credit pursuant to this subsection (b), such LC Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Revolving Credit Lender, and each such Lender shall be deemed, without further action by any party hereto, to have purchased from such LC Issuing Bank, a participation in such Letter of Credit and the related Letter of Credit Liabilities equal to such Lender's Revolving Credit Percentage thereof. (c) EXPIRY DATES. No Letter of Credit shall have an expiry date later than the fifth Domestic Business Day prior to the Final Maturity Date. Subject to the preceding sentence: (i) each Additional Letter of Credit shall, when issued, have an expiry date on or before the first anniversary of the date on which it is issued; and (ii) the expiry date of any Letter of Credit may, at the request of the Borrower, be extended from time to time for a period not exceeding one year so long as the relevant LC Issuing Bank agrees to so extend such Letter of Credit (or, in the case of an "evergreen" Letter of Credit, its right to give a notice to prevent the extension thereof expires) no earlier than three months before the then existing expiry date thereof. (d) NOTICE OF PROPOSED ISSUANCE. The Borrower shall give the relevant LC Issuing Bank and the Administrative Agent at least three Domestic Business Days' prior notice specifying the date each Additional Letter of Credit is to be issued and describing the proposed terms of such Letter of Credit and the nature of the transactions proposed to be supported thereby. 42 (e) CONDITIONS TO ISSUANCE. No LC Issuing Bank shall issue any Additional Letter of Credit unless (i) such Letter of Credit shall be satisfactory in form and substance to such LC Issuing Bank, (ii) the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as such LC Issuing Bank shall have reasonably requested, (iii) such LC Issuing Bank shall have confirmed with the Administrative Agent on the date of such issuance that the amounts specified in clauses (i) and (ii) of subsection (b) above will not be exceeded immediately after such Letter of Credit is issued and (iv) such LC Issuing Bank shall not have been notified in writing by the Borrower, the Administrative Agent or the Required Revolving Credit Lenders that any condition specified in clause (c) or (d) of Section 3.03 is not satisfied on the date such Letter of Credit is to be issued. (f) NOTICE OF PROPOSED EXTENSIONS OF EXPIRY DATES. Each LC Issuing Bank shall give the Administrative Agent at least three Domestic Business Days' notice prior to extending the expiry date of any Letter of Credit issued by it (or, in the case of an "evergreen" Letter of Credit, allowing it to be extended), specifying (i) the date on which such extension is to be made and (ii) the date to which such expiry date is to be so extended. Such LC Issuing Bank shall not extend (or allow the extension of) the expiry date of such Letter of Credit if it shall have been notified by the Administrative Agent (at the request of the Required Revolving Credit Lenders) that any condition specified in clause (c) or (d) of Section 3.03 is not satisfied on the date such Letter of Credit is to be extended. (g) NOTICE OF ACTUAL ISSUANCES AND EXTENSIONS. Promptly upon issuing any Additional Letter of Credit or extending any Letter of Credit (or allowing any "evergreen" Letter of Credit to be extended), the relevant LC Issuing Bank will notify the Administrative Agent of the date of such Letter of Credit, the amount thereof, the beneficiary or beneficiaries thereof and the expiry date or extended expiry date thereof. Upon receipt of such notice the Administrative Agent shall promptly notify each Revolving Credit Lender of the contents thereof and the amount of such Lender's participation in the relevant Letter of Credit. (h) FEES. The Borrower shall pay to the Administrative Agent, for the account of the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Percentages, a letter of credit fee for each day at the LC Fee Rate on the aggregate amount available for drawings (whether or not conditions for 43 drawing thereunder have been satisfied) under all Letters of Credit outstanding on such day. Such letter of credit fee shall be payable with respect to each Letter of Credit in arrears on the last Domestic Business Day of each calendar quarter for so long as such Letter of Credit is outstanding and on the final expiry date thereof. The Borrower shall pay to each LC Issuing Bank additional fronting fees and reasonable expenses in the amounts and at the times agreed between the Borrower and such LC Issuing Bank. The LC Issuing Banks shall furnish to the Administrative Agent upon request such information as the Administrative Agent shall require in order to calculate the amount of any fee payable for the account of the Revolving Credit Lenders under this subsection (h). (i) DRAWINGS. Upon receipt from the beneficiary of any Letter of Credit of a demand for payment under such Letter of Credit, the relevant LC Issuing Bank shall determine in accordance with the terms of such Letter of Credit whether such demand for payment should be honored. If such LC Issuing Bank determines that any such demand for payment should be honored, such LC Issuing Bank shall make available to such beneficiary in accordance with the terms of such Letter of Credit the amount of the drawing under such Letter of Credit. Such LC Issuing Bank shall thereupon notify the Borrower and the Administrative Agent of the amount of such drawing paid by it. (j) REIMBURSEMENT AND OTHER PAYMENTS BY THE BORROWER. (A) If any amount is drawn under any Letter of Credit, the Borrower irrevocably and unconditionally agrees to reimburse the relevant LC Issuing Bank for all amounts paid by such LC Issuing Bank upon such drawing, together with any and all reasonable charges and expenses which such LC Issuing Bank may pay or incur relative to such drawing and interest on the amount drawn at the Federal Funds Rate for each day from and including the date such amount is drawn to but excluding the date such reimbursement payment is due and payable. Such reimbursement payment shall be due and payable (x) at or before 1:00 P.M. (New York City time) on the date the LC Issuing Bank notifies the Borrower of such drawing, if such notice is given at or before 10:00 A.M. (New York City time) on such date, or (y) at or before 10:00 A.M. (New York City time) on the first Domestic Business Day after the date such notice is given, if such notice is given after 10:00 A.M. (New York City time); PROVIDED that no payment otherwise required by this sentence to be made by the Borrower at or before 1:00 P.M. (New York City time) on any day shall be overdue hereunder if arrangements for such payment satisfactory to the LC Issuing Bank, in its reasonable discretion, shall have been made by 44 the Borrower at or before 1:00 P.M. (New York City time) on such day and such payment is actually made at or before 3:00 P.M. (New York City time) on such day. (B) In addition, the Borrower agrees to pay to the LC Issuing Bank interest on any and all amounts not paid by the Borrower when due hereunder with respect to a Letter of Credit issued by such LC Issuing Bank, for each day from and including the date when such amount becomes due to but excluding the date such amount is paid in full, whether before or after judgment, payable on demand, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. (C) Each payment to be made by the Borrower pursuant to this subsection (j) shall be made to the relevant LC Issuing Bank in Federal or other funds immediately available to it at its address referred to in Section 9.01. (k) PAYMENTS BY REVOLVING CREDIT LENDERS WITH RESPECT TO LETTERS OF CREDIT. (i) If the Borrower fails to reimburse an LC Issuing Bank as and when required by subsection (j) above for all or any portion of any amount drawn under a Letter of Credit issued by it, such LC Issuing Bank may notify the Administrative Agent of such unreimbursed amount and request that the Revolving Credit Lenders reimburse such LC Issuing Bank for their respective Revolving Credit Percentages thereof. Upon receiving any such notice from an LC Issuing Bank, the Administrative Agent shall promptly notify each Revolving Credit Lender of the unreimbursed amount and such Lender's share thereof. Upon receiving such notice from the Administrative Agent, each Revolving Credit Lender shall make available to such LC Issuing Bank an amount equal to such Revolving Credit Lender's share of such unreimbursed amount as set forth in such notice, in Federal or other funds immediately available to such LC Issuing Bank, by 3:00 P.M. (New York City time) on the Domestic Business Day following such Lender's receipt of such notice from the Administrative Agent, together with interest on such amount for each day from and including the date of such drawing to but excluding the day such payment is due from such Lender at the Federal Funds Rate for such day, at such LC Issuing Bank's address referred to in Section 9.01. Upon payment in full thereof, such Revolving Credit Lender shall be subrogated to the rights of the LC Issuing Bank against the Borrower to the extent of such Lender's pro rata share of the related Reimbursement Obligation (including interest accrued thereon). Nothing in this subsection (k) shall affect any rights any Revolving Credit Lender may have against any LC Issuing Bank for any 45 action or omission for which such LC Issuing Bank is not indemnified under subsection (o) of this Section. (ii) If any Revolving Credit Lender fails to pay any amount required to be paid by it pursuant to clause (i) of this subsection (k) on the date on which such payment is due, interest shall accrue on such Revolving Credit Lender's obligation to make such payment, for each day from and including the date such payment became due to but excluding the date such Revolving Credit Lender makes such payment, whether before or after judgment, at a rate per annum equal to (x) for each day from the day such payment is due to the third succeeding Domestic Business Day, inclusive, the Federal Funds Rate for such day as determined by the LC Issuing Bank and (y) for each day thereafter the sum of 2% plus the Base Rate for such day. Any payment made by any Revolving Credit Lender after 3:00 P.M. (New York City time) on any Domestic Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Domestic Business Day. (iii) If the Borrower shall reimburse any LC Issuing Bank for any drawing with respect to which any Revolving Credit Lender shall have made funds available to such LC Issuing Bank in accordance with clause (i) of this subsection (k), such LC Issuing Bank shall promptly upon receipt of such reimbursement distribute to such Revolving Credit Lender its pro rata share thereof, including interest, to the extent received by such LC Issuing Bank. (l) EXCULPATORY PROVISIONS. The Borrower's obligations under this Section shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against any LC Issuing Bank, any Lender, the beneficiary of any Letter of Credit or any other Person. The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to its use of such Letter of Credit. None of the LC Issuing Banks, the Revolving Credit Lenders and their respective officers, directors, employees and agents shall be responsible for, and the obligations of each Revolving Credit Lender to make payments to each LC Issuing Bank and of the Borrower to reimburse each LC Issuing Bank for drawings pursuant to this Section (other than obligations resulting solely from the gross negligence or willful misconduct of the relevant LC Issuing Bank) shall not be excused or affected by, among other things, (i) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (ii) the validity, sufficiency or genuineness of 46 documents presented under any Letter of Credit or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (iii) payment by any LC Issuing Bank against presentation of documents to it which do not comply with the terms of the relevant Letter of Credit or (iv) any dispute between or among the Borrower, any of its Subsidiaries, the beneficiary of any Letter of Credit or any other Person or any claims or defenses whatsoever of the Borrower, any of its Subsidiaries or any other Person against the beneficiary of any Letter of Credit. No LC Issuing Bank shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. Any action taken or omitted by any LC Issuing Bank or any Revolving Credit Lender under or in connection with any Letter of Credit and the related drafts and documents, if done without willful misconduct or gross negligence, shall be binding upon the Borrower and shall not place any LC Issuing Bank or any Revolving Credit Lender under any liability to the Borrower. (m) RELIANCE, ETC. Each LC Issuing Bank shall be entitled (but not obligated) to rely, and shall be fully protected in relying, on the representation and warranty by the Borrower set forth in the last sentence of Section 3.03 to establish whether the conditions specified in clauses (c) and (d) of Section 3.03 are met in connection with any issuance or extension of a Letter of Credit. Each LC Issuing Bank shall be entitled to rely, and shall be fully protected in relying, upon advice and statements of legal counsel, independent accountants and other experts selected by such LC Issuing Bank and upon any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary unless the beneficiary and the Borrower shall have notified such LC Issuing Bank that such documents do not comply with the terms and conditions of such Letter of Credit. Any LC Issuing Bank shall be fully justified in refusing to take any action requested of it under this Section in respect of any Letter of Credit issued by it unless it shall first have received such advice or concurrence of the Required Revolving Credit Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Revolving 47 Credit Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take, or omitting or continuing to omit, any such action. Notwithstanding any other provision of this Section, each LC Issuing Bank shall in all cases be fully protected in acting, or in refraining from acting, under this Section in respect of any Letter of Credit in accordance with a request of the Required Revolving Credit Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Revolving Credit Lenders and all future holders of participations in such Letter of Credit; PROVIDED that this sentence shall not affect any rights the Borrower may have against the Revolving Credit Lenders that made such request. (n) INDEMNIFICATION BY THE BORROWER. The Borrower agrees to indemnify and hold harmless each Revolving Credit Lender, each LC Issuing Bank and the Administrative Agent (collectively, the "LC Indemnitees") from and against any and all claims and damages, losses, liabilities, costs or expenses (including, without limitation, the fees and disbursements of counsel) which any such LC Indemnitee may reasonably incur (or which may be claimed against any such LC Indemnitee by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit or any actual or proposed use of any Letter of Credit, including any claims, damages, losses, liabilities, costs or expenses which the LC Issuing Bank may incur by reason of or in connection with the failure of any Revolving Credit Lender to fulfill or comply with its obligations to any LC Issuing Bank hereunder (but nothing herein contained shall affect any rights the Borrower may have against any such defaulting Revolving Credit Lender); PROVIDED that the Borrower shall not be required to indemnify any LC Indemnitee for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of any LC Issuing Bank in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (ii) any LC Issuing Bank's failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this subsection (n) is intended to limit the obligations of the Borrower under any other provision of this Section. (o) INDEMNIFICATION BY THE LENDERS. Each Revolving Credit Lender shall, ratably in accordance with its Revolving Credit Commitment, indemnify each LC Issuing 48 Bank, its Affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including fees and disbursements of counsel), claim, demand, action, loss or liability (except such as result from such indemnitee's gross negligence or willful misconduct or any LC Issuing Bank's failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit) that any such indemnitee may suffer or incur in connection with this Section or any action taken or omitted by such indemnitee under this Section. (p) DUAL CAPACITIES. In its capacity as a Revolving Credit Lender, each LC Issuing Bank shall have the same rights and obligations under this Section as any other Revolving Credit Lender. SECTION 2.15. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall make each payment of (x) principal of, and interest on, the Loans and fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01 and (y) of amounts constituting Reimbursement Obligations and any other amounts payable in connection with any Letter of Credit in accordance with the provisions of Section 2.14. The Administrative Agent will promptly distribute to each Lender its ratable share (if any) of each such payment received by the Administrative Agent for the account of the Lenders. Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees or of Reimbursement Obligations shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal or any Reimbursement Obligation is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to any Lenders hereunder that the Borrower will not make such payment in full, the 49 Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment, each Lender shall repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.16. FUNDING LOSSES. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is converted to a Base Rate Loan (pursuant to Article II, VI or VIII or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.10(c), or if the Borrower fails to borrow or prepay or convert any Euro-Dollar Loans after notice has been given to any Lender in accordance with Section 2.04(a) or 2.11(c), such Borrower shall reimburse each Lender within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay or convert, PROVIDED that such Lender shall have delivered to the Borrower a certificate setting forth in reasonable detail the amount of such loss or expense and the method of calculation thereof, which certificate shall be conclusive in the absence of manifest error. SECTION 2.17. COMPUTATION OF INTEREST AND FEES. (a) Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). (b) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and each Commitment Fee Rate and LC Fee Rate applicable hereunder. The Administrative Agent shall give prompt notice to the Borrower and the relevant Lenders of each rate of interest, 50 Commitment Fee Rate and LC Fee Rate so determined, and its determination thereof shall be conclusive in the absence of manifest error; PROVIDED that, if the Administrative Agent makes such determinations for any Rate Period on the basis of an estimated Pricing Level set forth in a certificate delivered by the Borrower pursuant to Section 5.01(i) and subsequently determines (or receives a certificate pursuant to Section 5.01(i) establishing) that a higher Pricing Level applies during such Rate Period, the Administrative Agent shall promptly notify the Borrower and the Lenders of such higher Pricing Level and, within two Domestic Business Days after receiving such notice, the Borrower shall pay to the Administrative Agent, for the accounts of the relevant Lenders, the additional interest, additional commitment fees and additional letter of credit fees that should have been paid prior to such time by reason of the applicability of such higher Pricing Level. If the Administrative Agent makes such determinations on the basis of a Pricing Level estimated by the Borrower and subsequently determines (or receives a certificate pursuant to Section 5.01(i) establishing) that a lower Pricing Level applied during the relevant Rate Period, no adjustment shall be made for any resulting overpayments of interest, commitment fees or letter of credit fees theretofore made by the Borrower on the basis of the higher Pricing Level estimated by it. SECTION 2.18. SWINGLINE LOANS. (a) SWINGLINE COMMITMENT. The Swingline Bank agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time during the Swingline Loan Availability Period; PROVIDED that the aggregate principal amount of such loans at any one time outstanding shall not exceed either (i) the Swingline Commitment or (ii) the aggregate unused amount of the Revolving Credit Commitments. Each loan under this Section shall be in a principal amount of at least $1,000,000 and shall be a Base Rate Loan. Within the foregoing limits, the Borrower may borrow under this Section, repay Swingline Loans and reborrow at any time during the Swingline Loan Availability Period under this Section. (b) NOTICE OF SWINGLINE BORROWING. The Borrower shall give the Swingline Bank notice (a "Notice of Swingline Borrowing") not later than 2:00 P.M. (New York City time) on the date of each Swingline Borrowing, specifying (i) the date of such Borrowing, which shall be a Domestic Business Day, and (ii) the amount of such Borrowing. (c) FUNDING OF SWINGLINE LOANS. Not later than 3:00 P.M. (New York City time) on the date of each Swingline Borrowing, the Swingline Bank shall, unless the Swingline 51 Bank determines that any applicable condition specified in Article III has not been satisfied, make available the amount of such Swingline Borrowing, in Federal or other funds immediately available in New York City, to the Borrower at the Swingline Bank's address referred to in Section 9.01. (d) OPTIONAL PREPAYMENT OF SWINGLINE LOANS. The Borrower may prepay the Swingline Loans in whole at any time, or from time to time in part in a principal amount of at least $1,000,000, by giving notice of such prepayment to the Swingline Bank not later than 12:00 Noon (New York City time) on the date of prepayment and paying the principal amount to be prepaid, together with interest accrued thereon to the date of prepayment, to the Swingline Bank at its address referred to in Section 9.01, in Federal or other funds immediately available in New York City, not later than 3:00 P.M. on the date of prepayment. (e) MANDATORY PREPAYMENT OF SWINGLINE LOANS. On the date of each Borrowing pursuant to Section 2.01 or 2.02, the Borrower shall prepay all Swingline Loans then outstanding, together with interest accrued thereon to the date of prepayment. (f) FINAL MATURITY OF SWINGLINE LOANS. All Swingline Loans outstanding on the Swingline Maturity Date shall be due and payable on such date together with interest accrued thereon to such date. (g) REFUNDING UNPAID SWINGLINE LOANS. If (i) the Swingline Loans are not paid in full on the Swingline Maturity Date or (ii) the Swingline Loans become immediately due and payable pursuant to Section 6.01, the Swingline Bank (or the Administrative Agent on its behalf) may, by notice to the Revolving Credit Lenders (including the Swingline Bank, in its capacity as a Revolving Credit Lender), require each Revolving Credit Lender to pay to the Swingline Bank an amount equal to such Lender's Revolving Credit Percentage of the aggregate unpaid principal amount of the Swingline Loans then outstanding. Such notice shall specify the date on which such payments are to be made, which shall be the first Domestic Business Day after such notice is given. Not later than 12:00 Noon (New York City time) on the date so specified, each Revolving Credit Lender shall pay the amount so notified to it to the Swingline Bank at its address referred to in Section 9.01, in Federal or other funds immediately available in New York City. The amount so paid by each Revolving Credit Lender shall constitute a Revolving Credit Base Rate Loan to the Borrower; PROVIDED that, if the Revolving Credit Lenders are prevented from making such Base 52 Rate Loans to the Borrower by the provisions of the United States Bankruptcy Code or otherwise, the amount so paid by each Revolving Credit Lender shall constitute a purchase by it of a participation in the unpaid principal amount of the Swingline Loans (and interest accruing thereon after the date of such payment). Each Revolving Credit Lender's obligation to make such payment to the Swingline Bank under this subsection (g) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against the Swingline Bank or the Borrower, (ii) the occurrence or continuance of a Default or an Event of Default or the termination of the Revolving Credit Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Person, (iv) any breach of this Agreement by the Borrower or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; PROVIDED that no Revolving Credit Lender shall be obligated to make any payment to the Swingline Bank under this subsection (g) with respect to a Swingline Loan made by the Swingline Bank at a time when it knew that a Default had occurred and was continuing. ARTICLE III CONDITIONS SECTION 3.01. CLOSING. The closing hereunder shall occur when all the following conditions have been satisfied (or waived in accordance with Section 9.05): (i) the Administrative Agent shall have received a duly executed Note, dated on or before the Closing Date and complying with the provisions of Section 2.05, for each Tranche of Loans of each Lender; (ii) the Administrative Agent shall have received fully executed counterparts of the Security Agreement, substantially in the form of Exhibit B hereto, together with the stock certificates and promissory note listed in Schedule I thereto; (iii) the Administrative Agent shall have received evidence satisfactory to it that (A) all letters of credit issued under NME's Existing Credit Agreement have been canceled, (B) the Borrower will pay in full on the Closing Date the principal of all loans and reimbursement obligations then outstanding under NME's 53 Existing Credit Agreement and all interest and fees accrued thereunder and (C) the direct-pay letter of credit issued by Credit Suisse to support commercial paper issued by MP Funding Corporation for the benefit of certain Subsidiaries of the Borrower shall have been canceled; (iv) the Administrative Agent shall have received evidence satisfactory to it that (A) the commitments of the lenders under AMI's Existing Credit Agreement have been terminated, (B) no letters of credit (except the Existing Letters of Credit) are outstanding under AMI's Existing Credit Agreement, (C) all participations in the Existing Letters of Credit purchased (or deemed to have been purchased) under AMI's Existing Credit Agreement have been canceled, (D) NME will make a loan to AMI on the Closing Date in an amount sufficient to pay in full the principal of all loans and reimbursement obligations then outstanding under AMI's Existing Credit Agreement and all interest and fees accrued thereunder and (E) AMI will apply the proceeds of such loan to pay such amounts in full on the Closing Date; (v) the Administrative Agent shall have received evidence satisfactory to it that (A) all security interests created by AMI's Existing Security Agreements have been released, (B) termination statements have been filed or delivered for filing under the Uniform Commercial Code as required to evidence the termination of such security interests and (C) all stock certificates and other instruments pledged under AMI's Existing Security Agreements have either been delivered to the Collateral Agent to be held as part of the Collateral under the Security Agreement or returned to AMI or AM Holdings; (vi) the Administrative Agent shall have received evidence satisfactory to it that the Borrower will apply proceeds of the Term Loans (A) to pay all amounts payable by it on the Closing Date pursuant to the NME Tender Offers, (B) to pay, or lend to AMI the amount required to pay, all amounts payable on the Closing Date pursuant to the AMI Tender Offers and (C) to lend to AMI the amount required to pay all amounts payable on the Closing Date pursuant to the AMI Redemptions; (vii) the Administrative Agent shall have received evidence satisfactory to it that the Borrower has received the net cash proceeds of the issuance and sale of at least $300,000,000 aggregate principal amount of 54 Senior Notes and at least $900,000,000 aggregate principal amount of Subordinated Notes; (viii) the Administrative Agent shall have received evidence satisfactory to it that, in addition to the funds available under this Agreement and the net cash proceeds of the issuance and sale of Senior Notes and Subordinated Notes referred to in clause (vii) above, the Borrower has at least $135,000,000 (less any amount theretofore invested in South Miami Hospitals as permitted by Section 5.13(e)) of cash available to finance the Acquisition; (ix) the Administrative Agent shall have received evidence satisfactory to it that the Merger has been consummated substantially on the terms set forth in the Merger Agreement; (x) the Administrative Agent shall have received evidence satisfactory to it that the total consideration paid or to be paid by the Borrower and its Subsidiaries as a result of the Acquisition to the former holders of common stock of AM Holdings and options to purchase such common stock will not exceed $1,542,800,000 (or $1,563,100,000 if the Merger is consummated after March 31, 1995) in cash and 34,104,000 shares of common stock of the Borrower, except to the extent that any stockholders of AM Holdings who elect appraisal rights may receive more than $19 per share of common stock of AM Holdings (or more than $19.25 per share if the Merger is consummated after March 31, 1995); (xi) the Administrative Agent shall not have received notice from the Required Lenders stating that they have determined in good faith that (i) any order, decree, judgment, ruling or injunction exists which restrains or otherwise prevents the consummation of the Acquisition in the manner contemplated by the Merger Agreement, the consummation of any of the NME Tender Offers, the AMI Tender Offers or the AMI Redemptions in the manner described in the Prospectus or the making of the Loans or (ii) any action, suit or proceeding is pending or threatened in which there is a reasonable possibility of an adverse decision which would have a Material Adverse Effect; (xii) the Administrative Agent shall not have received notice from the Required Lenders stating that they have determined in good faith that any event has 55 occurred since November 30, 1994 which has had (or is reasonably likely to have) a Material Adverse Effect; (xiii) the Administrative Agent shall have received a certificate dated the Closing Date, substantially in the form of Exhibit C hereto, signed by a Senior Officer of the Borrower; (xiv) the Administrative Agent shall have received an opinion of Gibson, Dunn & Crutcher, special counsel for the Borrower, dated the Closing Date and addressed to the Administrative Agent, the LC Issuing Banks and the Lenders, substantially in the form of Exhibit D-1 hereto and covering such other matters incident to the transactions contemplated by this Agreement as any Arranging Agent shall reasonably request; (xv) the Administrative Agent shall have received an opinion of Skadden, Arps, Slate, Meagher & Flom, special counsel for the Borrower, dated the Closing Date and accompanied by a reliance letter addressed to the Administrative Agent, the LC Issuing Banks and the Lenders, covering the matters set forth in Exhibit D-2 hereto and such other matters incident to the transactions contemplated by this Agreement as any Arranging Agent shall reasonably request; (xvi) the Administrative Agent shall have received an opinion of Maples & Calder, special counsel for NME Cayman, dated the Closing Date and addressed to the Administrative Agent, the LC Issuing Banks and the Lenders, substantially in the form of Exhibit D-3 hereto and covering such other matters incident to the transactions contemplated by this Agreement as any Arranging Agent shall reasonably request; (xvii) the Administrative Agent shall have received an opinion of internal counsel for the Borrower, dated the Closing Date and addressed to the Administrative Agent, the LC Issuing Banks and the Lenders, substantially in the form of Exhibit E hereto and covering such other matters incident to the transactions contemplated by this Agreement as any Arranging Agent shall reasonably request; (xviii) the Administrative Agent shall have received an opinion of internal counsel for AM Holdings, dated the Closing Date and addressed to the Administrative Agent, the LC Issuing Banks and the Lenders, substantially in the form of Exhibit F hereto and covering such other matters incident to the 56 transactions contemplated by this Agreement as any Arranging Agent shall reasonably request; (xix) the Administrative Agent shall have received an opinion of Davis Polk & Wardwell, special counsel for the Administrative Agent, dated the Closing Date and addressed to the Administrative Agent, the Issuing Banks and the Lenders, substantially in the form of Exhibit G hereto and covering such other matters incident to the transactions contemplated by this Agreement as any Arranging Agent shall reasonably request; (xx) the Administrative Agent shall have received a certificate of the Secretary of the Borrower, dated the Closing Date, as to the articles of incorporation and bylaws of the Borrower, no amendments thereto, the adoption by the Borrower's board of directors of the resolutions referred to in clause (xix) below and the incumbency and signature of any officer of the Borrower who executed or will execute any Financing Document or any other document to be delivered pursuant to this Agreement, together with evidence of the incumbency of such Secretary; (xxi) the Administrative Agent shall have received a copy (in form and substance satisfactory to the Arranging Agents) of the resolutions of the Borrower's board of directors authorizing the borrowings provided for herein and the execution, delivery and performance of the Financing Documents, certified by the Secretary of the Borrower to be in full force and effect without modification on the Closing Date; (xxii) the Administrative Agent shall have received a true copy of any consent or approval of any Person (other than consents given by holders of the AMI Post-1991 Debt Securities pursuant to the AMI Tender Offers) which may be required in connection with the transactions contemplated by this Agreement, including, without limitation, any consent required under the Advance Account Agreement and the Overdraft Facility Agreement, (xxiii) the Borrower shall have paid or made arrangements satisfactory to the Administrative Agent for paying (i) the fees to be paid on or before the Closing Date pursuant to the letter agreement dated November 30, 1994 between the Borrower and the Co-Arrangers and (ii) all expenses payable by the Borrower on or before the Closing Date pursuant to Section 57 9.03(a) of this Agreement and Section 10.03(a) of NME's Existing Credit Agreement; (xxiv) all approvals, consents and other actions by or in respect of, or filings with any governmental body, agency, official, authority or other Person required in connection with the Acquisition or the transactions contemplated by the Financing Documents shall have been obtained, taken or made (except for any such approvals, consents, actions or filings with any Person (other than any governmental body, agency, official or authority) as to which the failure to have obtained, taken or made them is not, in the aggregate, material); (xxv) the Administrative Agent shall have received evidence satisfactory to it that (A) sufficient consents have been obtained from the holders of the AMI Post-1991 Debt Securities pursuant to the AMI Tender Offers to eliminate the restrictive covenants intended to be eliminated thereby, (B) the NME Tender Offers and the AMI Tender Offers have been consummated or will be consummated on or immediately after the Closing Date and (C) notices of redemption for the AMI Redemptions have been given or will be given on or immediately after the Closing Date; (xxvi) the Metrocrest Reimbursement Agreement shall be in full force and effect on terms and conditions satisfactory to the Co-Arrangers; (xxvii) the Borrower shall have paid in full all upfront fees payable to the Lenders in the amounts previously agreed upon between the Borrower and the Lenders; and (xxviii) the Administrative Agent shall have received all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Financing Documents, the consummation of the Merger, the creation and perfection of the Liens contemplated by the Security Agreement and any other matters relevant thereto, all in form and substance reasonably satisfactory to the Arranging Agents. When the closing hereunder occurs, the Administrative Agent shall promptly notify the Borrower and the Lenders of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. 58 SECTION 3.02. RELEASE OF NME'S EXISTING SECURITY INTERESTS AND NME HOSPITALS' EXISTING GUARANTEES. The parties hereto that are also parties to NME's Existing Credit Agreement, NME's Existing Security Agreement and the Metrocrest Reimbursement Agreement agree that, concurrently with the closing hereunder on the Closing Date, without any further action by any party thereto: (i) the commitments of the banks under NME's Existing Credit Agreement shall terminate; (ii) the security interests created by NME's Existing Security Agreement shall be released and the Agent (as such term is defined therein) shall deliver the stock certificate evidencing the shares of common stock of NME Hospitals pledged thereunder to the Collateral Agent to be held as part of the Collateral under the Security Agreement; (iii) the Hospitals Guaranty (as such term is defined in NME's Existing Credit Agreement) shall terminate; and (iv) the Hospitals Guaranty (as such term is defined in the Metrocrest Reimbursement Agreement) shall terminate. SECTION 3.03. BORROWINGS. The obligation of any Lender to make a Loan on the occasion of any Borrowing (other than a Syndicated Loan pursuant to Section 2.18(g)) and the obligation of the Swingline Bank to make any Swingline Loan are each subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred on or prior to April 28, 1995; (b) receipt (i) by the Administrative Agent of a Notice of Syndicated Borrowing as required by Section 2.03 or (ii) by the Swingline Bank of a Notice of Swingline Borrowing as required by Section 2.18(b), as the case may be; (c) the fact that, immediately before and after such Extension of Credit, no Default shall have occurred and be continuing; and (d) the fact that the representations and warranties of the Borrower contained in this Agreement and the Security Agreement shall be true on and as of the date of such Extension of Credit. 59 Each Extension of Credit (including each issuance or extension of a Letter of Credit) shall be deemed to be a representation and warranty by the Borrower on the date of such Extension of Credit as to the facts specified in clauses (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Nevada, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Borrower of the Financing Documents (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with any governmental body, agency or official (except filings required by the Security Agreement), (iv) do not contravene any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower, (v) do not constitute a breach of or default under any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries, except for breaches and defaults which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect, or (vi) result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, except the Liens created by the Security Agreement. SECTION 4.03. BINDING EFFECT. (i) This Agreement constitutes a valid and binding agreement of the Borrower, (ii) the Security Agreement, when executed and delivered in accordance with this Agreement, will constitute a valid and binding agreement of the Borrower and (iii) the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with its terms. 60 SECTION 4.04. PRIORITY OF SECURITY INTERESTS. The Security Agreement, when executed and delivered in accordance with this Agreement, will vest in the Collateral Agent, for the benefit of the holders of the Secured Obligations, a valid and binding first priority Lien on the Collateral. SECTION 4.05. FINANCIAL INFORMATION. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of May 31, 1994 and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the Fiscal Year then ended, reported on by KPMG Peat Marwick LLP and set forth in the Prospectus, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such Fiscal Year. (b) The unaudited condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of November 30, 1994 and the related unaudited condensed consolidated statements of operations and cash flows for the six months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Lenders, fairly present, on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six-month period (subject to normal year-end adjustments). (c) The consolidated balance sheet of AM Holdings and its Consolidated Subsidiaries as of August 31, 1994 and the related consolidated statements of income, cash flows and shareholders' equity for its fiscal year then ended, reported on by Price Waterhouse LLP and set forth in the Prospectus, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of AM Holdings and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (d) The unaudited consolidated balance sheet of AM Holdings and its Consolidated Subsidiaries as of November 30, 1994 and the related unaudited consolidated statements of income and cash flows for the three months then ended, set forth in AM Holdings's Latest Form 10-Q, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with generally accepted accounting principles 61 applied on a basis consistent with the financial statements referred to in subsection (c) of this Section, the consolidated financial position of AM Holdings and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such three-month period (subject to normal year-end adjustments). (e) The unaudited consolidated balance sheet of each Designated International Subsidiary and its Consolidated Subsidiaries as of November 30, 1994 and the related unaudited consolidated statements of income and cash flows for the six months then ended, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of such Designated International Subsidiary and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such six-month period (subject to normal year-end adjustments). (f) The pro forma condensed combined balance sheet of the Combined Companies as of November 30, 1994 and the related condensed combined statements of operations set forth in the Prospectus under the heading "Pro Forma Financial Information" fairly present their combined financial position and combined results of operations at the dates and for the periods specified therein, on the basis of the assumptions and adjustments described in the Notes to such pro forma condensed combined financial statements and giving effect to the transactions and events identified in the first paragraph under said heading as of the dates specified therein. (g) Except for the effect of the transactions described in the Prospectus under the heading "The Merger and Financing", there has been no material adverse change since November 30, 1994 in the business, operations, properties, financial condition or prospects of the Combined Companies, considered as a whole. SECTION 4.06. LITIGATION. Except as described in Schedule 4.06 hereto, there are no actions, suits or proceedings pending against, or to the knowledge of the Borrower threatened against, any of the Combined Companies or any of their respective properties, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of adverse decisions which in the aggregate could reasonably be expected to have 62 a Material Adverse Effect or which in any manner draw into question the validity of any of the Financing Documents. SECTION 4.07. COMPLIANCE WITH ERISA. Except as described in Schedule 4.07 hereto, each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. Except as disclosed in Schedule 4.07, no member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.08. COMPLIANCE WITH LAWS. Except as described in Schedule 4.07 hereto, the Borrower and its Subsidiaries are in compliance in all material respects with all applicable laws, rules and regulations (including without limitation any health care laws, rules or regulations), other than such laws, rules or regulations (i) the validity or applicability of which the Borrower or such Subsidiary is contesting in good faith by appropriate proceedings or (ii) failures to comply with which could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 4.09. ENVIRONMENTAL MATTERS. The Borrower has reviewed the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, and has in good faith attempted to identify and evaluate the associated liabilities and costs (including, without limitation, capital or operating expenditures required for clean-up or closure of properties presently or previously owned, capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and 63 actual or potential liabilities to third parties, including employees, and any related costs and expenses); PROVIDED that, with respect to AM Holdings and its Subsidiaries, on and at all times prior to the first anniversary of the Closing Date such review has been and during such time will be limited to (i) a review (without independent investigation) of information supplied by AM Holdings as to the effect of Environmental Laws on it and its Subsidiaries and (ii) a review of any other information relating to the effect of Environmental Laws on AMI and its Subsidiaries of which the Borrower obtains actual knowledge after the Closing Date. On the basis of the foregoing review, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. SECTION 4.10. TAXES. The Combined Companies have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes shown to be due on such returns or pursuant to any assessment received by any of them (unless such assessment is being contested in good faith by appropriate proceedings). The charges, accruals and reserves on the books of the Combined Companies in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.11. SUBSIDIARIES. (a) Each of the Borrower's Included Subsidiaries and each corporation which will become a Included Subsidiary upon consummation of the Merger is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. (b) Schedule I to the Security Agreement sets forth a correct and complete list, as of the close of business on the Closing Date, of (i) all capital stock of First Tier Subsidiaries (other than Immaterial Subsidiaries) beneficially owned by the Borrower, (ii) all Instruments owned by the Borrower evidencing Debt owed to it by any of its Subsidiaries and (iii) all capital stock of Westminster beneficially owned by NME Cayman. (c) On the Closing Date neither the Borrower nor any of its Subsidiaries owns any Equity Interest in any First Tier Subsidiary, Hillhaven or Westminster, other than (i) the capital stock listed in Schedule I to the Security 64 Agreement, (ii) 6,000,200 shares of common stock of Hillhaven held by NME Properties Corp. and 2,877,947 shares of such common stock held by NME Properties, Inc. (which is a Subsidiary of NME Properties Corp. that is wholly owned and directly held by it) and (iii) 35,000 shares of Series C Preferred Stock of Hillhaven and 63,402 shares of Series D Preferred Stock of Hillhaven, all of which are held by NME Properties Corp. SECTION 4.12. NOT AN INVESTMENT COMPANY. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.13. FULL DISCLOSURE. All information heretofore furnished by the Borrower to the Administrative Agent, any Arranging Agent or any Lender for purposes of or in connection with any Financing Document or any transaction contemplated thereby is, and all such information hereafter furnished by the Borrower to the Administrative Agent, any Arranging Agent or any Lender will, taken as a whole, be true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Lenders in writing any and all facts which have or may (to the extent the Borrower can now reasonably foresee) have a Material Adverse Effect. SECTION 4.14. CERTAIN DOCUMENTS. (a) The copies of the Merger Agreement and the Company Disclosure Letter and Parent Disclosure Letter referred to therein, in the form delivered to each Lender prior to the date of this Agreement, are correct and complete copies thereof as in effect on the date of this Agreement. Since the date of this Agreement, neither the Merger Agreement nor either of said Disclosure Letters has been amended or modified in any material respect and no material provision thereof has been waived without the written consent of the Required Lenders. (b) The copy of the Prospectus delivered to each Lender prior to the date of this Agreement is a correct and complete copy of the Prospectus as filed with the SEC and amended prior to the date of this Agreement. SECTION 4.15. LEGALITY OF ACQUISITION; REPRESENTATIONS IN MERGER AGREEMENT CORRECT. (a) On the Closing Date the Merger will be consummated in compliance with all applicable laws and in accordance with the provisions of the Merger Agreement. The consummation of the Merger will not (i) contravene any provision of applicable law or regulation or of the charter or by-laws of any party to the Merger Agreement, (ii) constitute a breach of or default under any instrument or agreement binding upon any 65 such party or any of its Subsidiaries or of any judgment, injunction, order, decree or other instrument binding upon any such party, except for breaches and defaults which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect or (iii) will not result in the creation or imposition of any Lien on any asset of any such party or any of its Subsidiaries, except the Liens created by the Security Agreement. (b) Each of the representations and warranties of each party contained in the Merger Agreement is true and correct in all material respects as of the date when made. SECTION 4.16. NO STOCK PAYMENTS. Except for a dividend of $.10 per share paid by AM Holdings with respect to its common stock as provided in the Merger Agreement, neither the Borrower nor any Subsidiary has declared or made any dividend, distribution or other payment since November 30, 1994 that would have been prohibited by Section 5.12 if this Agreement had been in effect at all times on and after November 30, 1994. SECTION 4.17. HOSPITAL SALES. During the period from November 30, 1994 to and including the Closing Date, none of the Combined Companies have sold or will sell any Hospital Assets, other than Hospital Assets owned by NME Psychiatric and its Subsidiaries. ARTICLE V COVENANTS The Borrower agrees that, so long as any Lender has any Term Exposure or Revolving Credit Exposure or any Swingline Loan remains outstanding or any interest or fees accrued hereunder remain unpaid: SECTION 5.01. INFORMATION. The Borrower will deliver to each Lender: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, an audited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related audited consolidated statements of operations, cash flows and changes in stockholders' equity for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported on in a manner acceptable to the SEC by KPMG Peat Marwick LLP or other independent public accountants of nationally recognized standing; 66 (b) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, the related condensed consolidated statements of operations for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter and the related condensed consolidated statement of cash flows for the portion of the Fiscal Year then ended, setting forth in the case of such condensed consolidated statements of operations and cash flows in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation and consistency with GAAP by a Senior Officer of the Borrower; (c) if financial statements of the Borrower and its Consolidated Subsidiaries are delivered pursuant to clause (b) above for any Fiscal Quarter ending at or before the consummation of the Merger, such financial statements shall be accompanied by a condensed consolidated balance sheet of AM Holdings and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, the related condensed consolidated statement of operations for such Fiscal Quarter and the related condensed consolidated statement of cash flows for the portion of AM Holdings' fiscal year then ended; (d) concurrently with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Senior Officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.07 to 5.17, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (e) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement by the firm of independent public accountants which reported on such statements that, in making examination necessary for reporting on such financial statements, they did not obtain knowledge of 67 any Default hereunder except as described in such statement; (f) until the first date on which the Borrower receives an Investment Grade Rating, as soon as available and in any event within 120 days after the end of each Fiscal Year, (i) a consolidated balance sheet of NME Hospitals and its Consolidated Subsidiaries as of the end of such Fiscal Year and (ii) a consolidated balance sheet of AMI and its Consolidated Subsidiaries as of the end of such Fiscal Year, in each case together with the related consolidated statements of operations and cash flows for such Fiscal Year, and setting forth in each case in comparative form the figures for the previous Fiscal Year, such financial statements to be either (x) reported on in a manner acceptable to the SEC by independent public accountants of nationally recognized standing, if such a report is available otherwise than by reason of this Agreement, or (y) certified as to fairness of presentation and compliance with GAAP by a Senior Officer of the Borrower; (g) until the first date on which either (x) the Borrower receives an Investment Grade Rating or (y) no AMI Post-1991 Debt Securities remain outstanding, as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a condensed consolidated balance sheet of AMI and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, together with the related condensed consolidated statements of operations for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter and the related condensed consolidated statement of cash flows for the portion of the Fiscal Year then ended and setting forth in the case of such condensed consolidated statements of operations and cash flows in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation and consistency with GAAP by a Senior Officer of the Borrower; (h) within 45 days after the end of each Fiscal Quarter, a certificate signed by a Senior Officer of the Borrower setting forth (i) by date and amount all prepayments of the Term Loans required to have been made during such Fiscal Quarter pursuant to subsections (c), (d), (e) and (g) of Section 2.06, (ii) by date and amount, all Net Cash Proceeds of Hospital Sales and 68 Excess Casualty Proceeds received during such Fiscal Quarter, (iii) by date and amount, all Net Cash Proceeds of Hospital Sales and Excess Casualty Proceeds applied to pay for Hospital Purchases during such Fiscal Quarter or applied pursuant to subsection (b) or (f) of Section 2.06 to prepay Term Loans during such Fiscal Quarter and (iv) a summary as of the end of such Fiscal Quarter showing, by date and amount, all Net Cash Proceeds of Hospital Sales and Excess Casualty Proceeds theretofore received which were not theretofore invested in Hospital Purchases or applied pursuant to subsection (b) or (f) of Section 2.06 to prepay Term Loans; (i) within 45 days after the end of each Fiscal Quarter, a certificate signed by a Senior Officer of the Borrower setting forth the Pricing Level applicable during the Rate Period that begins 45 days after the end of such Fiscal Quarter and in reasonable detail the calculations required to establish that such Pricing Level will be applicable; PROVIDED that (x) in the case of the last Fiscal Quarter of any Fiscal Year, such certificate may set forth only the Borrower's estimate of the applicable Pricing Level (it being understood that, if the Borrower in good faith cannot determine with reasonable certainty which of two Pricing Levels applies, the Borrower may, in view of the provisions of Section 2.17(b), appropriately estimate that the lower of such Pricing Levels applies), and (y) if such certificate sets forth only an estimated Pricing Level, the Borrower shall, within 90 days after the end of such Fiscal Year, deliver a further certificate signed by a Senior Officer of the Borrower setting forth the calculations contemplated by this clause (i) and either confirming that such estimated Pricing Level applies or, if not, setting forth the Pricing Level that does apply during the relevant Rate Period and requesting the Administrative Agent to determine the amounts of any additional interest and/or additional fees payable by the Borrower pursuant to Section 2.17(b); (j) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of a Senior Officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (k) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all 69 financial statements, reports and proxy statements so mailed; (l) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the SEC; (m) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA or premium-related penalties) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of a Senior Officer of the Borrower setting forth details as to such occurrence and the action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (n) until the first date on which the Borrower receives an Investment Grade Rating, as soon as available and approved by the Borrower's board of directors, a copy of the Borrower's financial forecast for each Fiscal Year; and 70 (o) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request. SECTION 5.02. PAYMENT OF OBLIGATIONS. The Borrower and each Included Subsidiary will pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where (i) the same may be contested in good faith by appropriate proceedings or (ii) failure to pay and discharge the same, or cause them to be paid and discharged, would not in the aggregate have a Material Adverse Effect; PROVIDED that (x) the foregoing exceptions (i) and (ii) will not apply to the Borrower's obligations and liabilities under the Financing Documents, (y) the foregoing exception (i) will not apply to tax liabilities and (z) the Borrower and its Included Subsidiaries shall maintain, in accordance with GAAP, appropriate reserves for the accrual of all obligations and liabilities to which the foregoing exceptions (i) and (ii) do apply. SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower and each Included Subsidiary will keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower and each Included Subsidiary will maintain, with financially sound and reputable insurance companies (which may be Affiliates of the Borrower or part of the Borrower's self-insurance program) insurance on all their properties in at least such amounts and against at least such risks as are usually insured against in the same general area and by companies engaged in the same or similar businesses and maintain professional liability and malpractice insurance against claims usually insured against by medical personnel and hospitals and other health facilities; and furnish to each Lender, upon written request by any of the Agents, full information as to the insurance carried. SECTION 5.04. CONDUCT OF BUSINESS, MAINTENANCE OF EXISTENCE AND LIMITATION ON MERGERS AND SALES OF ASSETS. (a) The Borrower and its Included Subsidiaries will continue to engage primarily in business of the same general type as now conducted by the Borrower and its Included Subsidiaries. 71 (b) The Borrower and each Included Subsidiary will preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain its rights, privileges and franchises necessary or desirable in the normal conduct of business, PROVIDED that the foregoing shall not prohibit any merger or consolidation expressly permitted by this Section. (c) Except as permitted by subsection (e) below, the Borrower will not merge or consolidate with any other Person unless the Borrower is the surviving corporation and, after giving effect to such merger or consolidation, no Default shall have occurred and be continuing. The Borrower will not merge or consolidate with any Subsidiary of NME Psychiatric or any Excluded Subsidiary. (d) No Included Subsidiary will merge or consolidate with any other Person unless, after giving effect to such merger or consolidation, no Default shall have occurred and be continuing and either (i) such merger or consolidation is permitted by subsection (e) below or (ii) the Borrower elects, by notice to the Administrative Agent, to treat such merger or consolidation as an Asset Sale (i.e., a disposition of the net assets of such Included Subsidiary) for purposes of this Agreement and such Asset Sale is permitted by Section 5.16. (e) Notwithstanding the foregoing provisions of this Section, (i) any Included Subsidiary may reincorporate in another state or merge with or into the Borrower or another Included Subsidiary and (ii) the Borrower may reincorporate in another state or merge with or into an Included Subsidiary, PROVIDED that (x) the corporation surviving any merger with the Borrower (if other than the Borrower) is incorporated under the laws of a state of the United States and assumes in writing all the obligations of the Borrower hereunder and said surviving corporation delivers to each Lender an opinion of counsel for the Borrower, in form and substance satisfactory to the Required Lenders, to the effect that the assumption by such surviving corporation of such obligations is effective and is fully binding upon and enforceable against such surviving corporation and (y) AMI and its Subsidiaries may merge with each other, but, so long as any Debt of AMI permitted by Section 5.10(d) or (e) is outstanding, AMI and its Subsidiaries may not merge with any of the Combined Companies other than AMI and its Subsidiaries. (f) So long as any AMI Post-1991 Debt Securities remain outstanding, the Combined Companies (other than AMI and its Subsidiaries) will not sell or transfer assets 72 having an aggregate book value in excess of $1,000,000 to AMI or any of its Subsidiaries. (g) The Combined Companies will not sell, transfer or otherwise dispose of any of their respective assets to (x) any Designated International Subsidiary or any of its Subsidiaries or (y) NME Psychiatric or any of its Subsidiaries; PROVIDED that (i) the Designated International Subsidiaries and their respective Subsidiaries may sell, transfer or otherwise dispose of their respective assets to each other and (ii) NME Psychiatric and its Subsidiaries may sell, transfer or otherwise dispose of their respective assets to each other. SECTION 5.05. COMPLIANCE WITH LAWS. The Borrower and each Included Subsidiary will comply with all material applicable laws, ordinances, rules, regulations and requirements of governmental authorities (including without limitation Environmental Laws, ERISA and the rules and regulations thereunder and Public Law 92-603), and hold and maintain in full force and effect all certifications, governmental approvals, licenses and permits necessary or desir- able to enable the Borrower and its Included Subsidiaries to conduct their respective businesses as now conducted, except where the failure to comply therewith or hold and maintain such certifications, governmental approvals, licenses or permits would not have a Material Adverse Effect. SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower and each Included Subsidiary will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit representatives of any Lender at such Lender's expense to visit and inspect any of their respective properties, to examine and make abstracts (at such Lender's expense, unless an Event of Default shall have occurred and be continuing, in which case at the Borrower's expense) from any of their respective books and records and to discuss their respective affairs, finances and accounts with officers of the Borrower and with the accountants of the Borrower, all upon reasonable notice and at such reasonable times and as often as may reasonably be desired. SECTION 5.07. FIXED CHARGE RATIO. At the end of each Fiscal Quarter ending after the Closing Date, the ratio of (i) the sum of Consolidated EBITDA plus Consolidated Rental Expense to (ii) the sum of Consolidated Interest Expense plus Consolidated Rental Expense, all calculated for the period of four consecutive Fiscal Quarters then ended, 73 will not be less than the ratio set forth below opposite the period in which such period of four consecutive Fiscal Quarters ends: 74 Period Ratio ------ ----- Closing Date through November 30, 1995 2.0 to 1 December 1, 1995 through November 30, 1996 2.25 to 1 December 1, 1996 through November 30, 1997 2.35 to 1 December 1, 1997 through November 30, 1998 2.5 to 1 After November 30, 1998 3.0 to 1 SECTION 5.08. DEBT RATIO. At the close of business on any day on or after the Closing Date, the ratio of (i) Total Debt at such time to (ii) Consolidated EBITDA for the period of four consecutive Fiscal Quarters most recently ended at or prior to such time will not be greater than the ratio set forth below opposite the period in which such day is included: Period Ratio ------ ----- Closing Date through November 30, 1995 3.9 to 1 December 1, 1995 through November 30, 1996 3.5 to 1 December 1, 1996 through November 30, 1997 3.0 to 1 December 1, 1997 through November 30, 1998 2.5 to 1 December 1, 1998 through November 30, 1999 2.25 to 1 After November 30, 1999 2.0 to 1 SECTION 5.09. ADJUSTED CONSOLIDATED NET WORTH. Adjusted Consolidated Net Worth will at no time be less than the sum of (i) $1,700,000,000 plus (ii) 75% of the consolidated net income of the Combined Companies for each Fiscal Quarter ended after November 30, 1994, if such consolidated net income for such Fiscal Quarter is positive, plus (iii) 100% of the amount by which the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries is increased after November 30, 1994 as a result of any issuance or sale of Equity Interests by the Borrower (other than the issuance of common stock of the Borrower as part of the consideration for the Acquisition). SECTION 5.10. LIMITATIONS ON DEBT. After the Closing Date, neither the Borrower nor any Included Subsidiary will incur, assume or otherwise be liable in respect of any Debt, except: (a) Debt outstanding under this Agreement; (b) the Senior Notes and the Subordinated Notes; (c) the Metrocrest Bonds and the obligations of the Borrower under the Metrocrest Reimbursement Agreement; 75 (d) Debt outstanding at the close of business on the Closing Date which the Borrower or AMI has become obligated to purchase, redeem or otherwise retire within 60 days thereafter pursuant to the NME Tender Offers, the AMI Tender Offers and the AMI Redemptions; (e) Debt (other than the Debt covered by the foregoing clauses of this Section) outstanding at the close of business on the Closing Date in an aggregate principal or face amount not exceeding $680,000,000; (f) unsecured Debt of the Borrower incurred to refinance Debt of the Borrower or AMI described in clauses (a) and (e) above and secured or unsecured Debt of the Borrower incurred to refinance Debt described in clause (c) above; PROVIDED that any Debt incurred pursuant to this clause (f) shall have terms and conditions satisfactory to the Required Lenders; (g) NME Non-Recourse Debt which is incurred solely to finance Capital Expenditures permitted by Section 5.11; PROVIDED that the aggregate outstanding principal or face amount of (i) all NME Non-Recourse Debt permitted by this clause (g) and (ii) all Debt permitted by clause (k) below shall not exceed $25,000,000 at any time; (h) International Non-Recourse Debt; (i) Debt of any Person which becomes an Included Subsidiary after the Closing Date; PROVIDED that (i) such Debt is outstanding when such Person becomes such an Included Subsidiary and was not created in contemplation of such event and (ii) the aggregate outstanding principal or face amount of all such Debt permitted by this clause (i) shall not exceed $100,000,000 at any time; (j) Guarantees by the Borrower or any Included Subsidiary of Debt relating to the assets disposed of in any Hospital Sale, Hospital Swap or Asset Sale; PROVIDED that (i) such Debt was outstanding when such assets were disposed of and was not created in contemplation of the disposition thereof and (ii) the sum of (x) the aggregate outstanding principal amount of all Debt which is Guaranteed by the Borrower or any of its Included Subsidiaries pursuant to this clause (j) and (y) the aggregate amount of all lease payments under operating leases which are Guaranteed by the Borrower or any Included Subsidiary pursuant to Section 5.15(a) shall not exceed $200,000,000 at any time; 76 (k) Debt consisting of obligations of the Borrower or any Included Subsidiary as lessee which are capitalized in accordance with GAAP; PROVIDED that the aggregate outstanding principal or face amount of (A) all Debt permitted by this clause (k) and (B) all NME Non-Recourse Debt permitted by clause (g) above shall not exceed $25,000,000 at any time; (l) Debt of any Included Subsidiary not otherwise permitted by the foregoing clauses of this Section, subject to Section 5.23; PROVIDED that the aggregate outstanding principal or face amount of all Debt of Included Subsidiaries permitted by this clause (l) shall not exceed $10,000,000 at any time; (m) Debt under the Advance Account Agreement not exceeding Singapore dollars 18,500,000 and Debt under the Overdraft Facility Agreement not exceeding $20,000,000 in aggregate outstanding principal amount; and (n) unsecured Debt of the Borrower not otherwise permitted by the foregoing clauses of this Section; PROVIDED that the aggregate principal or face amount of all Debt of the Borrower permitted by this clause (n) shall not exceed $10,000,000 at any time. SECTION 5.11. CAPITAL EXPENDITURES. Consolidated Capital Expenditures will not exceed $425,000,000 for any Fiscal Year ending after the Closing Date. SECTION 5.12. RESTRICTED PAYMENTS. Neither the Borrower nor any Subsidiary will declare or make (i) any dividend or other distribution on any shares of capital stock of the Borrower (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement, acquisition, defeasance or prepayment of any Equity Interests in the Borrower. SECTION 5.13. INVESTMENTS. Neither the Borrower nor any Included Subsidiary will make or acquire any Investment in any Person after the Closing Date, except: (a) Temporary Cash Investments; (b) Investments in Wholly-Owned Included Subsidiaries, including any Person which is a Wholly-Owned Included Subsidiary immediately after such Investment is made; 77 (c) Investments not exceeding $10,000,000 in aggregate amount resulting from a performance guarantee and related letter of credit issued on or about December 3, 1994 to support an agreement to continue operating a specific hospital in Spain for 10 years; (d) Investments with respect to the operations of the Designated International Subsidiaries and their respective Subsidiaries in Spain; PROVIDED that the aggregate cost of all such Investments made after November 30, 1994 (excluding Investments permitted by clause (c) above, but including all other Guarantees valued at the amount guaranteed) shall not exceed $10,000,000; (e) Investments in South Miami Hospitals; PROVIDED that the aggregate cost of all such Investments (including Guarantees valued at the amount guaranteed) made after November 30, 1994 shall not exceed $100,000,000; and (f) any Investment not expressly permitted by the foregoing clauses of this Section; PROVIDED that (i) immediately after such Investment is made or acquired, the aggregate cost of all such Investments made or acquired by the Combined Companies after November 30, 1994 does not exceed $250,000,000, (ii) immediately after such Investment is made or acquired, the aggregate cost of all such Investments made or acquired by the Borrower and the Included Subsidiaries after November 30, 1994 in Persons other than the Combined Companies does not exceed $100,000,000 and (iii) no Investment in an Excluded Subsidiary shall be made or acquired pursuant to this clause (f). SECTION 5.14. NEGATIVE PLEDGE. After the Closing Date, neither the Borrower nor any Included Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) any Lien created pursuant to the Security Agreement; (b) any Lien existing prior to the Closing Date securing Debt (other than the Borrower's obligations under the Metrocrest Reimbursement Agreement) that is permitted to remain outstanding after the Closing Date under Section 5.10(e); (c) any Lien on bonds issued by the Metrocrest Hospital Authority (and related proceeds and other 78 distributions) granted to secure the Borrower's obligations under the Metrocrest Reimbursement Agreement and the Securities Pledge and Security Agreement referred to therein; (d) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by clause (b) above; PROVIDED that (i) the principal amount of such Debt is not increased and (ii) such Debt is not secured by any additional assets; (e) if the letters of credit issued pursuant to the Metrocrest Reimbursement Agreement are replaced by other letters of credit issued for the same purpose, any Lien securing the Borrower's obligations under the reimbursement agreement relating to such replacement letters of credit; PROVIDED that (i) the aggregate amount of such letters of credit is not increased and (ii) the Borrower's obligations under the related reimbursement agreement are not secured or required to be secured by any assets except the assets by which the Borrower's obligations under the Metrocrest Reimbursement Agreement are secured or required to be secured; (f) any Lien securing any NME Non-Recourse Debt permitted pursuant to Section 5.10(g); PROVIDED that in each case such Lien attaches only to assets that were acquired with the proceeds of such NME Non-Recourse Debt; (g) any Lien on assets of a Person which becomes an Included Subsidiary after the Closing Date; PROVIDED that such Lien secures only Debt of such Person permitted to remain outstanding pursuant to Section 5.10(i); (h) carriers', warehousemen's, mechanics', transporters, materialmen's, repairmen's or other like Liens arising in the ordinary course of business; (i) any Lien imposed by any governmental authority for taxes, assessments, governmental charges, duties or levies not yet due or which are being contested in good faith and by appropriate proceedings; PROVIDED that adequate reserves with respect thereto are maintained on the books of the Borrower and its Consolidated Subsidiaries in accordance with GAAP; 79 (j) Liens on cash and cash equivalents securing obligations of the Borrower and its Subsidiaries with respect to workmen's compensation, malpractice and other similar insurance policies; PROVIDED that the aggregate amount of cash and cash equivalents subject to such Liens may not exceed $16,000,000 at any time; (k) Liens arising in the ordinary course of business (other than Liens permitted by clause (h), (i) or (j) above) which (i) do not secure Financial Obligations, (ii) do not secure any single obligation in an outstanding amount exceeding $5,000,000 and (iii) do not secure obligations in an aggregate outstanding amount exceeding $25,000,000; (l) Liens on cash and cash equivalents securing Hedging Obligations, PROVIDED that the aggregate amount of cash and cash equivalents subject to such Liens may not exceed $50,000,000 at any time; (m) any Lien on an asset leased by the Borrower or an Included Subsidiary under a capital lease permitted pursuant to Section 5.10 securing its obligations as lessee under such capital lease; and (n) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt (other than the Senior Notes or the Subordinated Notes); PROVIDED that, immediately after any such Debt is incurred, the aggregate outstanding principal or face amount of all Debt secured pursuant to this clause (n) shall not exceed $2,000,000. SECTION 5.15. LEASES. (a) OPERATING LEASES. After the Closing Date, neither the Borrower nor any Included Subsidiary will incur, assume or otherwise become liable (pursuant to a Guarantee or otherwise) for rental payments under any operating lease if, immediately after giving effect thereto, the aggregate amount of minimum rental payments for which the Borrower and its Included Subsidiaries are liable under all operating leases entered into or Guaranteed by the Borrower and its Included Subsidiaries after November 30, 1994 would exceed, on a consolidated basis, $10,000,000 for any Fiscal Year. (b) SALE-LEASEBACK TRANSACTIONS. After the Closing Date, neither the Borrower nor any Included Subsidiary will engage in any Sale-Leaseback Transaction other than a Medical Office Sale-Leaseback Transaction. 80 SECTION 5.16. ASSET SALES. After the Closing Date, neither the Borrower nor any Included Subsidiary will make any Asset Sale or Hospital Sale unless: (i) at least 80% of the aggregate amount of the consideration received for such Asset Sale or Hospital Sale consists of cash (it being understood that, for purposes of this Section, (x) any assumption of liabilities of the Borrower or such Included Subsidiary by the transferee of the relevant assets shall not constitute "consideration received" and (y) any notes or other securities received from such transferee shall constitute "cash" if and to the extent that they are sold or otherwise converted to cash substantially concurrently with the closing of such Asset Sale or Hospital Sale); (ii) the portion of the consideration received for such Asset Sale or Hospital Sale that does not consist of cash consists of promissory notes or other debt securities; (iii) immediately after giving effect to such Asset Sale or Hospital Sale, the aggregate unpaid principal amount of all promissory notes and other debt securities received by the Combined Companies as payment for all Asset Sales and Hospital Sales after November 30, 1994 does not exceed $250,000,000; PROVIDED that this clause (iii) shall not apply to (x) any promissory notes or other debt securities converted to cash substantially concurrently with the closing of the relevant Asset Sale or Hospital Sale or (y) any other promissory notes or debt securities sold to a Person (other than one of the Combined Companies) after the relevant Asset Sale or Hospital Sale if, but only to the extent that, one of the Combined Companies received cash as consideration for such sale of notes or debt securities; (iv) immediately after giving effect to such Asset Sale or Hospital Sale, the aggregate book value (when sold) of all assets sold, transferred or otherwise disposed of by the Combined Companies in all Asset Sales and Hospital Sales after November 30, 1994 does not exceed 15% of Consolidated Plant, Property and Equipment; and (v) immediately after giving effect to such Asset Sale or Hospital Sale, the sum of the amounts referred to in clause (iv) of this Section and clause (i)(A) of 81 Section 5.17 does not exceed 20% of Consolidated Plant, Property and Equipment. SECTION 5.17. HOSPITAL SWAPS. After the Closing Date, neither the Borrower nor any Included Subsidiary shall consummate any Hospital Swap unless, immediately after giving effect thereto: (i) the sum of (A) the aggregate net book value of all assets disposed of by the Combined Companies in Hospital Swaps after November 30, 1994 (determined as to each such Hospital Swap as of the closing thereof, net of any liabilities of the Combined Companies assumed by the party to which the relevant assets were transferred) and (B) the Net Cash Proceeds of Hospital Sales made after the Closing Date that have been applied to pay for Hospital Purchases or are still being held for application to pay for Hospital Purchases does not exceed 15% of Consolidated Plant, Property and Equipment and (ii) the sum of the amounts referred to in clause (i)(A) of this Section and clause (iv) of Section 5.16 does not exceed 20% of Consolidated Plant, Property and Equipment. SECTION 5.18. RESTRICTIONS ON OTHER AGREEMENTS. Neither the Borrower nor any of its Included Subsidiaries will: (a) enter into any agreement or arrangement which (i) would limit in any way the ability of the Borrower or any Included Subsidiary to grant a Lien on any of its assets, whether now owned or hereafter acquired, to secure the obligations of the Borrower under the Financing Documents, including without limitation any such agreement or arrangement which would require any other obligation of the Borrower or any Included Subsidiary (except the Borrower's obligations under the Metrocrest Reimbursement Agreement or any reimbursement agreement that replaces it) to be equally and ratably secured by such Lien; (b) enter into any agreement or arrangement which would limit in any way the ability of any Included Subsidiary to declare or pay any dividend; or (c) enter into any amendment or waiver of any provision of any indenture, agreement or other instrument evidencing or pursuant to which any Debt of the Borrower or any of its Subsidiaries is outstanding 82 which would, if entered into, adversely affect either (i) the Borrower and its Included Subsidiaries, taken as a whole, or (ii) the Lenders. SECTION 5.19. NO CHANGE OF ACCOUNTING PRACTICES. The Borrower will not, and will not permit any of its Subsidiaries to, adopt any material change in its accounting principles or reporting practices, except (i) any such change permitted or required by GAAP as in effect from time to time or (ii) any such change required to conform the accounting principles and reporting practices used by AM Holdings and its Subsidiaries to those used by the Borrower and its Subsidiaries. SECTION 5.20. NO SALES OF RECEIVABLES. Neither the Borrower nor any Included Subsidiary will sell or otherwise transfer any of its accounts receivable to any Person other than (i) the Borrower or (ii) a Wholly-Owned Included Subsidiary (other than AMI and its Subsidiaries); PROVIDED that such accounts receivable may be transferred to collection agencies for collection in the ordinary course of business. SECTION 5.21. USE OF PROCEEDS. (a) The proceeds of the Term Loans will be used by the Borrower: (i) on the Closing Date to pay in full the principal of all loans and reimbursement obligations then outstanding under NME's Existing Credit Agreement and all interest and fees accrued thereunder or to pay directly obligations supported by any letter of credit outstanding NME's Existing Credit Agreement; (ii) on the Closing Date to make a loan to AMI in an amount sufficient to pay in full the principal of all loans and reimbursement obligations then outstanding under AMI's Existing Credit Agreement and all interest and fees accrued thereunder; (iii) from time to time on and after the Closing Date to pay all amounts payable pursuant to the NME Tender Offers; (iv) from time to time on and after the Closing Date to pay in full, or make loans to AMI in amounts sufficient to pay in full, all amounts payable pursuant to the AMI Tender Offers and the AMI Redemptions; (v) from time to time on and after the Closing Date to prepay or defease Debt permitted to be prepaid or defeased pursuant to Section 5.22(a); and 83 (vi) to finance the Acquisition and pay transaction costs incurred in connection therewith. (b) The proceeds of the Revolving Credit Loans will be used by the Borrower for purposes specified in subsection (a) of this Section and for general corporate purposes. (c) The Letters of Credit will be used to replace certain letters of credit outstanding immediately prior to the Closing Date and to meet the needs of the Borrower and its Included Subsidiaries for further letters of credit in the ordinary course of business. (d) None of the proceeds of the Loans will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U in any manner which would (i) violate any applicable law or regulation or (ii) require any Form FRU-1 or any successor form to be executed. SECTION 5.22. RESTRICTION ON PREPAYING OR EXTENDING OTHER DEBT. (a) Neither the Borrower nor any Included Subsidiary will prepay, defease or purchase any Debt of the Borrower or any Included Subsidiary; PROVIDED that the foregoing prohibition shall not apply to: (i) the NME Tender Offers, the AMI Tender Offers and the AMI Redemptions; (ii) Debt of the Borrower outstanding under this Agreement; (iii) any prepayment or defeasance of the Borrower's 12 1/8% Notes due April 1, 1995; (iv) any prepayment of AMI's 8 1/4% Convertible Debentures due 2008; or (v) any prepayment, defeasance or purchase of any other Debt less than 12 months before the final maturity thereof. (b) AMI will not extend the final maturity of any Debt of AMI permitted to remain outstanding under Section 5.10(e) beyond the currently scheduled maturity date thereof. SECTION 5.23. LIMITATION ON ACTIVITIES. (a) Finco shall cease doing business on or before the Closing 84 Date and shall have no Debt outstanding after the close of business on the Closing Date. (b) So long as NME Properties Corp. or NME Properties, Inc. holds any Designated Investment that has not been pledged with the Collateral Agent under the Security Agreement (or any proceeds of any such Investment), neither NME Properties Corp. nor NME Properties, Inc. will (i) engage in any business other than holding Investments, (ii) incur, assume or otherwise be liable for any Debt or (iii) transfer any such Designated Investment to the Borrower or any other Affiliate of the Borrower; PROVIDED that (i) NME Properties Corp. may continue to own and operate two convalescent centers and one nursing home owned by it at November 30, 1994 and (ii) NME Properties Inc. may continue to own and operate one nursing home owned by it at November 30, 1994. SECTION 5.24. SENIOR STATUS. The obligations of the Borrower under the Financing Documents will at all times constitute "senior debt" as defined in any instrument or agreement evidencing or governing any subordinated debt of the Borrower (including without limitation the Subordinated Notes) outstanding on or after the Closing Date. SECTION 5.25. LOANS TO AMI. Each loan made to AMI pursuant to clause (ii) or (iv) of Section 5.21(a) will be evidenced by a promissory note of AMI which will be promptly delivered to the Collateral Agent as part of the Collateral under the Security Agreement. The Borrower will not forgive any portion of any such loan or amend any material term thereof. ARTICLE VI DEFAULTS SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events ("Events of Default") shall have occurred: (a) any principal of any Loan or any Reimbursement Obligation shall not be paid when due; (b) any interest on any Loan or Reimbursement Obligation, any fee or any other amount payable under any Financing Document shall not be paid within three Domestic Business Days after it becomes due; 85 (c) the Borrower shall fail to observe or perform any covenant contained in Section 5.04 or Sections 5.07 through 5.25, inclusive, hereof or in Section 4(B) or 5 of the Security Agreement; (d) the Borrower shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those covered by clause (a), (b) or (c) above) within 30 days after such failure occurs or, if later, 10 days after written notice thereof has been given to the Borrower by the Administrative Agent at the request of the Required Lenders; (e) any representation, warranty, certification or statement made by the Borrower or any Subsidiary in any Financing Document or in any certificate, financial statement or other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made (or deemed made); (f) the Borrower and/or one or more Included Subsidiaries shall fail to make one or more payments in respect of Material Financial Obligations when due or within any applicable grace period; (g) any event or condition shall occur which results in the acceleration of the maturity of Material Financial Obligations, or enables (any applicable grace period having expired) the holder or holders of Material Financial Obligations or any Person acting on their behalf to accelerate the maturity thereof; (h) any event or condition shall occur which, with the giving of notice or lapse of time or both, would enable the holder or holders of Material Financial Obligations or any Person acting on their behalf to accelerate the maturity thereof, and (i) the Required Lenders shall have determined, in their sole discretion, that such event or condition (unless cured or waived) should be an Event of Default hereunder, (ii) the Administrative Agent shall have given written notice of such determination to the Borrower and (iii) the Borrower shall have failed to cause such event or condition to be cured or waived within two Domestic Business Days after receiving such notice; (i) any default shall occur under the relevant document which (x) results in the cancellation of Material Commitments or (y) enables (any applicable grace period having expired) the Person or Persons that 86 made such Material Commitments or any Person acting on their behalf to cancel such Material Commitments; (j) any default shall occur under the relevant document which, with the giving of notice or lapse of time or both, would enable the Person or Persons that made any Material Commitments or any Person acting on their behalf to cancel such Material Commitments and (i) the Required Lenders shall have determined, in their sole discretion, that such event or condition (unless cured or waived) should be an Event of Default hereunder, (ii) the Administrative Agent shall have given written notice of such determination to the Borrower and (iii) the Borrower shall have failed to cause such event or condition to be cured or waived within two Domestic Business Days after receiving such notice; (k) the Borrower or any Included Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (l) an involuntary case or other proceeding shall be commenced against the Borrower or any Included Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Included Subsidiary under the federal bankruptcy laws as now or hereafter in effect; 87 (m) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA or premium-related penalties) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (n) a judgment or order for the payment of money in excess of $25,000,000 (net of insurance to the extent that the insurer shall have admitted coverage thereof) shall be rendered against the Borrower or any Included Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; (o) any person or group of persons (within the meaning of Section 13 or 14 of the Exchange Act) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 20% or more of the outstanding shares of common stock of the Borrower; or Continuing Directors shall no longer constitute a majority of the Borrower's board of directors; or (p) any Lien on any portion of the Collateral created by the Security Agreement shall at any time and for any reason (except a release of such Collateral pursuant to Section 16 of the Security Agreement) not constitute a valid and perfected Lien on such portion of the Collateral subject to no prior or equal Lien, or the Borrower shall so assert in writing; then, and in every such event, while such event is continuing, the Administrative Agent shall (i) if requested by Lenders having more than 50% in aggregate amount of the Revolving Credit Commitments and the unused Term Commitments (if then in effect), by notice to the Borrower terminate the 88 Commitments and they shall thereupon terminate, (ii) if requested by Lenders holding Notes evidencing more than 50% in aggregate outstanding principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; PROVIDED that, if any Event of Default specified in clause (k) or (l) above occurs with respect to the Borrower, then without any notice to the Borrower or any other act by the Administrative Agent or the Lenders, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. NOTICE OF DEFAULT. The Administrative Agent shall give notice to the Borrower under clause (d), (h) or (j) of Section 6.01 promptly upon being requested to do so by the Required Lenders and shall thereupon notify all the Lenders thereof. SECTION 6.03. CASH COVER. If any Event of Default shall have occurred and be continuing, the Borrower shall, if requested by the Administrative Agent at the request of the Required Revolving Credit Lenders, pay to the Administrative Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements satisfactory to the Administrative Agent) equal to the aggregate amount available for drawing under all Letters of Credit then outstanding, PROVIDED that, if any Event of Default specified in clause (k) or (l) of Section 6.01 occurs with respect to the Borrower, the Borrower shall be obligated to pay such amount to the Administrative Agent forthwith without any notice to the Borrower or any other act by the Administrative Agent or the Lenders. ARTICLE VII THE AGENTS SECTION 7.01. APPOINTMENT AND AUTHORIZATION. (a) Each Lender irrevocably appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to it by the terms hereof, together with all such powers as are reasonably incidental thereto. 89 (b) Each of the Lenders, the Agents (other than the Collateral Agent), the Metrocrest Banks and the Metrocrest Issuing Bank irrevocably appoints and authorizes the Collateral Agent to execute and deliver the Security Agreement and to take such action as agent on its behalf and to exercise such powers under the Security Agreement as are delegated to it by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. AGENTS AND AFFILIATES. Each of Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company shall have the same rights and powers under the Financing Documents as any other Lender and may exercise or refrain from exercising the same as though it were not an Agent, and each of Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company and their respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any of the Borrower's Affiliates as if it were not an Agent under any of the Financing Documents. SECTION 7.03. ACTION BY ANY ADMINISTRATIVE AGENT. The obligations of the Administrative Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. CONSULTATION WITH EXPERTS. Any Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. LIABILITY OF THE AGENTS. Neither any Agent nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection with this Agreement or the Notes (i) in the absence of its own gross negligence or willful misconduct or (ii) with the consent or at the request of the Required Lenders, PROVIDED that this clause (ii) shall not affect any rights the Borrower may have against the Revolving Credit Lenders that made such request. Neither any Agent nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any 90 duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with any Financing Document or any Extension of Credit; (ii) the performance or observance of any of the covenants or agreements of the Borrower in any Financing Document; (iii) the satisfaction of any condition specified in Article III, except, in the case of the Administrative Agent, receipt of items required to be delivered to it; or (iv) the validity, effectiveness or genuineness of any Financing Document or any other instrument or writing furnished in connection therewith. The Administrative Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. INDEMNIFICATION. Each Lender shall, ratably in accordance with its Total Credit Exposure, indemnify each Agent (except the Collateral Agent), the Swingline Bank, their respective Affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from the relevant indemnitee's gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with the Financing Documents or any action taken or omitted by the relevant indemnitee thereunder. SECTION 7.07. CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon any 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 decisions in taking or not taking any action under the Financing Documents. SECTION 7.08. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, 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 retiring Administrative Agent gives notice of resignation, then the 91 retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent. SECTION 7.09. AGENTS' FEES. The Borrower shall pay to each Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and such Agent. SECTION 7.10. ARRANGING AGENTS. The Arranging Agents, in their capacities as such, shall have no duties or obligations of any kind under the Financing Documents and shall not have a fiduciary relationship with any Lender. SECTION 7.11. SECURITY AGREEMENT. Each party hereto, in its capacity as a Secured Party under the Security Agreement, agrees to be bound by the provisions of the Security Agreement applicable to it, including without limitation the provisions of Sections 11 and 14 thereof. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If on or prior to the first day of any Interest Period for any Euro- Dollar Loan: (a) the Administrative Agent is advised by the Euro-Dollar Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Euro-Dollar Reference Banks in the relevant market for such Interest Period, or (b) Lenders having 50% or more of the aggregate principal amount of the affected Loans advise the Administrative Agent that the Adjusted London Interbank 92 Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of funding their Euro-Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Lenders to make Euro-Dollar Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) made on or after the date of this Agreement by any such authority, central bank or comparable agency shall make it unlawful or impossible for any Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Lenders and the Borrower, whereupon until such Lender notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Euro-Dollar Loans, or to convert outstanding Base Rate Loans into Euro- Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Lender shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully continue to maintain and fund such Loan 93 to such day or (b) immediately if such Lender shall determine that it may not lawfully continue to maintain and fund such Loan to such day. SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) made on or after the date of this Agreement by any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (or its Applicable Lending Office) or shall impose on any Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Euro-Dollar Loans, its Notes, its obligation to make Euro-Dollar Loans, or its obligation to participate in any Letter of Credit and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or participating in any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or under its Notes with respect thereto, by an amount deemed by such Lender to be material, then, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will (subject to subsection (e) of this Section) compensate such Lender for such increased cost or reduction. (b) If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any LC Issuing Bank (or its LC Office) with any request or directive (whether or not having the force of law) made on or after the date of this Agreement by any such authority, central bank or comparable agency shall impose, 94 modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance assessment or similar requirement against any Letter of Credit issued by such LC Issuing Bank (or its LC Office) or shall impose on any LC Issuing Bank (or its LC Office) any other condition affecting its Letters of Credit or its obligation to issue Letters of Credit and the result of any of the foregoing is to increase the cost to such LC Issuing Bank (or its LC Office) of issuing any Letter of Credit or to reduce the amount of any sum received or receivable by such LC Issuing Bank (or its LC Office) under this Agreement with respect thereto, by an amount deemed by such LC Issuing Bank to be material, then, within 15 days after demand by such LC Issuing Bank (with a copy to the Administrative Agent), the Borrower shall pay to such LC Issuing Bank such additional amount or amounts as will (subject to subsection (e) of this Section) compensate such LC Issuing Bank for such increased cost or reduction. (c) If any Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) made on or after the date of this Agreement by any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Lender (or its Parent) as a consequence of such Lender's obligations hereunder to a level below that which such Lender (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will (subject to subsection (e) of this Section) compensate such Lender (or its Parent) for such reduction. (d) Each Lender and LC Issuing Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender or LC Issuing Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office or LC Office if such designation will avoid the need for, or reduce the amount 95 of, such compensation and will not, in the judgment of such Lender or LC Issuing Bank, be otherwise disadvantageous to it. A certificate of any Lender or LC Issuing Bank claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder and the method of calculation thereof and shall be conclusive in the absence of manifest error. In determining such amount, such Lender or LC Issuing Bank may use any reasonable averaging and attribution methods. (e) No Lender or LC Issuing Bank shall be entitled to claim compensation pursuant to this Section for (i) Taxes or Other Taxes (as such terms are defined in Section 8.04) or (ii) any increased cost or reduction incurred or accrued more than 90 days before such Lender or LC Issuing Bank first notifies the Borrower of the change in law or other circumstance on which such claim is based. SECTION 8.04. TAXES. (a) For purposes of this Section, the following terms have the following meanings: "Relevant Payee" means any Lender, any LC Issuing Bank or any Agent. "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to any Financing Document, and all liabilities with respect thereto, EXCLUDING (i) in the case of each Relevant Payee, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which it is organized or in which its principal executive office is located or in which its Applicable Lending Office or LC Office is located and (ii) in the case of each Lender, any United States withholding tax imposed on such payments but only to the extent that such Lender is subject to United States withholding tax at the time such Lender first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to any Financing Document, or from the execution or delivery of, or otherwise with respect to, any Financing Document. (b) Any and all payments by any Borrower to or for the account of any Relevant Payee under any Financing Document shall be made without deduction for any Taxes or Other Taxes; PROVIDED that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any 96 such payment, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Relevant Payee receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Relevant Payee for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Relevant Payee and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Relevant Payee makes demand therefor. (d) Each Relevant Payee organized under the laws of a jurisdiction outside the United States, on or prior to its execution and delivery of this Agreement in the case of each Relevant Payee listed on the signature pages hereof and on or prior to the date on which it becomes a Relevant Payee in the case of each other Relevant Payee, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Relevant Payee remains lawfully able to do so), shall provide the Borrower and the Administrative Agent with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Relevant Payee is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Relevant Payee from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Relevant Payee or certifying that the income receivable pursuant to the Financing Documents is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Relevant Payee has failed to provide the Borrower and the Administrative Agent with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring after the date on which such form originally was required to be provided), such Relevant Payee shall not be entitled to indemnification 97 under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; PROVIDED that if a Relevant Payee, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Relevant Payee shall reasonably request to assist such Relevant Payee to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Relevant Payee pursuant to this Section 8.04, then such Relevant Payee will change the jurisdiction of its Applicable Lending Office or LC Office if, in the judgment of such Relevant Payee, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Relevant Payee. SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR LOANS. If (i) the obligation of any Lender to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Lender has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Lender as (or continued as or converted into) Euro-Dollar Loans shall instead be made as (or converted into) Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders), and (b) after each of its Euro-Dollar Loans has been repaid (or converted to a Base Rate Loan), all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. If such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Lenders. 98 ARTICLE IX MISCELLANEOUS SECTION 9.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (w) in the case of the Borrower, the Administrative Agent or any LC Issuing Bank identified as such on the signature pages hereof, at its address, facsimile number or telex number set forth on the signature pages hereof, (x) in the case of any other LC Issuing Bank, at its address, facsimile number or telex number set forth in the Borrower's notice to the Administrative Agent designating the relevant Lender as an LC Issuing Bank or, if not set forth in such notice, set forth in such Lender's Administrative Questionnaire, (y) in the case of any Lender, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number referred to in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number referred to in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address referred to in this Section; PROVIDED that notices to the Administrative Agent under Article II or Article VIII and notices to any LC Issuing Bank under Article II shall not be effective until received. SECTION 9.02. NO WAIVERS. No failure or delay by the Administrative Agent or any Lender in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial 99 exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all out-of-pocket expenses of the Administrative Agent, including fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation and administration of the Financing Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder, (ii) all out-of-pocket expenses of each Arranging Agent (but not any fees and disbursements of its counsel) in connection with the preparation and administration of the Financing Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder and (iii) if an Event of Default occurs, all out-of-pocket expenses incurred by each Agent and each Lender, including (without duplication) the fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and any collection, bankruptcy, insolvency or other enforcement proceedings resulting therefrom. (b) The Borrower shall indemnify each Agent, the Swingline Bank and each Lender, their respective Affiliates and the respective directors, directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of any Financing Document or any actual or proposed use by the Borrower or any of its Affiliates of any proceeds of the Loans or any Letter of Credit; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 9.04. SHARING OF SET-OFFS. (a) Each Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to the Loans of any Tranche held by it which is greater than the proportion received by any other 100 Lender in respect of the aggregate amount of principal and interest due with respect to the Loans of such Tranche held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Loans of such Tranche held by the other Lenders, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans of such Tranche held by the Lenders shall be shared by such Lenders pro rata. (b) Each Revolving Credit Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the Letter of Credit Liabilities held by it or for its account which is greater than the proportion received in respect of the Letter of Credit Liabilities held by or for the account of any other Revolving Credit Lender, the Revolving Credit Lender receiving such proportionately greater payment shall purchase such participations in the Letter of Credit Liabilities held by or for the account of the other Revolving Credit Lenders, and such other adjustments shall be made, as may be required so that all such payments of the Letter of Credit Liabilities held by or for the account of the Revolving Credit Lenders shall be shared by them pro rata. (c) Nothing in this Section shall impair the right of any Lender to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. (d) The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note or Letter of Credit Liability, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of any Agent or LC Issuing Bank are affected thereby, by such Agent or LC Issuing Bank); PROVIDED that no such amendment or waiver shall: 101 (i) unless signed by all the Term Lenders, increase or decrease any Term Commitment (except for a ratable decrease in all the Term Commitments), postpone the date fixed for the termination of any Term Commitment, reduce the principal of or rate of interest on any Term Loan or postpone the final maturity date of any Term Loan or any date fixed for any payment of interest on any Term Loan; (ii) unless signed by the Super-Majority Term Lenders, postpone any date (other than the final maturity date) specified in Section 2.06(a) for any payment of the principal of any Term Loan; (iii) unless signed by all the Revolving Credit Lenders, increase or decrease any Revolving Credit Commitment (except for a ratable decrease in all the Revolving Credit Commitments), postpone the date fixed for the termination of any Revolving Credit Commitment, reduce the principal of or rate of interest on any Revolving Credit Loan or postpone the final maturity date of any Revolving Credit Loan or any date fixed for any payment of interest on any Revolving Credit Loan, reduce the principal of or rate of interest on any Reimbursement Obligation, or postpone the date fixed for any scheduled payment of any Reimbursement Obligation; (iv) unless signed by the Swingline Bank, increase the Swingline Commitment, postpone the date fixed for the termination of the Swingline Commitment or otherwise affect any of its rights or obligations hereunder; (v) unless signed by all the Lenders entitled to receive such fees, reduce or postpone the date fixed for any scheduled payment of any fees hereunder; (vi) unless signed by all the Lenders participating in the Letter of Credit Liabilities, change the date fixed for the expiration of any Letter of Credit; (vii) unless signed by all the Lenders, waive any condition set forth in clause (ii), (ix) or (x) of Section 3.01; or (viii) unless signed by all the Lenders, change any provision of this Section or any other provision of this Agreement specifying which Lenders may take any 102 action that the Lenders or any of them are entitled to take hereunder. SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that the Borrower may not assign or otherwise transfer any of its rights under the Financing Documents without the prior written consent of all the Lenders, the LC Issuing Banks and the Swingline Bank. (b) Any Lender may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in any of its Commitments or any or all of its Loans or any or all of the Reimbursement Obligations held by it or for its account. If any Lender grants such a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Financing Documents. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower under the Financing Documents including, without limitation, the right to approve any amendment, modification or waiver of any provision thereof; PROVIDED that such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (v) of Section 9.05 without the consent of the Participant. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Lender may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a pro rata part of all, of its rights and obligations under the Financing Documents with respect to either: (i) its outstanding Term Loans and unused Term Commitment (if then in effect) or (ii) its Revolving Credit Commitment and Outstanding Revolving Credit Amounts, 103 and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit H hereto signed by such Assignee and such transferor Lender, with (and subject to) the subscribed consent of the Borrower (which shall not be unreasonably withheld), the Administrative Agent and, if such assignment is pursuant to (ii) above, the LC Issuing Banks; PROVIDED that: (A) if such Assignee is an Affiliate of such transferor Lender or was a Lender immediately prior to such assignment, no such consent shall be required; (B) no Lender shall assign all or any part of its Revolving Credit Commitment and Outstanding Revolving Credit Amounts to any institution that is not a bank; and (C) if such transferor Lender either (i) assigns a pro rata part (but not all) of its Term Loans and unused Term Commitment (if then in effect) to an Assignee that was not a Term Lender immediately prior to such assignment or (ii) assigns a pro rata part (but not all) of its Revolving Credit Commitment and Outstanding Revolving Credit Amounts to an Assignee that was not a Revolving Credit Lender immediately prior to such assignment, then the sum of (x) the aggregate outstanding principal amount of Term Loans (if any) and unused Term Commitment (if any) assigned to such Assignee and (y) the portion of the transferor Lender's Revolving Credit Commitment (if any) assigned to such Assignee shall be at least $10,000,000. Upon execution and delivery of such Assignment and Assumption Agreement and payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender to the extent set forth in such Assignment and Assumption Agreement, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Lender, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the Assignee. In connection with any such assignment, either the transferor Lender or the Assignee shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is 104 not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04(d). (d) Any Lender may at any time assign all or any portion of its rights under the Financing Documents to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations thereunder. (e) No Assignee, Participant or other transferee of any Lender's rights shall be entitled to receive any greater payment under or by reason by Section 8.03 or 8.04 than such Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Lender to designate a different Applicable Lending Office under certain circumstances or, in the case of an Assignee, at a time when the circumstances giving rise to such greater payment did not exist. Subject to the foregoing limitation, any Lender claiming compensation or indemnification pursuant to Section 8.03 or 8.04 may include in its claim similar compensation or indemnification for any Participant having a participating interest in such Lender's rights. SECTION 9.07. NO RELIANCE ON MARGIN STOCK AS COLLATERAL. Each of the Lenders represents to the Administrative Agent and each of the other Lenders that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. CONFIDENTIALITY. Each Agent, Lender and LC Issuing Bank (each, a "Lending Party") agrees to keep any information delivered or made available by the Borrower to it confidential from anyone other than persons employed or retained by such Lending Party who are, or are expected to be, engaged in evaluating, approving, structuring or administering the credit facility provided herein; PROVIDED that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (f) in 105 connection with any litigation to which such Lending Party or any of its Affiliates may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Lending Party's legal counsel and independent auditors, (i) to any Affiliate of such Lending Party, solely in connection with this Agreement or any other transaction or proposed transaction between such Lending Party and/or its Affiliates and the Borrower and/or its Affiliates, and (j) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee. SECTION 9.09. WAIVER OF JURY TRIAL. THE BORROWER, EACH AGENT, EACH LC ISSUING BANK, THE SWINGLINE BANK AND EACH LENDER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. SECTION 9.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. EACH OF THE FINANCING DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 9.11. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Administrative Agent of (i) counterparts hereof signed by the Borrower, the Lenders, the LC Issuing Bank identified as such on the signature pages hereof, the Swingline Bank and the Agents (other than the Collateral Agent) or (ii) in the case of any such party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of 106 telegraphic, telex, facsimile or other written confirmation from such party that a counterpart hereof has been executed by such party. 107 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By /s/ Terence P. McMullen ------------------------------- Title: Senior Vice President National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Attention: Maris Andersons Telephone: (310) 998-8381 Facsimile: (310) 998-6700 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as an Arranging Agent and a Lender By /s/ Robert M. Osieski ------------------------------- Title: Vice President 108 THE BANK OF NEW YORK, as an Arranging Agent and a Lender By /s/ Craig Rethmeyer ------------------------------- Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as an Arranging Agent and a Lender By /s/ Wyatt R. Ritchie ------------------------------- Title: Vice President BANKERS TRUST COMPANY, as an Arranging Agent and a Lender By /s/ Robert R. Telesca ------------------------------- Title: Assistant Vice President THE BANK OF CALIFORNIA, N.A. By /s/ Albert W. Kelley ------------------------------- Title: Vice President THE MITSUBISHI BANK, LTD. By /s/ Hiroaki Fuchida ------------------------------- Title: Vice President, Manager BANK OF MONTREAL By /s/ Irene M. Geller ------------------------------- Title: Director 109 THE BANK OF NOVA SCOTIA By /s/ Chris P. Johnson ------------------------------- Title: Representative THE BANK OF TOKYO TRUST COMPANY By /s/ M. Sheridan Sunier ------------------------------- Title: Vice President BANQUE PARIBAS By /s/ Sean T. Conlon ------------------------------- Title: Vice President By /s/ Alan E. McLintock ------------------------------- Title: Regional General Manager THE CHASE MANHATTAN BANK N.A. By /s/ Michael K. Bayley ------------------------------- Title: Vice President CHEMICAL BANK By /s/ Neil R. Boylan ------------------------------- Title: Vice President CITICORP USA, INC. By /s/ Barbara A. Cohen ------------------------------- Title: Vice President 110 CREDIT SUISSE By /s/ David J. Worthington ------------------------------- Title: Member of Senior Management By /s/ Peter Koelln ------------------------------- Title: Associate DEUTSCHE BANK AG, LOS ANGELES AND/OR CAYMAN ISLANDS By /s/ Michael U. Hotze ------------------------------- Title: Managing Director By /s/ I. Scott Jessup ------------------------------- Title: Vice President DRESDNER BANK AG, LOS ANGELES AGENCY AND GRAND CAYMAN BRANCH By /s/ Kenneth I. Bowman ------------------------------- Title: Vice President By /s/ Sidney S. Jordan ------------------------------- Title: Vice President FIRST INTERSTATE BANK OF CALIFORNIA By /s/ William J. Baird ------------------------------- Title: Vice President 111 FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ John W. Ransom ------------------------------- Title: Vice President THE FUJI BANK, LIMITED By /s/ Nobuhiro Umemura ------------------------------- Title: Joint Genaral Manager THE INDUSTRIAL BANK OF JAPAN, LIMITED By /s/ Toshi Iyoda ------------------------------- Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY By /s/ Genichi Imai ------------------------------- Title: Joint General Manager MELLON BANK, N.A. By /s/ Richard Lopatt ------------------------------- Title: Vice President NATIONSBANK OF TEXAS, N.A. By /s/ Brad W. DeSpain ------------------------------- Title: Vice President 112 PNC BANK, NATIONAL ASSOCIATION By /s/ Anthony L. Trunzo ------------------------------- Title: Vice President THE SANWA BANK LIMITED, DALLAS AGENCY By /s/ R. Blake Wright ------------------------------- Title: Assistant Vice President SHAWMUT BANK CONNECTICUT, N.A. By /s/ Manfred O. Eigenbrod ------------------------------- Title: Managing Director SOCIETE GENERALE By /s/ J. Staley Stewart ------------------------------- Title: Vice President THE SUMITOMO BANK, LTD. By /s/ Hiroshi Amano ------------------------------- Title: General Manager 113 SWISS BANK CORPORATION, SAN FRANCISCO BRANCH By /s/ David L. Parrot ------------------------------- Title: Associate, Director, Merchant Banking By /s/ Hans-Ueli Surber ------------------------------- Title: Executive Director, Merchant Banking TORONTO DOMINION (TEXAS), INC. By /s/ Lisa Allison ------------------------------- Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By /s/ David L. Gaines ------------------------------- Title: Senior Vice President WELLS FARGO BANK, N.A. By /s/ David A. Neumann ------------------------------- Title: Vice President ABN AMRO BANK N.V. By /s/ Paul K. Stimpfl ------------------------------- Title: Vice President By /s/ David J. Stassel ------------------------------- Title: Vice President 114 THE DAI-ICHI KANGYO BANK, LTD., LOS ANGELES AGENCY By /s/ Tomohiro Nozaki ------------------------------- Title: Senior Vice President and Joint General Manager RABOBANK NEDERLAND By /s/ W. Pieter C. Kodde ------------------------------- Title: Vice President By /s/ Michel de Konkoly Thege ------------------------------- Title: Deputy General Manager THE SAKURA BANK LTD., LOS ANGELES AGENCY By /s/ Ofusa Sato ------------------------------- Title: Senior Vice President & Assistant General Manager AMSOUTH BANK OF ALABAMA By /s/ William P. Barnes ------------------------------- Title: Vice President THE NIPPON CREDIT BANK, LTD., LOS ANGELES AGENCY By /s/ Bernardo E. Correa-Henschke ------------------------------- Title: Vice President & Manager 115 THE SUMITOMO TRUST AND BANKING CO., LTD., NEW YORK BRANCH By /s/ Suraj P. Bhatia ------------------------------- Title: Senior Vice President Manager, Corporate Finance II Dept. ARAB BANK PLC, GRAND CAYMAN BRANCH By /s/ Peter R. Boyadjian ------------------------------- Title: Senior Vice President BANQUE NATIONALE DE PARIS By /s/ Deborah Y. Gohh ------------------------------- Title: Vice President COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By /s/ Adam Brough ------------------------------- Title: Vice President By /s/ Eric Mallaroni ------------------------------- Title: Head of Acquisition Finance 116 CREDITANSTALT BANKVEREIN By /s/ Dennis O'Dowd ------------------------------- Title: Co-Chief Executive Officer By /s/ Martin Mittag ------------------------------- Title: Deputy Chief Executive Officer THE TOKAI BANK, LTD., LOS ANGELES AGENCY By /s/ Masahiko Saito ------------------------------- Title: Asst. General Manager BANCA COMMERCIALE ITALIANA - LOS ANGELES FOREIGN BRANCH By /s/ Iacopo Navone ------------------------------- Title: Vice President & Manager By /s/ J. Wityak ------------------------------- Title: Vice President BANK OF IRELAND GRAND CAYMAN By /s/ Roger M. Burns ------------------------------- Title: Vice President 117 BANQUE FRANCAIS DU COMMERCE EXTERIEUR By /s/ Paul Lane ------------------------------- Title: Vice President By /s/ Daniel Touffu ------------------------------- Title: First VP and Regional Manager HIBERNIA NATIONAL BANK By /s/ Troy J. Villafarra ------------------------------- Title: Assistant Vice President KREDIETBANK N.V. By /s/ Diane Grimmig ------------------------------- Title: Vice President By /s/ Robert Snauffer ------------------------------- Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By /s/ Masaaki Yamagishi ------------------------------- Title: Chief Manager NATIONAL CITY BANK By /s/ Charles Denny ------------------------------- Title: Senior Vice President 118 THE ROYAL BANK OF SCOTLAND PLC By /s/ David Dougan ------------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as LC Issuing Bank By /s/ Robert M. Osieski ------------------------------- Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Robert Osieski Telex number: 177615 Facsimile number: 212-548-5014 119 CHEMICAL BANK, as LC Issuing Bank By /s/ Neil R. Boylan ------------------------------- Title: Vice President 270 Park Avenue 10th Floor New York, NY 10017 Attention: Ruth Samuelian NATIONSBANK OF TEXAS, N.A., as LC Issuing Bank By /s/ Brad W. DeSpain ------------------------------- Title: Vice President 901 Main Street, 14th Floor Dallas, Texas Attention: Kay Hibbs Facsimile number: 214-508-0944 with a copy to: 444 South Flower Street, Suite 1500 Los Angeles, California 90071 Attention: Brad DeSpain Facsimile number: 213-624-5815 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Swingline Bank By /s/ Robert M. Osieski ------------------------------- Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Robert Osieski Telex number: 177615 Facsimile number: 212-648-5014 120 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By /s/ Robert M. Osieski ------------------------------- Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Robert Osieski Telex number: 177615 Facsimile number: 212-648-5014 121 COMMITMENT SCHEDULE
Revolving Term Credit Lender Commitment Commitment Total ------ ---------- ---------- ----- Morgan Guaranty Trust Company of New York $53,100,000.00 $14,900,000.00 $68,000,000.00 Bank of America National Trust and Savings Association $53,100,000.00 $14,900,000.00 $68,000,000.00 The Bank of New York $53,100,000.00 $14,900,000.00 $68,000,000.00 Bankers Trust Company $53,100,000.00 $14,900,000.00 $68,000,000.00 The Bank of California, N.A./ The Mitsubishi Bank $42,800,000.00 $12,200,000.00 $55,000,000.00 Bank of Montreal $42,800,000.00 $12,200,000.00 $55,000,000.00 The Bank of Nova Scotia $42,800,000.00 $12,200,000.00 $55,000,000.00 The Bank of Tokyo Trust Company $42,800,000.00 $12,200,000.00 $55,000,000.00 Banque Paribas $42,800,000.00 $12,200,000.00 $55,000,000.00 The Chase Manhattan Bank N.A $42,800,000.00 $12,200,000.00 $55,000,000.00 Chemical Bank $42,800,000.00 $12,200,000.00 $55,000,000.00 Citicorp USA, Inc. $42,800,000.00 $12,200,000.00 $55,000,000.00 Credit Suisse $42,800,000.00 $12,200,000.00 $55,000,000.00 Deutsche Bank AG $42,800,000.00 $12,200,000.00 $55,000,000.00 Dresdner Bank Los Angeles and Grand Cayman Branch $42,800,000.00 $12,200,000.00 $55,000,000.00 First Interstate Bank of California $42,800,000.00 $12,200,000.00 $55,000,000.00
Revolving Term Credit Lender Commitment Commitment Total ------ ---------- ---------- ----- First Union National Bank of North Carolina $42,800,000.00 $12,200,000.00 $55,000,000.00 The Fuji Bank, Limited $42,800,000.00 $12,200,000.00 $55,000,000.00 The Industrial Bank of Japan, Limited Los Angeles Agency $42,800,000.00 $12,200,000.00 $55,000,000.00 The Long-Term Credit Bank of Japan, Ltd., Los Angeles Agency $42,800,000.00 $12,200,000.00 $55,000,000.00 Mellon Bank, N.A. $42,800,000.00 $12,200,000.00 $55,000,000.00 NationsBank of Texas, N.A. $42,800,000.00 $12,200,000.00 $55,000,000.00 PNC Bank, National Association $42,800,000.00 $12,200,000.00 $55,000,000.00 The Sanwa Bank Limited, Dallas Agency $42,800,000.00 $12,200,000.00 $55,000,000.00 Shawmut Bank Connecticut, N.A. $42,800,000.00 $12,200,000.00 $55,000,000.00 Societe Generale $42,800,000.00 $12,200,000.00 $55,000,000.00 The Sumitomo Bank, Ltd. $42,800,000.00 $12,200,000.00 $55,000,000.00 Swiss Bank Corporation, San Francisco Branch $42,800,000.00 $12,200,000.00 $55,000,000.00 Toronto Dominion (Texas), Inc. $42,800,000.00 $12,200,000.00 $55,000,000.00 Wachovia Bank of Georgia, N.A. $42,800,000.00 $12,200,000.00 $55,000,000.00 Wells Fargo Bank, N.A. $42,800,000.00 $12,200,000.00 $55,000,000.00 ABN Amro Bank N.V. $37,000,000.00 $10,000,000.00 $47,000,000.00
2
Revolving Term Credit Lender Commitment Commitment Total ------ ---------- ---------- ----- The Dai-Ichi Kangyo Bank, Ltd., Los Angeles Agency $37,000,000.00 $10,000,000.00 $47,000,000.00 Rabobank Nederland $37,000,000.00 $10,000,000.00 $47,000,000.00 The Sakura Bank, Ltd., Los Angeles Agency $37,000,000.00 $10,000,000.00 $47,000,000.00 AmSouth Bank of Alabama $32,000,000.00 $8,000,000.00 $40,000,000.00 The Nippon Credit Bank, Ltd., Los Angeles Agency $32,000,000.00 $8,000,000.00 $40,000,000.00 The Sumitomo Trust and Banking Co., Ltd. $24,000,000.00 $6,000,000.00 $30,000,000.00 Arab Bank PLC $20,000,000.00 $5,000,000.00 $25,000,000.00 Banque Nationale de Paris $20,000,000.00 $5,000,000.00 $25,000,000.00 Compagnie Financiere de CIC et de L'Union Europeenne $20,000,000.00 $5,000,000.00 $25,000,000.00 Creditanstalt Bankverein $20,000,000.00 $5,000,000.00 $25,000,000.00 The Tokai Bank, Ltd., Los Angeles Agency $20,000,000.00 $5,000,000.00 $25,000,000.00 Banca Commerciale Italiana - Los Angeles Foreign Branch $12,000,000.00 $3,000,000.00 $15,000,000.00 Bank of Ireland Grand Cayman $12,000,000.00 $3,000,000.00 $15,000,000.00 Banque Francais du Commerce Exterieur $12,000,000.00 $3,000,000.00 $15,000,000.00 Hibernia National Bank $12,000,000.00 $3,000,000.00 $15,000,000.00 Kredietbank NV $12,000,000.00 $3,000,000.00 $15,000,000.00 The Mitsubishi Trust and Banking Corporation $12,000,000.00 $3,000,000.00 $15,000,000.00 3 National City Bank $12,000,000.00 $3,000,000.00 $15,000,000.00 The Royal Bank of Scotland PLC $12,000,000.00 $3,000,000.00 $15,000,000.00 ------------------------------------------------------- TOTAL $1,800,000,000.00 $500,000,000.00 $2,300,000,000.00
PRICING SCHEDULE The "Base Rate Margin", "Euro-Dollar Margin", "Commitment Fee Rate" and "LC Fee Rate" for any day are the respective rates per annum set forth below in the applicable row under the column corresponding to the Pricing Level that applies on such day:
- ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Pricing Level Level Level Level Level Level I II III IV V - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Base Rate 0% 0% 0% 0.25% 0.50% Margin - ---------------------------------------------------------------------- Euro-Dollar 0.50% 0.75% 1.00% 1.25% 1.50% Margin - ---------------------------------------------------------------------- Commitment 0.1875% 0.25% 0.3125% 0.375% 0.50% Fee Rate - ---------------------------------------------------------------------- LC Fee Rate 0.50% 0.75% 1.00% 1.25% 1.50% - ---------------------------------------------------------------------- - ----------------------------------------------------------------------
For purposes of this Pricing Schedule, the following terms have the following meanings: "Consolidated Debt Ratio" means, at the end of any Fiscal Quarter, the ratio of (i) Total Debt at the end of such Fiscal Quarter to (ii) Consolidated EBITDA for the period of four consecutive Fiscal Quarters then ended. "Consolidated Interest Coverage Ratio" means, at the end of any Fiscal Quarter, the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense, in each case for the period of four consecutive Fiscal Quarters then ended. "Level I Pricing" applies during any Rate Period if, at the end of the Preceding Fiscal Quarter, (i) the Consolidated Interest Coverage Ratio was equal to or greater than 4.5 to 1 and (ii) the Consolidated Debt Ratio was equal to or less than 2.0 to 1. "Level II Pricing" applies during any Rate Period if no higher Pricing Level applies and, at the end of the Preceding Fiscal Quarter, either (i) the Consolidated Interest Coverage Ratio was less than 4.5 to 1 or (ii) the Consolidated Debt Ratio was greater than 2.0 to 1. "Level III Pricing" applies during any Rate Period if no higher Pricing Level applies and, at the end of the Preceding Fiscal Quarter, either (i) the Consolidated Interest Coverage Ratio was less than 4.0 to 1 or (ii) the Consolidated Debt Ratio was greater than 2.5 to 1. "Level IV Pricing" applies during any Rate Period if no higher Pricing Level applies and, at the end of the Preceding Fiscal Quarter, either (i) the Consolidated Interest Coverage Ratio was less than 3.5 to 1 or (ii) the Consolidated Debt Ratio was greater than 3.0 to 1. "Level V Pricing" applies during any Rate Period if, at the end of the Preceding Fiscal Quarter, either (i) the Consolidated Interest Coverage Ratio was less than 3.0 to 1 or (ii) the Consolidated Debt Ratio was greater than 3.5 to 1. "Preceding Fiscal Quarter" means, with respect to any Rate Period, the most recent Fiscal Quarter ended before such Rate Period begins. "Pricing Level" refers to the determination of which of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level V Pricing applies on any day. Pricing Levels are referred to in ascending order (e.g., Level III Pricing is a higher Pricing Level than Level II Pricing.) "Rate Period" means any period from and including the 46th day of a Fiscal Quarter to and including the 45th day of the immediately succeeding Fiscal Quarter. 2 SCHEDULE 4.06 Pending Litigation The Borrower hereby incorporates by reference the disclosure concerning the legal proceedings referred to in its annual report on Form 10-K for its fiscal year ended May 31, 1994, its quarterly report on Form 10-Q for its fiscal quarter ended August 31, 1994 and its quarterly report on Form 10-Q for its fiscal quarter ended November 30, 1994. With respect to AM Holdings and its Subsidiaries, the Borrower hereby incorporates by reference the disclosure concerning the legal proceedings referred to in AM Holding's annual report on Form 10-K for its fiscal year ended August 31, 1994 and its quarterly report on Form 10-Q for its fiscal quarter ended November 30, 1994. SCHEDULE 4.07 Erisa Exceptions The Borrower has determined the following on the basis of the Company Disclosure Letter (as defined in the Merger Agreement), dated October 10, 1994, furnished by AM Holdings pursuant to the Merger Agreement: EXISTING CONDITIONS WHICH COULD RESULT IN TITLE IV ERISA EXPOSURE The American Medical International, Inc. Pension Plan (the "Pension Plan") was audited by the Department of labor in 1993 and 1994. As a result of the audit, AM Holdings is being required to make an approximately $6 million contribution to the Pension Plan in order to remedy underfunding for 1991 and 1992 plan years caused by inaccurate data used by the Pension Plan actuary. This additional contribution has necessitated the recalculation of PBGC premiums for the 1991 through 1993 plan years and resulted in approximately $847,516 of additional PBGC premiums due. The PBGC probably will impose a penalty of 5 percent per month for the premium due plus interest. AM Holdings estimates that the total PBGC penalties and interest will approximate $1.5 million (an accrual for which has been made in AM Holdings' financial statements). CIRCUMSTANCES IN WHICH PRESENT VALUE OF ACCRUED BENEFITS EXCEEDS CURRENT VALUE OF PLAN ASSETS As of September 1, 1993, the present value of accrued benefits under the Pension Plan, based upon the actuarial assumptions used for financial reporting purposes in the most recent actuarial report prepared by such plan's actuary exceeded the then current value of plan assets by $30,601,762. Since this actuarial valuation was prepared, AM Holdings has made, as of October 10, 1994, $23,684,000 in contributions to the Pension Plan. EXCEPTIONS TO QUALIFICATION UNDER SECTION 4.01(a); EXCEPTIONS TO EXEMPTION UNDER SECTION 501(a); CONDITIONS AFFECTING QUALIFICATION OR EXEMPTION On April 8, 1994, AM Holdings filed a Voluntary Compliance Resolution Request ("VCR Request") with the National Office of the Internal Revenue Service with respect to both the Pension Plan and the AMI Tax Deferred Savings Plan (the "Savings Plan") in order to correct certain operational defects in the administration of the plans. Pursuant to the VCR Request, AM Holdings may be required to make certain corrections outlined in the VCR Request to remedy these operational defects in order to preserve the qualified status of the plans. In addition, AM Holdings is in the process of submitting the Pension Plan, Savings Plan and the Saint Francis Pension Plan to the Internal Revenue Service for a ruling regarding their continued qualification under Section 401(a) of the Code as amended by the Tax Reform Act of 1986 and subsequent legislation. The plans must be filed with the Internal Revenue Service by March 31, 1995. PROHIBITED TRANSACTION EXPOSURE AM Holdings has contracted with certain affiliated entities and physicians to provide medical services under AM Holdings' medical plans. Technically, these arrangements may constitute prohibited transactions under ERISA and the Code for which a statutory or administrative exemption is not available. AM Holdings is in the process of determining whether to file an application for a prohibited transaction exemption with the Department of Labor regarding these service provider arrangements. AM Holdings has had informal conferences with the Department of Labor, during which the Department advised AM Holdings that the Department is aware of several similar service provider arrangements with other hospital corporations, that none of these entities have filed prohibited transaction exemption applications with the Department and the Department has not enforced, and does not intend to enforce, the prohibited transaction rules with respect to such arrangements. 2 EXHIBIT A-1 TERM NOTE New York, New York , 199 For value received, NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation (the "Borrower"), promises to pay to the order of (the "Term Lender"), for the account of its Applicable Lending Office, the unpaid principal amount of each Term Loan made by the Term Lender to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Term Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Term Loans made by the Term Lender, the respective date, amount and Type thereof and all payments of the principal with respect thereto shall be recorded by the Term Lender and, if the Term Lender so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Term Loan then outstanding may be endorsed by the Term Lender on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Term Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under any other Financing Document. This note is one of the Term Notes referred to in the Credit Agreement dated as of February 28, 1995 among the Borrower, the lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. NATIONAL MEDICAL ENTERPRISES, INC. By________________________ Title: 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------ Amount of Amount of Principal Notation Date Loan Repaid Made By - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ 3 EXHIBIT A-2 REVOLVING CREDIT NOTE New York, New York , 199 For value received, NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation (the "Borrower"), promises to pay to the order of (the "Revolving Credit Lender"), for the account of its Applicable Lending Office, the unpaid principal amount of each Revolving Credit Loan made by the Revolving Credit Lender to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Revolving Credit Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Revolving Credit Loans made by the Revolving Credit Lender, the respective date, amount and Type thereof and all payments of the principal with respect thereto shall be recorded by the Revolving Credit Lender and, if the Revolving Credit Lender so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Revolving Credit Loan then outstanding may be endorsed by the Revolving Credit Lender on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Revolving Credit Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under any other Financing Document. This note is one of the Revolving Credit Notes referred to in the Credit Agreement dated as of February 28, 1995 among the Borrower, the lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. NATIONAL MEDICAL ENTERPRISES, INC. By ------------------------ Title: 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------ Amount of Amount of Principal Notation Date Loan Repaid Made By - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ 3 EXHIBIT A-3 SWINGLINE NOTE New York, New York , 199 For value received, NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation (the "Borrower"), promises to pay to the order of MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the "Swingline Bank"), for the account of its Domestic Lending Office, the unpaid principal amount of each Swingline Loan made by the Swingline Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Swingline Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Swingline Loans made by the Swingline Bank and all repayments of the principal thereof shall be recorded by the Swingline Bank and, if the Swingline Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Swingline Loan then outstanding may be endorsed by the Swingline Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Swingline Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under any other Financing Document. This note is the Swingline Note referred to in the Credit Agreement dated as of February 28, 1995 among the Borrower, the lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. NATIONAL MEDICAL ENTERPRISES, INC. By ------------------------ Title: 2 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL - ------------------------------------------------------------------ Amount of Amount of Principal Notation Date Loan Repaid Made By - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ - ------------------------------------------------------------------ 3 EXHIBIT B SECURITY AGREEMENT dated as of _______________, 1995 among National Medical Enterprises, Inc. and N.M.E. International (Cayman) Limited as Grantors and Morgan Guaranty Trust Company of New York as Collateral Agent SECURITY AGREEMENT AGREEMENT dated as of _________ __, 1995 among NATIONAL MEDICAL ENTERPRISES, INC. and N.M.E. INTERNATIONAL (CAYMAN) LIMITED, as Grantors, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent (the "Collateral Agent"). WHEREAS, terms used in these recitals have the meanings assigned to them in Section 1 hereof; WHEREAS, the Borrower, the lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent are parties to a Credit Agreement dated as of February 28, 1995 (as the same may be amended from time to time, the "Credit Agreement"); WHEREAS, in order to induce the Lenders to enter into the Credit Agreement, the Grantors are willing to grant a continuing security interest in and to the Collateral to secure the obligations of the Borrower under the Credit Agreement and the Notes issued pursuant thereto; WHEREAS, the Metrocrest Issuing Bank has issued two letters of credit for the account of the Borrower to support bonds issued by the Metrocrest Hospital Authority to finance facilities leased to and operated by NME Hospitals, and each Metrocrest Bank is participating in such letters of credit and the related reimbursement obligations under the Metrocrest Reimbursement Agreement; WHEREAS, the Borrower, certain Subsidiaries and Bank of America National Trust and Savings Association are parties to the Advance Account Agreement and the Overdraft Facility Agreement; WHEREAS, the Borrower's obligations under the Metrocrest Reimbursement Agreement, the Advance Account Agreement and the Overdraft Facility Agreement are to be secured in substantially the same manner as the Borrower's obligations under the Credit Agreement and the Notes; WHEREAS, the Borrower may from time to time enter into agreements or arrangements to protect itself and/or one or more of its Subsidiaries against fluctuations in interest rates or currency exchange rates and may elect to secure its obligations under such agreements or arrangements under this Agreement; and WHEREAS, with the consent of the Super-Majority Secured Parties, the Borrower may elect to secure one or more additional obligations of the Borrower under this Agreement; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: "Borrower's Collateral" means the collateral described in Section 3(A). "Cash Distributions" means dividends, interest and other payments and distributions made in cash upon or with respect to the Collateral. "Collateral" means the Borrower's Collateral and NMEC's Collateral. "Contingent Secured Obligation" means, at any time, any Secured Obligation (or portion thereof) that is contingent in nature at such time, including (without limiting the generality of the foregoing): (i) any obligation to reimburse a bank for drawings not yet made under a letter of credit issued by such bank, (ii) any obligation to provide collateral to or for the benefit of a bank to secure reimbursement obligations arising from drawings not yet made under a letter of credit issued by such bank, (iii) any obligation to provide collateral to or for the benefit of the relevant counterparty with 2 respect to a Hedging Obligation to secure payments not yet due and payable under such Hedging Obligation, and (iv) any other Secured Obligation which is contingent in nature at the time of determination. "Credit Agreement" has the meaning set forth in the second WHEREAS clause at the beginning of this Agreement. "Enforcement Notice" means a notice delivered to the Collateral Agent by the Required Lenders or the Required Secured Parties (i) stating that an Event of Default has occurred and is continuing and (ii) directing the Collateral Agent to exercise one or more rights or remedies under this Agreement. "First Tier Domestic Subsidiary" means a First Tier Subsidiary incorporated or organized under the laws of the United States or any State thereof, other than an Immaterial Subsidiary. "First Tier International Subsidiary" means a First Tier Subsidiary which is not incorporated or organized under the laws of the United States or any State thereof, other than an Immaterial Subsidiary. "Grantors" means the Borrower and NME Cayman. "Instruments" means "instruments" and "chattel paper" (as each such term is defined in the UCC). "Metrocrest Letter of Credit" means a letter of credit issued under the Metrocrest Reimbursement Agreement. "Metrocrest Letter of Credit Liabilities" means, at any time, the sum, without duplication, of (i) the aggregate amount that is then (or may thereafter become) available for drawing under the Metrocrest Letters of Credit and (ii) the aggregate unpaid amount of all Metrocrest Reimbursement Obligations then outstanding. "Metrocrest Reimbursement Obligations" means, at any time, all obligations of the Borrower to reimburse the Metrocrest Issuing Bank for a drawing under the Metrocrest Letters of Credit, including any portion of any such obligation to which a Metrocrest Bank has become subrogated pursuant to the Metrocrest Reimbursement Agreement. "NME Cayman" means NME International (Cayman) Limited, a Cayman Islands company and its successors. 3 "NME Cayman's Collateral" means the collateral described in Section 3(B). "Non-Contingent Secured Obligation" means at any time any Secured Obligation (or portion thereof) that is not a Contingent Secured Obligation at such time. "Opinion of Counsel" means a written opinion of legal counsel (who may be counsel to the Borrower or other counsel, in either case approved by the Administrative Agent or the Required Secured Parties in a writing delivered to the Collateral Agent) addressed and delivered to the Collateral Agent. "Pledged Instruments" means at any time all Instruments included or required to be included in the Collateral at such time. "Pledged Stock" means at any time all shares of capital stock included or required to be included in the Collateral at such time. "Post-Petition Interest" means any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower or would accrue but for the operation of applicable bankruptcy or insolvency laws, whether or not allowed or allowable as a claim in such proceeding. "Required Secured Parties" means, at any time, Term Lenders, Revolving Credit Lenders and/or Metrocrest Banks having more than 50% of the aggregate amount of the Secured Exposures at such time. "Secured Exposure" means at any time: (a) with respect to each Term Lender, its Term Exposure at such time, (b) with respect to each Revolving Credit Lender, its Revolving Credit Exposure at such time, and (c) with respect to each Metrocrest Bank, its participating share of the aggregate amount of the Metrocrest Letter of Credit Liabilities at such time. "Secured Obligations" means: (i) all principal of all Loans and Reimbursement Obligations outstanding from time to time under the 4 Credit Agreement, all interest (including Post-Petition Interest) on such Loans and Reimbursement Obligations and all other amounts now or hereafter payable by the Borrower pursuant to the Credit Agreement; (ii) all Metrocrest Reimbursement Obligations (up to $91,350,000 in aggregate principal amount) outstanding from time to time under the Metrocrest Reimbursement Agreement, all interest (including Post-Petition Interest) on such Metrocrest Reimbursement Obligations and all other amounts now or hereafter payable by the Borrower pursuant to the Metrocrest Reimbursement Agreement; (iii) (A) (x) the principal amount (up to Singapore dollars 18,500,000) of all obligations of the Borrower (including, without limitation, its obligations as guarantor of the obligations of its Subsidiaries) outstanding from time to time under the Advance Account Agreement and (y) the principal amount (up to $20,000,000) of all obligations of the Borrower (including, without limitation, its obligations as guarantor of the obligations of its Subsidiaries) outstanding from time to time under the Overdraft Facility Agreement, (B) all interest (including Post-Petition Interest) on such obligations and (C) all other amounts now or hereafter payable by the Borrower pursuant to the Advance Account Agreement and the Overdraft Facility Agreement; and (iv) all other obligations of the Borrower which, after the date hereof, are designated by the Borrower as "Secured Obligations" pursuant to Section 19. "Secured Parties" means the holders from time to time of the Secured Obligations. "Secured Parties Requesting Notice" means, at any time, each Secured Party which has, at least five Business Days prior thereto, delivered to the Collateral Agent a written notice (i) stating that it holds one or more Secured Obligations and wishes to receive copies of the notices referred to in Section 14(H) and (ii) setting forth its address or facsimile number to which copies of such notices should be sent. "Security Interests" means the security interests in the Collateral granted by the Grantors hereunder. "Super-Majority Secured Parties" means, at any time, Term Lenders, Revolving Credit Lenders and/or 5 Metrocrest Banks having more than 75% of the aggregate amount of the Secured Exposures at such time. "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of New York; PROVIDED that if, by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of any Security Interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection. Unless otherwise defined herein, or unless the context otherwise requires, all terms used herein which are defined in the New York Uniform Commercial Code as in effect on the date hereof have the meanings therein stated. SECTION 2. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants (and NME Cayman represents and warrants with respect to itself and the Collateral specified herein as being owned by it) that: (A) Schedule I hereto sets forth a correct and complete list, as of the close of business on the Closing Date, of (i) all capital stock of First Tier Subsidiaries (other than Immaterial Subsidiaries) beneficially owned by the Borrower, (ii) all Instruments owned by the Borrower evidencing Debt owed to it by any of its Subsidiaries and (iii) all capital stock of Westminster beneficially owned by NME Cayman. (B) Each Grantor owns all of the Collateral listed in Schedule I hereto as being owned by it, free and clear of any Lien other than the Security Interests. Each Grantor will own all Collateral hereafter acquired by it, free and clear of any Lien other than the Security Interests. No Grantor is or will become a party to or otherwise bound by any agreement, other than the Credit Agreement and this Agreement, which restricts in any manner the rights of any present or future holder of any of the Collateral with respect thereto. (C) All shares of capital stock included in the Collateral have been duly authorized and validly issued, are fully paid and non-assessable, and are subject to no option to purchase or similar right of any Person. 6 (D) No Grantor has performed any acts which might prevent the Collateral Agent from enforcing any of the provisions of this Agreement or which would limit the Collateral Agent in any such enforcement. Except for financing statements or other similar or equivalent documents with respect to the Security Interests, no financing statement, security agreement or similar or equivalent document or instrument covering all or any part of the Collateral is on file or of record in any jurisdiction in which such filing or recording would be effective to perfect a Lien on such Collateral. No Collateral is in the possession of any Person (other than the relevant Grantor) asserting any claim thereto or security interest therein, except that the Collateral Agent or its designee may have possession of the Collateral as contemplated hereby. (E) The Security Interests constitute valid security interests under the UCC securing the Secured Obligations. (F) Upon the delivery of the Pledged Instruments and the stock certificates representing the Pledged Stock to the Collateral Agent in accordance with Section 4, the Collateral Agent will have valid and perfected security interests in such Collateral subject to no prior Lien. (G) When appropriately completed UCC financing statements shall have been filed as specified in Schedule II hereto, the Security Interests will constitute perfected security interests in the Collateral to the extent that a security interest therein may be perfected by filing pursuant to the UCC, prior to all other Liens and rights of others therein. Except for the filing of such UCC financing statements, no registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Security Interests. (H) The chief executive office of each Grantor is located at the address of such Grantor set forth on the signature pages of this Agreement. Under the Uniform Commercial Code as in effect in the State in which such office is located, no local filing is required to perfect a security interest in collateral consisting of general intangibles. 7 SECTION 3. THE SECURITY INTERESTS In order to secure the full and punctual payment of the Secured Obligations in accordance with the terms thereof, and to secure the performance of the obligations of the Borrower hereunder: (A) The Borrower grants to the Collateral Agent for the benefit of the Secured Parties a continuing security interest in all of the following assets of the Borrower: (1) all capital stock of its First Tier Domestic Subsidiaries now or hereafter beneficially owned by the Borrower, all other Equity Interests (if any) in First Tier Domestic Subsidiaries hereafter acquired by the Borrower, all rights and privileges of the Borrower with respect to such capital stock and other Equity Interests, and all dividends, distributions and other payments with respect thereto; (2) all capital stock of its First Tier International Subsidiaries now or hereafter beneficially owned by the Borrower, all other Equity Interests (if any) in First Tier International Subsidiaries hereafter acquired by the Borrower, all rights and privileges of the Borrower with respect to such capital stock and other Equity Interests, and all dividends, distributions and other payments with respect thereto; PROVIDED that, if the Borrower beneficially owns more than 66% of any class of such capital stock or more than 66% of any class or type of such other Equity Interests, the portion thereof in excess of 66% (together with the rights, privileges, dividends, distributions and other payments relating thereto) shall be excluded from such security interest and shall not constitute part of the Collateral; (3) all Debt now or hereafter owed to the Borrower by any of its Subsidiaries, whether or not evidenced by Instruments; and (4) all proceeds of the collateral described in the foregoing clauses (1), (2) and (3). 8 (B) NME Cayman grants to the Collateral Agent for the benefit of the Secured Parties a continuing security interest in all capital stock of Westminster now or hereafter beneficially owned by NME Cayman, all rights and privileges of NME Cayman with respect thereto, all dividends, distributions and other payments with respect thereto and all proceeds of the foregoing collateral. The Security Interests are granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or transfer or in any way affect or modify, any obligation or liability of any Grantor with respect to any of the Collateral or any transaction in connection therewith. SECTION 4. DELIVERY OF CERTAIN COLLATERAL (A) On the Closing Date, (i) each Grantor is delivering to the Collateral Agent as Collateral hereunder, subject to the PROVISO in Section 3(A)(2), stock certificates representing all the capital stock beneficially owned by such Grantor and listed in Schedule I hereto and (ii) the Borrower is delivering to the Collateral Agent as Collateral hereunder all Instruments listed in Schedule I hereto evidencing Debt owed to the Borrower by its Subsidiaries on the Closing Date. (B) After the Closing Date, if at any time any First Tier Subsidiary theretofore classified as an Immaterial Subsidiary no longer constitutes an Immaterial Subsidiary, the Borrower will forthwith deliver to the Collateral Agent as additional Collateral hereunder, subject to the PROVISO in Section 3(A)(2), stock certificates representing all the capital stock of such First Tier Subsidiary beneficially owned by the Borrower. (C) After the Closing Date, if any Grantor receives any stock certificate representing capital stock in which a security interest is granted pursuant to Section 3, or any Instrument in which a security interest is granted pursuant to Section 3, and such stock certificate or Instrument has not previously been delivered to the Collateral Agent hereunder, such Grantor will immediately deliver such stock certificate or Instrument to the Collateral Agent as additional Collateral hereunder, subject to the PROVISO in Section 3(A)(2). (D) All certificates representing Pledged Stock delivered by any Grantor to the Collateral Agent hereunder 9 shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. All Instruments delivered by the Borrower to the Collateral Agent hereunder shall be indorsed to the order of the Collateral Agent, or shall be accompanied by duly executed instruments of assignment, all in form and substance satisfactory to the Collateral Agent. SECTION 5. FURTHER ASSURANCES The Borrower covenants (and NME Cayman covenants with respect to itself) that: (A) No Grantor will change its name, identity or corporate structure in any manner unless the Borrower shall have given the Collateral Agent prior notice thereof and delivered an Opinion of Counsel with respect thereto in accordance with Section 5(D). (B) No Grantor will change the location of its chief executive office or chief place of business from that set forth on the signature pages hereof, unless the Borrower shall have given the Collateral Agent prior notice thereof and delivered an Opinion of Counsel with respect thereto in accordance with Section 5(D). No Grantor shall in any event change the location of any Collateral owned by it if such change would cause the Security Interests in such Collateral to lapse or cease to be perfected. (C) Each Grantor will, from time to time, at its expense, execute, deliver, file and record any statement, assignment, instrument, document, agreement or other paper and take any other action (including, without limitation, any filings of financing or continuation statements under the UCC) that from time to time may be necessary or desirable, or that the Collateral Agent may request, in order to create, preserve, perfect, confirm or validate the Security Interests or to enable the Collateral Agent and the other Secured Parties to obtain the full benefits of this Agreement, or to enable the Collateral Agent to exercise and enforce any of its rights, powers and remedies hereunder with respect to any of the Collateral. To the extent permitted by applicable law, each Grantor authorizes the Collateral Agent to execute and file such financing statements or continuation statements without such Grantor's signature appearing thereon. Each Grantor agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. The Borrower shall pay the costs of, 10 or incidental to, any recording or filing of any such financing or continuation statements. (D) At least 30 days before any Grantor takes any action contemplated by subsection (A) or (B) of this Section, the Borrower shall, at its cost and expense, cause to be delivered to the Collateral Agent an Opinion of Counsel, in form and substance satisfactory to the Collateral Agent, to the effect that all financing statements and amendments or supplements thereto, continuation statements and other documents required to be recorded or filed in order to perfect and protect the Security Interests against all creditors of and purchasers from such Grantor (except any continuation statements specified in such Opinion of Counsel that are to be filed more than six months after the date thereof) have been filed in each filing office necessary for such purpose and that all filing fees and taxes, if any, payable in connection with such filings have been paid in full. (E) From time to time the Borrower shall, at its cost and expense, cause to be delivered to the Secured Parties an Opinion of Counsel satisfactory to the Collateral Agent as to such matters relating to the transactions contemplated hereby as the Required Lenders or the Required Secured Parties may reasonably request. SECTION 6. RECORD OWNERSHIP OF PLEDGED STOCK If directed to do so by the Required Lenders or the Required Secured Parties at any time or from time to time, the Collateral Agent shall cause the Pledged Stock (or any portion thereof specified in such directions) to be transferred of record into the name of the Collateral Agent or its nominee. Promptly upon receiving any such directions, the Collateral Agent will notify the relevant Grantor thereof and thereafter the relevant Grantor will promptly give to the Collateral Agent copies of any notices or other communications received by it with respect to Pledged Stock registered in the name of the relevant Grantor, and the Collateral Agent will promptly give to the relevant Grantor copies of any notices and communications received by the Collateral Agent with respect to Pledged Stock registered in the name of the Collateral Agent or its nominee. So long as no Enforcement Notice is in effect, the Collateral Agent shall pay over to the relevant Grantor all Cash Distributions received by the Collateral Agent upon or with respect to any Pledged Stock held of record in the name of the Collateral Agent or its nominee. 11 SECTION 7. RIGHT TO RECEIVE DISTRIBUTIONS ON COLLATERAL Subject to Section 16, the Collateral Agent shall have the right to receive and to retain as Collateral hereunder all dividends, interest and other payments and distributions made upon or with respect to the Collateral and the Grantor shall take all such action as the Collateral Agent may deem necessary or appropriate to give effect to such right; PROVIDED that, unless an Enforcement Notice is in effect, this sentence shall not apply to Cash Distributions. All such dividends, interest and other payments and distributions which are received by the Grantors (except Cash Distributions received when no Enforcement Notice is in effect) shall be received in trust for the benefit of the Secured Parties and shall be segregated from other assets of the Grantors and shall, promptly upon the relevant Grantor's receipt thereof, be delivered or paid over to the Collateral Agent in the same form as received (with any necessary endorsements or executed assignments in blank), together with a statement identifying the source of such Collateral and stating that it is being delivered to the Collateral Agent to be held as Collateral under this Agreement. If an Enforcement Notice is withdrawn pursuant to Section 17 (and no other Enforcement Notice is then in effect), the Collateral Agent's right to retain Cash Distributions under this Section 7 shall cease and the Collateral Agent shall pay over to the relevant Grantor any Cash Distributions retained by it during the continuance of such Enforcement Notice. SECTION 8. RIGHT TO VOTE PLEDGED STOCK. Unless an Enforcement Notice directing the Collateral Agent to vote the Pledged Stock is in effect, each Grantor shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Stock owned by it, and the Collateral Agent shall, upon receiving a written request from such Grantor, deliver to such Grantor or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any of such Pledged Stock which is registered in the name of the Collateral Agent or its nominee as shall be specified in such request and be in form and substance satisfactory to the Collateral Agent. If an Enforcement Notice is in effect, the Collateral Agent shall have the right to the extent permitted by law, and each Grantor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and 12 waivers, and take any other action with respect to any or all of the Pledged Stock with the same force and effect as if the Collateral Agent were the absolute and sole owner thereof. SECTION 9. GENERAL AUTHORITY Each Grantor hereby irrevocably appoints the Collateral Agent its true and lawful attorney, with full power of substitution, in the name of such Grantor, any Secured Party or otherwise, for the sole use and benefit of the Collateral Agent and the Secured Parties, but at the expense of such Grantor, to the extent permitted by law to exercise, at any time and from time to time while an Enforcement Notice directing it to do so is in effect, all or any of the following powers with respect to all or any of the Collateral: (i) to demand, sue for, collect, receive and give acquittance for any and all monies due or to become due upon or by virtue thereof, (ii) to settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto, (iii) to sell, transfer, assign or otherwise deal in or with the same or the proceeds or avails thereof, as fully and effectually as if the Collateral Agent were the absolute owner thereof, and (iv) to extend the time of payment of any or all thereof and to make any allowance and other adjustments with reference thereto; PROVIDED that the Collateral Agent shall give each Grantor not less than ten days' prior written notice of the time and place of any sale or other intended disposition of any of the Collateral owned by such Grantor, except any such Collateral which threatens to decline speedily in value or is of a type customarily sold on a recognized market. The Collateral Agent and each Grantor agree that such notice constitutes "reasonable notification" within the meaning of Section 9-504(3) of the UCC. SECTION 10. REMEDIES UPON ENFORCEMENT NOTICE (A) Upon being instructed to do so by the Required Lenders or the Required Secured Parties in an Enforcement Notice or in written instructions given at any time while an Enforcement Notice is in effect, the Collateral Agent may exercise on behalf of the Secured 13 Parties all the rights of a secured party under the UCC (whether or not in effect in the jurisdiction where such rights are exercised) and, in addition, the Collateral Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) apply the cash, if any, then held by it as Collateral as specified in Section 13 and (ii) if there shall be no such cash or if such cash shall be insufficient to pay all the Secured Obligations in full, sell the Collateral or any part thereof at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Required Lenders (if the Required Lenders gave the relevant Enforcement Notice) or the Required Secured Parties (if the Required Secured Parties gave the relevant Enforcement Notice) shall have advised the Collateral Agent are satisfactory. Any Secured Party may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale). The Collateral Agent is authorized, in connection with any such sale, if it deems it advisable so to do, (i) to restrict the prospective bidders on or purchasers of any of the securities included in the Collateral to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such securities, (ii) to cause to be placed on any security included in the Collateral a legend to the effect that such security has not been registered under the Securities Act of 1933 and may not be disposed of in violation of the provisions of said Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Collateral Agent deems necessary or advisable in order to comply with said Act or any other law. Each Grantor agrees that it will execute and deliver such documents and take such other action as the Collateral Agent deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Collateral Agent shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely and free from any claim or right of whatsoever kind, including any equity or right of redemption of the relevant Grantor which may be waived, and the relevant Grantor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter adopted. Notice of any such sale shall be given to the relevant Grantor as required by 14 Section 9 and shall (1) in case of a public sale, state the time and place fixed for such sale, (2) in case of sale at a broker's board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange, and (3) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix in the notice of such sale. At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may determine. The Collateral Agent shall not be obligated to make any such sale pursuant to any such notice. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the selling price is paid by the purchaser thereof, but the Collateral Agent shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice. Upon being instructed to do so by the Required Lenders or the Required Secured Parties in an Enforcement Notice or in written instructions given at any time while an Enforcement Notice is in effect, the Collateral Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction. (B) If the Collateral Agent shall determine to exercise its right to sell all or any of the Collateral and if in the Opinion of Counsel it is necessary, or if in the opinion of the Collateral Agent it is advisable, to have the securities included in the Collateral, or the portion thereof to be sold, registered under the provisions of the Securities Act of 1933, the Borrower agrees, at its own expense, (i) to execute and deliver, and, to the extent the Borrower may legally do so, to use its best efforts to cause each corporation whose securities are to be sold and the directors and officers of such corporation to execute and deliver, all such instruments and documents, and to do or cause to be done all other such acts and things, as may be necessary or, in the opinion of the Collateral Agent, 15 advisable to register such securities under the provisions of the Securities Act of 1933 and to use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make or cause to be made all amendments and supplements thereto and to the related prospectus which, in the opinion of the Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act of 1933 and the rules and regulations of the SEC thereunder, (ii) to use its best efforts to cause the corporation whose securities are to be sold to agree to make available (and to make available) to its security holders as soon as practicable, an earning statement (which need not be audited) covering a period of at least 12 months, beginning with the first month after the effective date of any such registration statement, which earning statement will satisfy the provisions of Section 11(a) of the Securities Act of 1933, (iii) to use its best efforts, and to use its best efforts to cause the corporation whose securities are to be sold to use its best efforts, to qualify such securities under state Blue Sky or securities laws and to obtain the approval of any governmental authorities for the sale of such securities, as requested by the Collateral Agent and (iv) at the request of the Collateral Agent, to indemnify and hold harmless, and, to the extent that the Borrower may legally do so, to use its best efforts to cause the corporation whose securities are to be sold to indemnify and hold harmless, the Collateral Agent, the Secured Parties and any underwriters (and any person controlling any of the foregoing) from and against any loss, liability, claim, damage and expense (and reasonable counsel fees incurred in connection therewith) under the Securities Act of 1933 or otherwise insofar as such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in such registration statement or prospectus or in any preliminary prospectus or any amendment or supplement thereto, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of the Collateral Agent, the Secured Parties or any underwriters (or any person controlling any of the foregoing), PROVIDED that neither the Borrower nor such corporation shall be liable in any case to the extent that any such loss, liability, claim, damage or expense arises out of or is based on an untrue statement or alleged untrue statement or an omission or an alleged omission made in reliance upon and in conformity with written information furnished to such 16 corporation by the Collateral Agent, any Secured Party or any underwriter expressly for use in such registration statement or prospectus. SECTION 11. FEES AND EXPENSES; INDEMNIFICATION The Borrower agrees that it will forthwith upon demand pay to the Collateral Agent: (i) the amount of any taxes which the Collateral Agent may have been required to pay by reason of the Security Interests or to free any of the Collateral from any Lien thereon, (ii) the amount of any and all out-of-pocket expenses, including transfer taxes and reasonable fees and disbursements of counsel and of any other experts, which the Collateral Agent may incur in connection with (w) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Collateral and the validity, perfection, rank and value of any Security Interest, (x) the collection, sale or other disposition of any of the Collateral, (y) the exercise by the Collateral Agent of any of the rights or powers conferred upon it hereunder or (z) any Enforcement Notice, (iii) the amount of any fees that the Borrower shall have agreed in writing to pay to the Collateral Agent and that shall have become due and payable in accordance with such written agreement, and (iv) the amount required to indemnify the Collateral Agent for, or hold it harmless and defend it against, any loss, liability or expense (including the reasonable fees and expenses of its counsel and any experts or co-agents appointed hereunder) incurred or suffered by the Collateral Agent in connection with this Agreement, except to the extent that such loss, liability or expense arises from the Collateral Agent's gross negligence or willful misconduct or a breach of any duty that the Collateral Agent has under this Agreement (after giving effect to Sections 12 and 14 hereof). Any such amount not paid to the Collateral Agent on demand shall bear interest for each day until paid at a rate per annum equal to the sum of 2% plus the rate of interest applicable to Base Rate Loans for such day under the Credit Agreement. 17 SECTION 12. LIMITATION ON DUTY OF COLLATERAL AGENT IN RESPECT OF COLLATERAL Beyond the exercise of reasonable care in the custody and preservation thereof, the Collateral Agent shall have no duty as to any Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords its own property, and shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any agent or bailee selected by the Collateral Agent in good faith or by reason of any act or omission by the Collateral Agent pursuant to instructions from the Required Lenders or the Required Secured Parties (including, without limitation, any voting instruction pursuant to Section 8), except to the extent that such liability arises from the Collateral Agent's gross negligence or willful misconduct. SECTION 13. APPLICATION OF PROCEEDS (A) Upon being instructed to do so by the Required Lenders or the Required Secured Parties in an Enforcement Notice or in written instructions given at any time while an Enforcement Notice is in effect, the Collateral Agent shall apply the proceeds of any sale of, or other realization upon, all or any part of the Collateral and any cash held as part of the Collateral in the following order of priorities: FIRST, to pay (i) the expenses of such sale or other realization, including reasonable compensation to agents of and counsel for the Collateral Agent, and all expenses, liabilities and advances incurred or made by the Collateral Agent in connection therewith, and (ii) any other amounts then due and payable to the Collateral Agent pursuant to Section 11 hereof, to the Administrative Agent pursuant to Section 9.03 of the Credit Agreement or to the Metrocrest Issuing Bank pursuant to Section 12.03 of the Metrocrest Reimbursement Agreement; SECOND, to pay the unpaid principal of the Secured Obligations ratably (or provide for the payment thereof pursuant to subsection (B) of this Section), until 18 payment in full of the principal of all Secured Obligations shall have been made (or so provided for); THIRD, to pay all interest (including Post-Petition Interest) on the Secured Obligations and all letter of credit fees and commitment fees payable under the Credit Agreement and the Metrocrest Reimbursement Agreement ratably, until payment in full of all such interest and fees shall have been made; FOURTH, to pay all other Secured Obligations ratably (or provide for the payment thereof pursuant to subsection (B) of this Section), until payment in full of all such other Secured Obligations shall have been made (or so provided for); and FINALLY, to pay to the relevant Grantor or its successors or assigns, or as a court of competent jurisdiction may direct, any surplus then remaining from the proceeds of the Collateral owned by it. The Collateral Agent may make distributions hereunder in cash or in kind or, on a ratable basis, in any combination thereof. (B) If at any time any monies collected or received by the Collateral Agent would, but for the provisions of this subsection (B), be payable pursuant to subsection (A) of this Section in respect of a Contingent Secured Obligation, the Collateral Agent shall not apply such monies to pay such Contingent Secured Obligation but instead shall hold such monies or invest such monies in Temporary Cash Investments at the direction of the Borrower. The Collateral Agent shall hold all such monies and all such Temporary Cash Investments and the net proceeds thereof in trust until such time as all or part of such Contingent Secured Obligation becomes a Non-Contingent Secured Obligation, whereupon the Collateral Agent at the request of the relevant Secured Party shall apply the amount so held in trust to pay such Non-Contingent Secured Obligation; PROVIDED that, if the other Secured Obligations theretofore paid pursuant to the same clause of subsection (A) (i.e., clause SECOND or FOURTH) were not paid in full, the Collateral Agent shall apply the amount so held in trust to pay the same percentage of such Non-Contingent Secured Obligation as the percentage of such other Secured Obligations theretofore paid pursuant to the same clause of subsection (A). If (i) the holder of such Contingent Secured Obligation shall advise the Collateral Agent that no portion thereof remains in the category of a Contingent Secured Obligation and (ii) the Collateral Agent still holds 19 any amount held in trust pursuant to this subsection (B) in respect of such Contingent Secured Obligation (after paying all amounts payable pursuant to the preceding sentence with respect to any portions thereof that became Non-Contingent Secured Obligations), such remaining amount shall be applied by the Collateral Agent in the order of priorities set forth in subsection (A) of this Section. (C) In making the payments and allocations required by this Section, the Collateral Agent may rely upon information supplied to it pursuant to Section 14(F). All distributions made by the Collateral Agent pursuant to this Section shall be final (except in the event of manifest error) and the Collateral Agent shall have no duty to inquire as to the application by the Secured Parties of any amount distributed to them. SECTION 14. CONCERNING THE COLLATERAL AGENT (A) The Collateral Agent is authorized to take all such action as is provided or permitted to be taken by it as Collateral Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein or in an Enforcement Notice or in written requests, directions or instructions given as expressly provided in Section 6, 8, 9, 10(A) or 13(A), including, without limitation, the timing and methods of realization upon the Collateral, the Collateral Agent shall act or refrain from acting in accordance with written instructions from the Required Lenders or the Required Secured Parties or, in the absence of such instructions, in accordance with its discretion (subject to Section 14(C)); PROVIDED that the Collateral Agent shall not be obligated to comply with any such instructions that are inconsistent with the provisions of this Agreement. (B) The Collateral Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the Security Interests in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Collateral Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement, the Credit Agreement, the Metrocrest Reimbursement Agreement or any other agreement relating to the Secured Obligations. (C) The obligations of the Collateral Agent hereunder are only those expressly set forth herein. In any case in which the Collateral Agent is authorized to exercise 20 any power or discretion, the Collateral Agent may refrain from such exercise unless directed in writing by the Required Lenders or the Required Secured Parties to act in the manner specified in such direction. Without limiting the generality of the foregoing, the Collateral Agent shall not be required to take any action with respect to any Enforcement Notice, except as expressly provided in Sections 9, 10 and 13. (D) The Collateral Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it in connection with any matter arising under this Agreement and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. (E) Neither the Collateral Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Lenders or Required Secured Parties, (ii) in accordance with a notice or written instructions received from the Required Lenders or Required Secured Parties pursuant to a provision hereof that permits such a notice or written instructions to be given by the Required Lenders or Required Secured Parties or (iii) in the absence of its own gross negligence or willful misconduct. However, nothing in this subsection (E) shall affect any rights either Grantor may have against such Required Lenders or Required Secured Parties for giving any such consent, request, notice or instruction. Neither the Collateral Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement; (ii) the performance or observance of any of the covenants or agreements of the Grantors; or (iii) the validity, effectiveness or genuineness of this Agreement, or any other instrument or writing furnished in connection herewith. The Collateral Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile or similar writing) believed by it to be genuine or to be signed by the proper party or parties. (F) For all purposes of this Agreement, including without limitation determining from time to time (a) the amounts of the Secured Obligations, (b) whether a Secured Obligation is a Contingent Secured Obligation or not or (c) whether any notice, direction or instruction has been given 21 by the Required Lenders, the Required Secured Parties or any other Secured Party or Secured Parties entitled to give the same under any provision hereof, the Collateral Agent shall be entitled to rely upon information from the following sources (and may refrain from acting on the basis of such information until two Business Days after it receives all such information required to enable it to take such action): (i) the Administrative Agent for information as to the Lenders and their respective Secured Obligations (including whether any action has been taken or instruction given by the Required Lenders); (ii) the Metrocrest Issuing Bank for information as to the Metrocrest Banks and their respective Metrocrest Reimbursement Obligations; (iii) the holder, trustee, agent or similar representative designated in the relevant certificate delivered to the Collateral Agent pursuant to Section 19(B) for information as to the holders of the obligations designated as additional Secured Obligations in such certificate and their respective Secured Obligations; (iv) any Secured Party for information as to itself and its Secured Obligation, to the extent that the Collateral Agent has not received such information from the sources referred to in clauses (i) through (iii) above; and (v) the Borrower for information as to any Secured Party and its Secured Obligation, to the extent that the Collateral Agent has not received such information from the sources referred to in clauses (i) through (iv) above. The Collateral Agent shall have no liability to the Borrower or any Secured Party for actions taken in reliance on such information, except to the extent that such liability arises from the Collateral Agent's gross negligence or willful misconduct. (G) The Collateral Agent may resign at any time (effective upon acceptance by a successor Collateral Agent of its appointment hereunder) by giving written notice thereof to the Administrative Agent, the Metrocrest Issuing Bank, each of the Secured Parties Requesting Notice and the Borrower. Upon any such resignation, the Required Secured Parties shall have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall 22 have been so appointed by the Required Secured Parties, and shall have accepted such appointment, within 30 days after the retiring Collateral Agent gives notice of resignation, the retiring Collateral Agent may, on behalf of the Secured Parties, appoint a successor Collateral Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder. After any retiring Collateral Agent's resignation hereunder as Collateral Agent, the provisions of this Section and Section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent. (H) Within two Business Days after it receives or sends any notice referred to in this subsection (H), the Collateral Agent shall send to the Administrative Agent, the Metrocrest Issuing Bank and each of the Secured Parties Requesting Notice, copies of (i) any Enforcement Notice received by the Collateral Agent, (ii) any notice withdrawing an Enforcement Notice received by the Collateral Agent pursuant to Section 18, (iii) any certificate designating additional obligations as Secured Obligations received by the Collateral Agent pursuant to Section 19(A) and (iv) any other notice given by the Collateral Agent to the Borrower, or received by it from the Borrower, pursuant to Section 9, 10(A), 13 or 16. The Collateral Agent shall also send to the Borrower copies of any Enforcement Notice or any notice withdrawing an Enforcement Notice received by the Collateral Agent. (I) If the Collateral Agent receives inconsistent instructions from the Required Lenders and the Required Secured Parties at any time pursuant to any provisions hereof, the Collateral Agent shall comply (to the extent otherwise obligated to do so under the provisions of this Agreement) with the instructions given by the Required Secured Parties. The Collateral Agent may refuse to act on any notice, direction or instruction from the Required Lenders, the Required Secured Parties or any Secured Party or any agent, trustee or similar representative thereof which, in the Collateral Agent's opinion, (i) is contrary to law or the provisions of this Agreement, (ii) is unduly prejudicial to Secured Parties not joining in such notice, direction or instruction or (iii) may expose the Collateral 23 Agent to liability (unless the Collateral Agent shall have been adequately indemnified for such liability by the Secured Parties giving such notice, direction or instruction). SECTION 15. APPOINTMENT OF CO-COLLATERAL AGENTS At any time or times, in order to comply with any legal requirement in any jurisdiction, the Collateral Agent may appoint another bank or trust company or one or more other persons, either to act as co-agent or co-agents, jointly with the Collateral Agent, or to act as separate agent or agents on behalf of the Secured Parties with such power and authority as may be necessary for the effectual operation of the provisions hereof and may be specified in the instrument of appointment (which may, in the discretion of the Collateral Agent, include provisions for the protection of such co-agent or separate agent similar to the provisions of Section 14). SECTION 16. Termination of Security Interests; RELEASE OF COLLATERAL (A) When (i) all the Commitments shall have expired or been terminated, (ii) all letters of credit issued under the Credit Agreement and the Metrocrest Reimbursement Agreement shall have expired or been cancelled or been secured with cash collateral in an amount and on terms satisfactory to the relevant LC Issuing Bank or the Metrocrest Issuing Bank, as the case may be, and (iii) all outstanding Secured Obligations shall have been paid in full, the Security Interests shall terminate and all rights to each item of Collateral shall revert to the Grantor which owns such item of Collateral. (B) The Collateral Agent shall release any item of NME Cayman's Collateral or any shares of Pledged Stock of a Designated International Subsidiary upon receipt of a certificate of a Senior Officer of the Borrower certifying that (x) such Collateral is being sold or otherwise disposed of by the relevant Grantor and (y) an amount equal to the Net Cash Proceeds from such sale or other disposition will be applied to prepay outstanding Loans as and when required by Sections 2.06(c) and 2.07(b) of the Credit Agreement. (C) The Collateral Agent shall release any item of NME Cayman's Collateral or any shares of Pledged Stock of a Designated International Subsidiary upon: (i) receipt by the Collateral Agent of a certificate of a Senior Officer of the Borrower 24 certifying that (x) such Collateral is being exchanged for specified securities, cash and/or other assets in a transaction permitted by the Credit Agreement and (y) an amount equal to the Net Cash Proceeds (if any) from such transaction will be applied to prepay outstanding Loans as and when required by Sections 2.06(c) and 2.07(b) of the Credit Agreement; (ii) receipt by the Collateral Agent of all Instruments and stock certificates (if any) received by the relevant Grantor in such exchange and required to be delivered to the Collateral Agent pursuant to Section 4 hereof; and (iii) an Opinion of Counsel, in form and substance satisfactory to the Collateral Agent, to the effect that all actions required to perfect the Security Interests in the proceeds of such Collateral (other than cash proceeds) against all creditors of and purchasers from the relevant Grantor (except any continuation statements specified in such Opinion of Counsel that are to be filed more than six months after the date thereof) have been taken or no such actions are required. (D) At any time and from time to time prior to such termination of the Security Interests, the Collateral Agent (i) may release any of the Collateral (but not all or substantially all of the Collateral) with the prior written consent of the Super-Majority Secured Parties or (ii) release all or substantially all of the Collateral with the prior written consent of all the Term Lenders, Revolving Credit Lenders and Metrocrest Banks. (E) Upon any such termination of the Security Interests or release of Collateral, the Collateral Agent will, at the expense of the relevant Grantor, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence the termination of the Security Interests or the release of such Collateral, as the case may be. SECTION 17. NOTICES All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given to such party: 25 (v) in the case of either Grantor or the Collateral Agent, at its address or facsimile number set forth on the signature pages hereof, (w) in the case of any Lender, to the Administrative Agent to be forwarded to such Lender at its address or facsimile number specified in Section 9.01 of the Credit Agreement, (x) in the case of any Metrocrest Bank, at its address or facsimile number specified in the Metrocrest Reimbursement Agreement, (y) in the case of any Secured Party Requesting Notice, at such address or facsimile number as such party may hereafter specify for the purpose by notice to the Collateral Agent, or (z) in the case of any party, such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Collateral Agent and the Grantors. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number referred to in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number referred to in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address referred to in this Section. SECTION 18. WITHDRAWAL OF ENFORCEMENT NOTICE An Enforcement Notice, once given, shall remain in effect unless and until (i) the Required Lenders (if such Enforcement Notice was given by the Required Lenders) or the Required Secured Parties (if such Enforcement Notice was given by the Required Secured Parties) notify the Collateral Agent that they wish to withdraw such Enforcement Notice, (ii) no monies have been applied to pay any Secured Obligations pursuant to Section 13 (except pursuant to clause FIRST thereof) as a result of such Enforcement Notice and (iii) the Collateral Agent determines that the withdrawal of such Enforcement Notice will not result in any liability or unreimbursed loss to the Collateral Agent by reason of actions taken by it in reliance thereon. If the Required Lenders or Required Secured Parties that gave an 26 Enforcement Notice determine, in their sole discretion, that the Event of Default on which it was based is no longer continuing or has been waived in accordance with the provisions of the Credit Agreement, they will notify the Collateral Agent pursuant to this Section that they wish to withdraw such Enforcement Notice. SECTION 19. ADDITIONAL SECURED OBLIGATIONS (A) The Borrower may from time to time designate any of its Hedging Obligations owed to any Lender (or any affiliate of a Lender) as an additional Secured Obligation for purposes hereof by delivering to the Collateral Agent a certificate signed by a Senior Officer of the Borrower which (i) identifies the Hedging Obligation so designated, (ii) states that it is designated as a Secured Obligation for purposes hereof and (iii) specifies the name and address of the relevant counterparty for such Hedging Obligation. (B) If at any time the Metrocrest Letters of Credit are cancelled and replaced by other letters of credit as permitted by Section 5.14(e) of the Credit Agreement, the Borrower may designate its obligations under the related reimbursement agreement as additional Secured Obligations for purposes hereof by delivering to the Collateral Agent a certificate signed by a Senior Officer of the Borrower which (i) identifies such reimbursement agreement, (ii) states that the Borrower's obligations thereunder are designated as Secured Obligations for purposes hereof and (iii) specifies the name and address of the issuing bank to which such reimbursement obligations are payable. (C) With the prior written consent of the Super-Majority Secured Parties, the Borrower may from time to time designate any of its obligations (other than Hedging Obligations) as an additional Secured Obligation for purposes hereof by delivering to the Collateral Agent a certificate signed by a Senior Officer of the Borrower which (i) identifies the obligation so designated, (ii) states that it is designated as a Secured Obligation for purposes hereof and (iii) specifies the name and address of the holder of such obligation or of a trustee, agent or similar representative designated to supply information with respect to such additional Secured Obligation to the Collateral Agent as contemplated by Section 14(F) hereof. SECTION 20. WAIVERS, NON-EXCLUSIVE REMEDIES No failure on the part of the Collateral Agent to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement 27 shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent of any right under the Credit Agreement or this Agreement preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the Credit Agreement are cumulative and are not exclusive of any other remedies provided by law. SECTION 21. SUCCESSORS AND ASSIGNS This Agreement is for the benefit of the Collateral Agent and the Secured Parties and their respective successors and assigns, and in the event of an assignment of all or any of the Secured Obligations, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. This Agreement shall be binding on the Grantors and their respective successors and assigns. SECTION 22. CHANGES IN WRITING Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated (any of the foregoing being herein called a "change") orally, but only in a writing signed by the Grantors and the Collateral Agent with the consent of the Required Secured Parties; PROVIDED that (i) no Secured Obligation shall be deleted from the definition of "Secured Obligations" without the prior written consent of the holder thereof, (ii) no change in Section 13 or any other provision hereof relating to the ratable payment of the Secured Obligations shall be made if such change would cause any holder of a Secured Obligation to receive less than a ratable share of the payments to be made to the holders of Secured Obligations under the relevant clause of Section 13(A) without the prior written consent of such holder, (iii) no change in Section 16 or any other provision hereof shall permit a release of assets from the Security Interests otherwise than as provided in Section 16 without the prior written consent of the Super-Majority Secured Parties or permit any release of all or substantially all of the Collateral without the prior written consent of all the Term Lenders, Revolving Credit Lenders and Metrocrest Banks and (iv) no change shall be made in this Section without the prior written consent of all the Secured Parties adversely affected by such change. SECTION 23. Limitation on Rights and Remedies Relating to CALIFORNIA INSURANCE SUBSIDIARY Notwithstanding any other provision of this Agreement to the contrary, the Collateral Agent shall not 28 exercise any right or remedy otherwise provided in Section 6, 7, 8, 9 or 10, or otherwise provided to the Collateral Agent herein or by law, with respect to the capital stock of Assured Investors Life Insurance Company, a California corporation, and the Security Interests in such capital stock shall not be enforced and such capital stock shall not be sold, and the Collateral Agent will not seek to exercise any right to vote such capital stock or otherwise exercise control of Assured Investors Life Insurance Company, without obtaining the prior written approval of the exercise of such right or remedy or the taking of any such action from the California Department of Insurance in accordance with applicable law. SECTION 24. NEW YORK LAW This Agreement shall be construed in accordance with and governed by the laws of the State of New York, except as otherwise required by mandatory provisions of law and except to the extent that remedies provided by the laws of any jurisdiction other than New York are governed by the laws of such jurisdiction. SECTION 25. SEVERABILITY If any provision hereof is invalid or unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent and the Secured Parties in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 29 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By ----------------------- Title: [address for notices] N.M.E. INTERNATIONAL (CAYMAN) LIMITED By ----------------------- Title: [address for notices] MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Collateral Agent By ______________________ Title: [address for notices] 30 SCHEDULE I CAPITAL STOCK OF FIRST TIER SUBSIDIARIES
Number Equity Class of of Percentage Subsidiary Stock Shares Ownership - ---------- --------- ------ --------- American Medical Holdings, Inc. (the corporation surviving the Merger) Common* 1,000(1) 100% Cornerstone - West, Inc. Common 1,000 100% H.F.I.C. Management Company, Inc. Common 1,000 100% International-NME, Inc. Common 100 100% National Medical Enterprises Corp. Common 100 100% NME (Australia) Pty. Limited Common 100% NME Headquarters, Inc. Common 1,000 100% NME Hospitals, Inc. Common 1,000 100% NME PIP Funding I, Inc. Common 1,000 100% NME Properties Corp. Common 1,000 100% NME Psychiatric Properties, Inc. Common 1,000 100% NME Rehabilitation Properties, Inc. Common 1,000 100% NME Specialty Hospitals, Inc. Common 1,000 100% Northshore Hospital Management Corporation (LA) Common 1,000 100% RHSC Hospitals, Inc. Common 1,000 100% _________________________ * These shares are the shares of common stock of AMH Acquisition Co. outstanding immediately prior to the Merger, which will be converted in the Merger into shares of the surviving corporation. They are, and after the Merger will continue to be, referred to on the face of the relevant stock certificates as shares of AMH Acquisition Co.
Number Equity Class of of Percentage Subsidiary Stock Shares Ownership - ---------- --------- ------ --------- Syndicated Office Systems Common 100 100% Wilshire Rental Corp. Common 100 100% Women's Medical Center of America, Inc. Common 5,000 100%
INSTRUMENTS EVIDENCING DEBT OF SUBSIDIARIES Maker Instrument - ----- ---------- American Medical Promissory Note in the International, Inc. principal amount of $____________ dated [Closing Date] NME CAYMAN COLLATERAL Westminster Health Care Holdings PLC 42% 2 EXHIBIT C SENIOR OFFICER'S CLOSING CERTIFICATE I, [name], [title] of National Medical Enterprises, Inc., a Nevada corporation (the "Borrower"), in connection with (i) the closing held today (the "Closing") under the $2,300,000,000 Credit Agreement dated as of February 28, 1995 (the "Credit Agreement") among the Borrower, the lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent and (ii) the borrowing of Term Loans (the "First Borrowing") today by the Borrower thereunder, DO HEREBY CERTIFY that: 1. The representations and warranties made by the Borrower in the Financing Documents are true on and as of the date hereof. 2. Immediately before and after the First Borrowing, no Default has occurred and is continuing. 3. (A) There are no letters of credit outstanding under NME's Existing Credit Agreement and (B) the Borrower has irrevocably instructed the Administrative Agent to make available to Morgan Guaranty Trust Company of New York, as Agent under NME's Existing Credit Agreement, substantially concurrently with the Closing, a portion of the proceeds of the First Borrowing sufficient to pay in full the principal of all loans and reimbursement obligations outstanding under NME's Existing Credit Agreement on the date hereof and all interest and fees accrued thereunder. 4. (A) The Borrower has given Chemical Bank as Agent under AMI's Existing Credit Agreement (the "Existing Agent") irrevocable notice of termination of the commitments of the lenders thereunder, (B) no letters of credit (except the Existing Letters of Credit) are outstanding under AMI's Existing Credit Agreement, (C) the issuing banks of all Existing Letters of Credit have agreed that such participations will been cancelled concurrently with the Closing, (D) the Borrower has irrevocably instructed the Administrative Agent to make available to the Existing Agent for the account of AMI, substantially concurrently with the Closing, a portion of the proceeds of the First Borrowing in an amount sufficient to pay in full the principal of all loans and reimbursement obligations outstanding on the date hereof under AMI's Existing Credit Agreement and all interest and fees accrued thereunder and (E) AMI has irrevocably instructed the Existing Agent to apply such proceeds, substantially concurrently with the Closing, to pay such amounts in full. 5. The Borrower has irrevocably instructed the Administrative Agent to make available to ___________, the exchange agent for the NME Tender Offers, a portion of the proceeds of the First Borrowing equal to the aggregate amount payable by the Borrower on the date hereof pursuant to the NME Tender Offers. 6. The Borrower has irrevocably instructed the Administrative Agent to make available to ___________, the exchange agent for the AMI Tender Offers and the relevant trustees a portion of the proceeds of the First Borrowing equal to the amount payable on the date hereof pursuant to the AMI Tender Offers and the AMI Redemptions, respectively, 7. The Borrower has received net cash proceeds of $____________ from the issuance and sale of $300,000,000 aggregate principal amount of Senior Notes and $700,000,000 aggregate principal amount of Subordinated Notes. 8. In addition to the funds available under the Credit Agreement and the net cash proceeds of the issuance and sale of Senior Notes and Subordinated Notes, the Borrower has at least $____________ of cash available to finance the Acquisition. [The Borrower has invested $________ in South Miami Hospitals.] 9. The total consideration paid by the Borrower and its Subsidiaries as a result of the Acquisition to the former holders of common stock of AM Holdings and options to purchase such common stock does not exceed $_______________ in cash and _______________ shares of common stock of the Borrower (except to the extent that any stockholders of AM Holdings who elect appraisal rights may receive more than $[19] [19.25] per share of common stock of AM Holdings). 10. As of the date hereof, after giving effect to the consummation of the Acquisition and the Merger, and all other transactions contemplated by the Financing Documents, (i) the aggregate fair market value of the assets of the Borrower will exceed its liabilities (including contingent, subordinated, unmatured and unliquidated liabilities), (ii) the Borrower will have sufficient cash flow to enable it to pay its debts as they mature and (iii) the Borrower will not have unreasonably small capital for the business in which the Borrower and its Subsidiaries are engaged. 2 Terms used herein and not defined herein have the meanings assigned to them in the Credit Agreement. __________________ Name: Title: [Closing Date] 3 EXHIBIT D-1 [LETTERHEAD OF GIBSON, DUNN & CRUTCHER] March 1, 1995 To: The Lenders Party to the Credit Agreement referred to herein, and Bank of America NT&SA Bankers Trust Company Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Collateral Agent Re: Credit Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc., the Lenders, the Arranging Agents and the Administrative Agent --------------------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to National Medical Enterprises, Inc., a Nevada corporation ("NME"), and N.M.I. International (Cayman) Limited, a Cayman Islands company ("NME (Cayman)" and, together with NME, the "Corporations"), in connection with the Credit Agreement dated as of February 28, 1995 (the "Credit Agreement") among NME, the Lenders party thereto, Bank of America NT & SA, Bankers Trust Company, Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. This opinion is delivered pursuant to Section 3.01(xiv) of the Credit Agreement. In rendering this opinion, we have examined originals or copies certified or otherwise identified to our satisfaction as being true copies of the following documents and instruments: (a) the Credit Agreement, including the Exhibits and Schedules thereto; (b) the Notes; (c) the Security Agreement; (d) the Financing Statement on Form UCC-1 naming NME, as debtor, and the Collateral Agent, as agent for the Secured Parties, as secured party, covering the Collateral, which we have been advised was filed in the office of the Secretary of State of California on February __, 1995; (e) a certificate of even date herewith of the corporate secretary of each Corporation as to resolutions, incumbency of certain officers of such Corporation and the form of articles or certificate of incorporation and by-laws of such Corporation in effect on the date hereof; (f) certificates of even date herewith executed by officers of each Corporation setting forth or certifying certain factual matters; and (g) a certificate of recent date of the Secretary of State of Nevada as to the legal existence of NME in good standing under the laws of Nevada. The documents referred to in Items (a) through (c) are sometimes referred to herein collectively as the "Financing Documents". We have, with your permission, assumed, without independent investigation or inquiry with respect to any such matter, that: (a) NME is a validly existing corporation in good standing under the laws of the State of Nevada. NME (Cayman) is a validly existing company in good standing under the laws of the Cayman Islands. Each Corporation has requisite corporate power and authority to own and operate its properties, to conduct its business in the manner in which it presently is conducted, and to execute, deliver and perform its obligations under each of the Financing Documents to which it is party. (b) Each of the Financing Documents to which either Corporation is party has been duly authorized by all necessary corporate action on the part of such Corporation. Each of the Financing Documents to which either Corporation is party has been duly executed and delivered on behalf of such Corporation. (c) Each Lender, the Administrative Agent and the Collateral Agent each has all requisite power and authority to execute, deliver and perform its obligations under each of the Financing Documents to which it is a party; the execution and 2 delivery of such Financing Documents and performance of such obligations have been duly authorized by all necessary action on the part of such Lender, the Administrative Agent and the Collateral Agent; and each of such Financing Documents is the legal, valid and binding obligation of such Lender, the Administrative Agent or the Collateral Agent, enforceable against it in accordance with its terms. (d) The execution and delivery of the Financing Documents by each Lender, the Administrative Agent and the Collateral Agent and performance by each of them of their respective obligations thereunder comply with all laws and regulations that are applicable to such Lender, the Administrative Agent or the Collateral Agent or the transactions contemplated by the Financing Documents because of the nature of their respective businesses (PROVIDED that the assumption stated in this subparagraph (d) does not relate to any matter as to which we expressly state our opinion herein). (e) The signatures on all documents examined by us are genuine, and all individuals executing such documents were thereunto duly authorized. (f) The documents submitted to us as originals are authentic and the documents submitted to us as certified or reproduction copies conform to the originals. With respect to questions of fact material to the opinions expressed below, we have, with your consent, relied upon certificates of public officials and officers of each Corporation, in each case without having independently verified the accuracy or completeness thereof. With respect to any opinion herein in regard to the existence or absence of facts that is stated to be to our actual knowledge, such statement means that, during the course of our representation of the Corporations, no information has come to the attention of the lawyers in our Firm participating in such representation that has given them actual knowledge of facts contrary to the existence or absence of the facts indicated. No inference as to our knowledge of the existence or absence of such facts should be drawn from our representation of the Corporations. Based upon the foregoing, and subject to the qualifications, exceptions, limitations and assumptions hereinafter set forth, we are of the opinion that: 1. Each of the Financing Documents to which either Corporation is party constitutes the legal, valid and binding 3 obligation of such Corporation, enforceable against such Corporation in accordance with its terms. 2. No consent, approval or authorization of, and no registration, declaration or filing with any administrative, governmental or other public authority is required under the laws of the United States of America or the State of New York which, in our experience, are generally applicable to transactions of the type contemplated by the Financing Documents, or under the Nevada General Corporation Law, to be obtained or made in connection with the execution, delivery and performance by either Corporation, or for the validity or enforceability against such Corporation, of any of the Financing Documents to which it is party. 3. Neither the execution and delivery by either Corporation of the Financing Documents to which it is party, the performance by such Corporation of its obligations thereunder nor the consummation of the transactions contemplated thereby constitutes or will constitute a violation of any laws of the United States of America or the State of New York which, in our experience, are generally applicable to transactions of the type contemplated by the Financing Documents, or under the Nevada General Corporation Law or the California Corporations Code, or, to our actual knowledge, of any order of any court or governmental authority that is applicable to such Corporation. 4. Neither of the Corporations is an "investment company" or a Person directly or indirectly "controlled" by or "acting on behalf of" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Neither of the Corporations is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 5. Neither the making of the Loans on the Closing Date pursuant to, nor the application of the proceeds of the Loans in accordance with, the Credit Agreement will violate Regulation G, U or X promulgated by the Board of Governors of the Federal Reserve System. 6. Upon delivery to the Collateral Agent of stock certificates representing the Pledged Stock (as defined in the Security Agreement) listed in Schedule I to the Security Agreement, the security interest in such Pledged Stock granted by NME or NME (Cayman), as the case may be, in the Security Agreement to the Collateral Agent, for the benefit of the Secured Parties (as defined in the Security Agreement), to secure the Secured Obligations (as defined in the Security Agreement), will constitute a valid security interest therein under New York law, 4 and will be perfected under, and prior in right to all other security interests therein created under and the priority of which is governed by, Articles 8 and 9 of the Uniform Commercial Code as in effect in New York (the "New York UCC"). 7. Upon delivery to the Collateral Agent of the Instrument (as defined in the Security Agreement) listed in Schedule I to the Security Agreement (the "Pledged Instrument"), the security interest in such Instrument granted by NME in the Security Agreement to the Collateral Agent, for the benefit of the Secured Parties, to secure the Secured Obligations, will constitute a valid security interest therein under New York law, and will be perfected under, and prior in right to all other security interests therein created under and the priority of which is governed by, Article 9 of the New York UCC. 8. The Security Agreement is effective to create in favor of the Collateral Agent, on behalf of the Secured Parties, valid security interests in the interest of NME in the Borrower Collateral (as defined in the Security Agreement) and in the interest of NME Corp. in the NMEC Collateral (as defined in the Security Agreement), in each case to the extent that a security interest can be created therein under the New York UCC. A security interest can be created in the Collateral under the New York UCC to the extent that the Collateral is comprised of "general intangibles" within the meaning of the New York UCC. The occurrence of the Closing Date and the filing and proper indexing of the Financing Statement in the office of the Secretary of State of California resulted in the perfection of such security interest in Collateral comprised of "general intangibles". Each of the opinions set forth above is subject to the following exceptions, qualifications, limitations and assumptions: (a) Our opinions are subject to the effect of bankruptcy, insolvency, reorganization, moratorium, arrangement or other similar laws affecting enforcement of creditors' rights generally, including, without limitation, the effect of statutory or other laws regarding fraudulent conveyances or transfers, preferential transfers, and of laws affecting distributions by corporations to stockholders. (b) Our opinions are subject to the application of general principles of equity, whether considered in a case or proceeding at law or in equity, including, without limitation, concepts or materiality, reasonableness, good faith and fair dealing. 5 (c) Our opinions are subject to the qualifications that indemnification provisions in any of the Financing Documents may be unenforceable to the extent that such indemnification may be held to be in violation of or against public policy. (d) Our opinions set forth in Paragraph 1 hereof are subject to the following qualifications: (A) the Collateral Agent may not be entitled to vote the Pledged Stock or to receive dividends or other distributions directly from the issuer thereof prior to becoming the record holder of the Pledged Stock; (B) none of the Pledged Stock may be sold or further transferred by the Collateral Agent without registration under the Securities Act of 1933, except pursuant to an exemption from registration contained in such Act, and qualification or exemption from qualification under any applicable state securities or blue sky laws; and (C) we express no opinion on any provision relating to indemnification or contribution relating to any claims made under the federal securities laws or state securities or Blue Sky laws. (e) We call to your attention that, subject to Section 8-321(2) of the New York UCC, the Collateral Agent's security interest in any additional shares issued in respect of the Pledged Stock listed on Schedule I to the Security Agreement or payments or other distributions in respect of such Pledged Stock or the Pledged Instrument will be perfected (and, in the case of such additional shares, will be enforceable) only upon delivery thereof to the Collateral Agent. (f) We have assumed, for purposes of our opinions expressed in Paragraphs 6 and 7 hereof, (i) with respect to the Pledged Stock, (A) that the Pledge Stock was delivered to the Collateral Agent endorsed by, or together with stock powers executed by, the pledgor to the Collateral Agent or in blank and (B) that the Collateral Agent, on behalf of the Secured Parties, has taken its security interest in the Pledged Stock for value and in good faith, without the Collateral Agent or any Secured Party having, at the time of delivery thereof to the Collateral Agent, notice or actual knowledge of any adverse claim thereto by, or any interest therein of, any Person other than the pledgor, and therefore is a bona fide purchaser of the Pledged Stock, and (ii) with respect to the Pledged Instrument, (x) that the Pledged Instrument was delivered to the Collateral Agent endorsed by, or together with an allonge endorsement executed by, NME to the Collateral Agent and (y) the Collateral Agent is a holder in due course of the Pledged Instrument within the meaning of Section 3-302 of the New York UCC. (g) We have assumed that the Collateral Agent obtained possession of the Pledged Stock and the Pledged Instrument in the State of New York. 6 (h) We have assumed that no agreement exists that postpones attachment of, or modifies, releases or terminates, the Collateral Agent's security interests in any Collateral or that would expand, modify or otherwise affect the respective rights and obligations of the parties to the Financing Documents. (i) Our opinions are subject to the effect of Section 9-311 of the New York UCC which provides that a pledgor's rights in collateral may be voluntarily or involuntarily transferred notwithstanding a provision in a security agreement prohibiting any transfer or making the transfer constitute a default. Furthermore, the opinions herein expressed are subject to the qualification that we express no opinion as to: (a) We express no opinion as to the effectiveness of any waiver of rights of, or duties owing to, any Corporation as a matter of law (including, without limitation, Section 9-501(3) of the New York UCC) or that relates to unknown future rights or is broadly or vaguely stated or does not describe the right or duty purportedly waived or to which such consent relates with reasonable specificity. (b) The legality, validity, binding effect or enforceability of any provision of any Financing Document that purports (i) to permit the Collateral Agent or any other Person to sell or otherwise dispose of any Collateral subject thereto, except in compliance with applicable law, or (ii) to impose on the Collateral Agent standards for the care of Collateral in the Collateral Agent's possession other than as provided in Section 9-207 of the New York UCC. We call to your attention that Section 9-504(3) of the New York UCC includes requirements for notice in connection with a private sale or other disposition of Collateral as well as a public sale, unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold in a recognized market. (c) Perfection or priority of any security interest in any Collateral other than as expressly set forth in Paragraphs 6, 7 and 8. We call to your attention that (i) Article 9 of the Uniform Commercial Code generally requires the filing of continuation statements within the period of six (6) months prior to the expiration of five (5) years from the date of the original filing of a financing statement, and each five-year anniversary thereof, in order to maintain the effectiveness of such financing statement; and (ii) perfection of security interests generally will be terminated under the Uniform Commercial Code (A) as to any collateral acquired by a debtor more than four (4) months after the debtor changes its name, identity or corporate 7 structure so as to make the filed financing statements seriously misleading, unless financing statements indicating the new name, identity, or corporate structure of the debtor are properly filed before the expiration of such four (4) month period, and (B) as to any collateral consisting of, among other things, "general intangibles", as defined in the Uniform Commercial Code, four (4) months after a debtor changes the jurisdiction of its chief executive office (which, for purposes of our opinion expressed in Paragraph 8, we have assumed to be located in California) (or, if earlier, when perfection would have ceased as set forth in clause (i) above) unless such security interests are perfected in such new jurisdiction before that termination or, under certain circumstances, after the debtor changes the place where its records are maintained to a different jurisdiction. (d) NME's or NME (Cayman)'s rights in or title to any of the Pledged Stock, the Pledged Instrument or any other Collateral. We express no opinion herein as to the enforceability of the Pledged Instrument against the maker thereof or any other Person. (e) The creation, validity, enforceability or perfection of any security interest in any item of Collateral consisting of proceeds of Collateral, or proceeds acquired with cash proceeds, except to the extent set forth in Section 9-306 of the New York UCC. This opinion is limited to the effect of (i) the laws of the United States of America and the State of New York, (ii) for purposes only of our opinion expressed in Paragraph 3 herein, the California Corporations Code, and (iii) to the limited extent set forth below, the General Corporation Law of the State of Nevada. Although we are not admitted to practice in the State of Nevada, we are generally familiar with the General Corporation Law of the State of Nevada and have made such inquiries as we consider necessary to render our opinions expressed in Paragraphs 2 and 3 hereof. This opinion relates to the present state of the laws referred to herein and, in rendering this opinion, we assume no obligation to revise or supplement this opinion should the present laws, or the interpretation thereof, be changed. 8 This opinion is rendered to the Administrative Agent, the Arranging Agents and the Lenders and the Collateral Agent as of the date hereof in connection with the Credit Agreement, and may not be relied upon by any other person or by them in any other context. Very truly yours, GIBSON, DUNN & CRUTCHER 9 EXHIBIT D-2 [LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM] March 1, 1995 To: The Lenders Party to the Credit Agreement referred to herein, and Bank of America NT&SA Bankers Trust Company Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Collateral Agent Re: Credit Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc., the Lenders, the Arranging Agents and THE ADMINISTRATIVE AGENT ---------------------------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to National Medical Enterprises, Inc., a Nevada corporation (the "Borrower"), and AMH Acquisition Co., a Delaware corporation and a wholly-owned subsidiary of the Borrower ("AMH Acquisition"), in connection with the Merger Agreement dated as of October 10, 1994 among the Borrower, American Medical Holdings, Inc. and AMH Acquisition. Reference is made to the Credit Agreement dated as of February 28, 1995 (the "Credit Agreement") among the Borrower, the Lenders party thereto, Bank of America NT & SA, Bankers Trust Company, Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. With respect to any opinion herein in regard to the existence or absence of facts that is stated to be to our actual knowledge, such statement means that, during the course of our representation of the Corporations, no information has come to the attention of the lawyers in our Firm participating in such representation that has given them actual knowledge of facts contrary to the existence or absence of the facts indicated. No inference as to our knowledge of the existence or absence of such facts should be drawn from our representation of the Corporations. Based upon the foregoing, and subject to the qualifications, exceptions, limitations and assumptions hereinafter set forth, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Merger Agreement and the consummation of the Acquisition are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower. 2. The execution, delivery and performance by AMH Acquisition of the Merger Agreement and the consummation by AMH Acquisition of the Merger are within AMH Acquisition's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (other than the filing of the certificate of merger referred to in Paragraph 4 below) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of AMH Acquisition or, to the best of our knowledge, of any agreement, judgment, injunction, order, decree or other instrument binding upon AMH Acquisition. 3. The Merger Agreement constitutes a valid and binding agreement of each of the Borrower and AMH Acquisition, in each case enforceable against it in accordance with its terms. 4. No consents or approvals of, or filings and registrations with, or any other actions in respect of, any governmental agencies, authorities or instrumentalities are 2 required on the part of the Borrower or AMH Acquisition in order to effect the Merger under applicable law, including the Delaware General Corporation Law (the "DGCL"), other than the filing by AMH Acquisition of a certificate of merger in conformance with the requirements of and pursuant to Section 251 of the DGCL. AMH Acquisition has duly executed, acknowledged and filed with the Secretary of State of Delaware in accordance with the requirements of Section 103 of the DGCL a certificate of merger that conforms to the requirements of Section 251 of the DGCL and the Merger has become effective in accordance with the DGCL. Each of the opinions set forth above is subject to the following exceptions, qualifications, limitations and assumptions: (a) Our opinions are subject to the effect of bankruptcy, insolvency, reorganization, moratorium, arrangement or other similar laws affecting enforcement of creditors' rights generally, including, without limitation, the effect of statutory or other laws regarding fraudulent conveyances or transfers, preferential transfers, and of laws affecting distributions by corporations to stockholders. (b) Our opinions are subject to the applications of general principles of equity, whether considered in a case or proceeding at law or in equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. (c) Our opinions are subject to the qualification that indemnification provisions in the Merger Agreement Documents may be unenforceable to the extent that such indemnification may be held to be in violation of or against public policy. This opinion is limited to the effect of the present state of the laws of (i) the United States of America and the State of New York, and (ii) to the limited extent set forth below, the General Corporation Laws of the States of Nevada and Delaware. Although we are not admitted to practice in the States of Nevada or Delaware, we are generally familiar with the General Corporation Laws of the States of Nevada and Delaware and have made such inquiries as we consider necessary to render our opinions expressed in Paragraph 1 hereof. In rendering this opinion, we assume no obligation to revise or supplement this opinion should the present laws, or the interpretation thereof, be changed. This opinion is rendered to the Administrative Agent, the Arranging Agents and the Lenders and the Collateral Agent as of the date hereof in connection with the Credit Agreement, and may not be relied upon by any other person or by them in any other 3 context, and may not be furnished to any other person or entity without our prior written consent, PROVIDED that each Lender may provide this opinion (i) to bank examiners and other regulatory authorities should they so request or in connection with their normal examination, (ii) to the independent auditors and attorneys of such Lender, (iii) pursuant to order or legal process of any court or governmental agency, and (iv) in connection with any legal action to which the Lender is a party arising out of the transactions contemplated by the Credit Agreement. Very truly yours, SKADDEN, ARPS, SLATE, MEAGHER & FLOM 4 EXHIBIT D-3 [LETTERHEAD OF MAPLES & CALDER] March 1, 1995 To: The Lenders Party to the Credit Agreement referred to herein, and Bank of America NT&SA Bankers Trust Company Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Collateral Agent Re: Credit Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc., the Lenders, the Arranging Agents and the Administrative Agent Ladies and Gentlemen: We have acted as special counsel to N.M.E. International (Cayman) Limited, a Cayman Islands company ("NME (Cayman)"). Reference is made to the Credit Agreement dated as of February 28, 1995 (the "Credit Agreement") among the Borrower, the Lenders party thereto, Bank of America NT & SA, Bankers Trust Company, Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Based upon the foregoing, we are of the opinion that: (1) NME International (Cayman) Limited is a validly existing company in good standing under the law of the Cayman Islands, with requisite corporate power and legal right (i) to own and operate its properties and conduct its business as now conducted and (ii) to execute and deliver, and perform its obligations under, the Security Agreement dates as of February 28, 1995 (the "Security Agreement") among NME, NME (Cayman) and Morgan Guaranty Trust Company of New York, as Collateral Agent [pursuant to which NME (Cayman) will pledge the Westminster stock to NME's Banks], including, without limitation, to pledge the Westminster stock owned by it to secure the Secured Obligations (as defined in the Security Agreement); (2) The execution and delivery of the Security Agreement by NME (Cayman), and performance of its obligations thereunder (including, without limitation, the pledge of the Westminster stock owned by it to secure the Secured Obligations), has been duly authorized by all necessary corporate action on the part of NME (Cayman) and, upon execution of the Security Agreement by [1 or 2] officers of NME (Cayman) then incumbent, the Security Agreement will have been duly executed by NME (Cayman); (3) No consents, approvals or authorizations by, or filings or recordings with, any governmental authority in the Cayman Islands is necessary to be obtained or made in connection with the execution and delivery by NME (Cayman) of the Security Agreement, or performance of its obligations thereunder, including, without limitation, the pledge by NME (Cayman) of Westminster stock owned by it to secure the Secured Obligations; (4) The execution and delivery by NME (Cayman) of the Security Agreement, and performance of its obligations thereunder (including, without limitation, the pledge by NME (Cayman) of Westminster stock owned by it to secure the Secured Obligations), does not violate any law, rule or regulation of the Cayman Islands or any Cayman Islands governmental or judicial order or decree of which you are aware to which NME (Cayman) is subject. 2 EXHIBIT E [LETTERHEAD OF NATIONAL MEDICAL ENTERPRISES, INC.] March __, 1995 To: The Lenders Party to the Credit Agreement referred to herein, and Bank of America NT&SA Bankers Trust Company Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Collateral Agent Ladies and Gentlemen: I am the General Counsel of National Medical Enterprises, Inc., a Nevada corporation (the "Borrower"), and have acted as such in connection with the Credit Agreement dated as of February 28, 1995 (the "Credit Agreement") among the Borrower, the Lenders party thereto, Bank of America National Trust & Savings Association, Bankers Trust Company, Morgan Guaranty Trust Company of New York and The Bank of New York, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent. This opinion is delivered to you pursuant to Section 3.01(xv) of the Credit Agreement. Terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth in the Credit Agreement, unless otherwise defined herein. In connection with this opinion, I have examined executed copies of each of the Credit Agreement (including all of the Schedules and Exhibits thereto), the Notes and the Security Agreement (together, the Loan Documents) and such corporate documents and records of the Borrower and its Subsidiaries and certificates of public officials and officers of the Borrower and its Subsidiaries, and such other documents, as I have deemed necessary or appropriate for the purposes of this opinion. In stating my opinion, I have assumed the genuineness of all signatures, and the authority of persons signing the Loan Documents on behalf of parties thereto other than the Borrower and N.M.E. International (Cayman) Limited, a Cayman Islands company and a wholly-owned Subsidiary of International-NME, Inc., which is a wholly-owned Subsidiary of the Borrower ("NME (Cayman)"), the authenticity of all documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as certified, conformed or photostatic copies. This opinion is limited to the laws of California, New York and the United States of America, and to the general corporate laws of the State of Nevada with respect to the Borrower. Based upon the foregoing, I am of the opinion that: 1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and (b) has the corporate power, authority and legal right to own or operate its properties or to lease the properties it operates and to conduct the business in which it is currently engaged. Except as could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, (x) the Borrower is duly qualified as a foreign corporation, and in good standing under the laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, and (y) each of the Borrower and its Subsidiaries is in compliance with all laws, regulations, decrees and orders applicable to the Borrower or any of its Subsidiaries (including, without limitation, laws, regulations, decrees and orders relating to environmental, occupational and health standards and controls and in respect to antitrust, monopoly, restraint of trade or unfair competition). The Borrower and its Subsidiaries have obtained all certifications, licenses, accreditations and approvals that are necessary to conduct their respective businesses. None of the Borrower or any of its Subsidiaries has received or, to the best of my knowledge, expects to receive, any order or notice of any violation or claim of violation of any law, regulation, decree, rule, judgment or order of any governmental authority or agency relating to the ownership or operation of any hospital or other facility owned or operated by it, as to which the cost of compliance or the consequences of noncompliance, individually or in the aggregate, would have a Material Adverse Effect or which would impair the ability of the Borrower or NME (Cayman) to discharge any of its obligations under any of the Loan Documents to which it is party. 2. CORPORATE POWER; AUTHORIZATION. The Borrower has the corporate power, authority and legal right to make delivery and perform the Loan Documents to which it is party and to borrow 2 and to incur reimbursement obligations with respect to letters of credit issued thereunder, and has taken all necessary corporate action to authorize the borrowings and pledge of collateral security, as the case may be, on the terms and conditions of the Loan Documents to which it is party and to authorize the execution, delivery and performance of the Loan Documents to which it is party. No consent of any other Person, and no authorization of, notice to, or other act by or in respect of the Borrower or NME (Cayman) by any governmental authority, agency or instrumentality is required in connection with the borrowings or reimbursement obligations, or pledge, as the case may be, thereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents. Each of the Borrower and NME (Cayman) has duly executed and delivered each Loan Document to which it is party. 3. NO LEGAL BAR. The execution, delivery and performance by each of the Borrower and NME (Cayman) of the Loan Documents to which it is party, the borrowings, or pledge, as the case may be, thereunder and the use of the proceeds of such borrowings and the use of letters of credit issued thereunder will not violate (except to the extent that such violation, if any, would not have a Material Adverse Effect) any provision of any existing law or regulation applicable to the Borrower or any of its Subsidiaries or of any award, order or decree applicable to the Borrower or any of its Subsidiaries known to me (after due inquiry) of any court, arbitrator or governmental authority, or of the articles of incorporation or By-Laws of the Borrower or, to the best of my knowledge (after due inquiry), of any security issued by the Borrower or of any material mortgage, indenture, lease, contract or other agreement or undertaking to which the Borrower or NME (Cayman) is a party or by which the Borrower or NME (Cayman) or any of their respective properties oar assets may be bound, and will not result in or require the creation or imposition of any Lien prohibited by the Credit Agreement on any of their respective properties or revenues pursuant to the provisions of any such mortgage, indenture, contract, lease or other agreement or other undertaking. 4. NO MATERIAL LITIGATION. To the best of my knowledge, after due inquiry, there are no pending or threatened actions, suits, proceedings or investigations against the Borrower's or any other of its Subsidiaries in any court or by or before any arbitrator or governmental authority in which there is a reasonable possibility of an adverse determination that could reasonably be expected to have a Material Adverse Effect or that call into question the validity of the Loan Documents. For purposes of the preceding sentence, I have assumed that, in medical malpractice actions now pending or threatened against the Borrower and its Subsidiaries, damages would be assessed consistent with the Borrower's past experience. The past 3 experience of the Borrower has been that damages assessed in such suits have been adequately covered by insurance. In rendering the opinions set forth in this paragraph 4, I have not conducted a search of any federal or state court docket. My inquiry has been limited to consultation with counsel representing the Borrower and its Subsidiaries in litigation matters. 5. CAPITAL STOCK. The Pledged Stock (as defined in the Security Agreement) included in the Borrower Collateral (as defined in the Security Agreement) constitutes all of the issued and outstanding shares of capital stock of the issuer thereof, and has been duly authorized and validly issued and is fully-paid and nonassessable and, to the best of my knowledge, is not subject to options or rights to purchase of any Person. The Borrower owns the Pledged Stock included in the Borrower Collateral and NME (Cayman) owns the Pledged Stock included in the NME Cayman Collateral (as defined in the Security Agreement), in each case free and clear, to the best of my knowledge, of any adverse claim thereto. This opinion may be relied upon only by the Administrative Agent, the Arranging Agents, the Lenders and the Collateral Agent and their successors and assigns in connection with the transactions contemplated by the Credit Agreement, and no other Person shall be entitled to rely on this opinion without my express written consent. This opinion is rendered to the Administrative Agent, the Arranging Agents, the Lenders and the Collateral Agent as of the date hereof in connection with the Credit Agreement, and may not be relied upon by any other person or by them in any other context. Scott M. Brown General Counsel 4 EXHIBIT F OPINION OF COUNSEL FOR AM HOLDINGS To the Lenders, the LC Issuing Banks, the Administrative Agent and the Collateral Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Administrative Agent 60 Wall Street New York, New York 10260 Dear Sirs: I have acted as counsel for American Medical Holdings, Inc., a Delaware corporation ("AM Holdings") and its subsidiaries, including American Medical International, Inc., a Delaware corporation ("AMI"), and am rendering this opinion in connection with the $2,300,000,000 Credit Agreement (the "Credit Agreement") dated as of February 28, 1995 among National Medical Enterprises, Inc., the lenders party thereto (including certain lenders in their capacities as LC Issuing Banks), Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company as Arranging Agents, and Morgan Guaranty Trust Company of New York as Administrative Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of my clients pursuant to Section 3.01(xvi) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. Immediately prior to giving effect to the consummation of the Merger, each of AM Holdings and AMI was a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. 2. After giving effect to the consummation of the Merger, each of AM Holdings and AMI is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 3. The execution, delivery and performance by AM Holdings of the Merger Agreement and the consummation of the Merger are within AM Holdings's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (other than the filing of the certificate of merger with respect to the Merger) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of AM Holdings or of any agreement, judgment, injunction, order, decree or other instrument binding upon AM Holdings or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of AM Holdings or any of its Subsidiaries. 4. The Merger Agreement constitutes a valid and binding agreement of AM Holdings enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 5. No consents or approvals of, or filings and registrations with, or any other actions in respect of, any governmental agencies, authorities or instrumentalities are required on the part of AM Holdings in order to effect the Merger under applicable law, including the Delaware General Corporation Law (the "DGCL"), other than the filing by AM Acquisition Co. of a certificate of merger in conformance with the requirements of and pursuant to Section 251 of the DGCL. 6. Except as described in Schedule 4.06 to the Credit Agreement, immediately prior to the consummation of the Merger, there is no action, suit or proceeding pending against, or to my knowledge threatened against, AM Holdings or any of its Subsidiaries or any of their respective properties, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of any of the Financing Documents. 2 EXHIBIT G OPINION OF DAVIS POLK & WARDWELL SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT To the Lenders, the LC Issuing Banks and the Administrative Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Administrative Agent 60 Wall Street New York, New York 10260 Ladies and Gentlemen: We have participated in the preparation of the $2,300,000,000 Credit Agreement dated as of February 28, 1995 (the "Credit Agreement") among National Medical Enterprises, Inc., a Nevada corporation, the lenders party thereto (including certain lenders in their capacities as LC Issuing Banks), Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent, and have acted as special counsel for the Administrative Agent for the purpose of rendering this opinion pursuant to Section 3.01(xvii) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by 1 bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 2. The Security Agreement is in substantially acceptable legal form under the laws of the State of New York. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. Insofar as the foregoing opinions involve matters governed by the laws of any other jurisdiction, we have relied, with your permission and without independent investigation, upon the opinions of Gibson, Dunn & Crutcher, Maples & Calder and Scott Brown, Esq., respectively, each dated the date hereof, a copy of each of which has been delivered to you, and we have assumed, without independent investigation, the correctness of the matters set forth in each such opinion, our opinion being subject to the qualifications and limitations set forth in each such opinion with respect thereto. In addition, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Lender is located which limits the rate of interest that such Lender may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other Person without our prior written consent. Very truly yours, 2 EXHIBIT H ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), NATIONAL MEDICAL ENTERPRISES, INC. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement relates to the Credit Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc., the Lenders party thereto, Morgan Guaranty Trust Company of New York Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent (as amended from time to time, the "Credit Agreement"); [WHEREAS, Term Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof]; [WHEREAS, as provided under the Credit Agreement, the Assignor has an unused Term Commitment to make additional Term Loans to the Borrower in an aggregate principal amount not to exceed $__________;] [WHEREAS, as provided under the Credit Agreement, the Assignor has a Revolving Credit Commitment in the amount of $_______________, under which the Assignor has Outstanding Revolving Credit Amounts in the aggregate amount of $___________ at the date hereof]; [WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a pro-rata portion of each of its Term Loans [and its unused Term Commitment] in an amount equal to $__________ (the "Term Assigned Amount"), and the Assignee proposes to accept such assignment of such rights and assume the corresponding obligations from the Assignor;] [WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Revolving Credit Commitment in an amount equal to $__________ (the "Revolving Credit Assigned Amount"), together with a corresponding portion of each of its Outstanding Revolving Credit Amounts, and the Assignee proposes to accept such assignment of such rights and assume the corresponding obligations from the Assignor;] NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Credit Agreement. SECTION 2. ASSIGNMENT. [The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement with respect to its Term Loans [and unused Term Commitment] to the extent of the Term Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Term Assigned Amount, including the purchase from the Assignor of a pro-rata portion of the principal amount of each of the Term Loans of the Assignor outstanding at the date hereof.] [The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement with respect to its Revolving Credit Commitment to the extent of the Revolving Credit Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Revolving Credit Assigned Amount, including the purchase from the Assignor of a pro-rata portion of the principal amount of each Outstanding Revolving Credit Amount of the Assignor outstanding at the date hereof.] Upon the execution and delivery hereof by the Assignor, the Assignee[, the Borrower, the LC Issuing Banks and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof [(i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Term Lender under the Credit Agreement with outstanding Term Loans [and an unused Term Commitment] in an aggregate amount equal to the Term Assigned Amount, [(ii) the unused Term Commitment of the Assignor shall, as of the date hereof, be correspondingly reduced and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee], [(iii) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Revolving Credit Lender under the Credit Agreement with a Revolving Credit 2 Commitment in an amount equal to the Revolving Credit Assigned Amount, (iv) the Revolving Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee]. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. PAYMENTS. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.*** It is understood that commitment fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. CONSENT OF THE BORROWER [,THE LC ISSUING BANKS] AND THE ADMINISTRATIVE AGENT. This Agreement is conditioned upon the consent of the Borrower [,the LC Issuing Banks] and the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver one or more Notes payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition or statements of the Borrower, the existence or value of the Collateral or the validity and enforceability of the obligations of the Borrower in respect of any Financing Document. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the _________________________ ***Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 3 Borrower. SECTION 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 4 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By ------------------------- Title: [ASSIGNEE] By -------------------------- Title: The undersigned consent to the foregoing assignment: NATIONAL MEDICAL ENTERPRISES, INC. By -------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By -------------------------- Title: [LC ISSUING BANKS] By -------------------------- Title: 5 EXHIBIT I EXISTING LETTERS OF CREDIT
Date Letter LC Date of of of Face Issuer Issuance Expiration Credit Number Beneficiary Amount Description ------ -------- ---------- ------------- ----------- ------ ----------- CHEMICAL 08/23/93 04/01/95 T-216691 AHE of Irvine $7,500,000.00 Irvine REIT Lease CHEMICAL 08/20/93 03/01/95 T-216706 AMSouth Bank 3,000,000.00 Brkwd MOB Construction Collateral CHEMICAL 08/26/93 03/01/95 T-216859 City PBG 123,200.00 PBG City Construction Collateral CHEMICAL 09/03/93 07/26/95 T-216692 Self-Insurance Plans 8,000,000.00 Work Comp - California State of California (2,260,000.00) Reduction 4/21/94 ------------- 5,740,000.00 CHEMICAL 09/14/93 01/29/95 T-216762 Workmen's Compensation 750,000.00 Work Comp - Alabama Division - Alabama CHEMICAL 08/18/93 02/12/95 T-216650 National Union Fire 14,000,000.00 1988-1993 Zero Balance Ins. Co. of Pittsburg, (500,000.00) 1/18 Reduction ------------- PA 13,500,000.00 Indemnity Work Comp and 94 yr projection CHEMICAL 05/19/94 05/19/95 T-229881 Memphis Light, Gas & 653,330.00 St. Francis Utility Water Deposit NATIONSBANK 10/07/94 09/30/95 142637 St of FL W/C 500,000.00
EX-10.(B) 6 EXHIBIT 10(B) CONFORMED COPY $91,350,000 AMENDED AND RESTATED LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT Dated as of February 28, 1995 among NATIONAL MEDICAL ENTERPRISES, INC., as Account Party, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION THE BANK OF NEW YORK BANKERS TRUST COMPANY and MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Banks, and THE BANK OF NEW YORK as Issuing Bank TABLE OF CONTENTS PAGE ARTICLE I. DEFINITIONS SECTION 1.01. Definitions................................ 3 SECTION 1.02. Certain Usages............................. 9 SECTION 1.03. Interpretation............................. 10 ARTICLE II. LETTER OF CREDIT FACILITY; PAYMENT SECTION 2.01. The Letters of Credit...................... 10 ARTICLE III. FEES; PAYMENTS; COMPUTATIONS SECTION 3.01. Fees....................................... 17 ARTICLE IV. REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Power; Authorization; Enforceable Obligations................................ 19 SECTION 4.02. Incorporation By Reference................. 20 ARTICLE V. CONDITIONS PRECEDENT SECTION 5.01. Conditions to Amendment and Restatement.... 20 SECTION 5.02. Conditions to Extensions of Letters of Credit..................................... 23 ARTICLE VI. COVENANTS SECTION 6.01. Incorporation By Reference................. 24 SECTION 6.02. Use of Proceeds, Ineligible Securities..... 25 ARTICLE VII. EVENTS OF DEFAULT SECTION 7.01. Events of Default.......................... 25 i PAGE ARTICLE VIII. THE ISSUING BANK SECTION 8.01. Appointment and Authorization.............. 27 SECTION 8.02. Issuing Bank and Affiliates................ 28 SECTION 8.03. Action by Issuing Bank..................... 28 SECTION 8.04. Consultation with Experts.................. 28 SECTION 8.05. Liability of Issuing Bank.................. 28 SECTION 8.06. Indemnification............................ 29 SECTION 8.07. Credit Decision............................ 29 SECTION 8.08. Issuing Bank's Fee......................... 29 ARTICLE IX. THE COLLATERAL AGENT SECTION 9.01. Appointment and Authorization.............. 30 SECTION 9.02. Collateral Agent and Affiliates............ 30 SECTION 9.03. Action by Collateral Agent................. 30 SECTION 9.04. Consultation with Experts.................. 30 SECTION 9.05. Liability of Collateral Agent.............. 30 ................................................................. 31 SECTION 9.06. Successor Collateral Agent................. 31 ARTICLE X. CHANGE IN CIRCUMSTANCES SECTION 10.01. Illegality................................. 31 SECTION 10.02. Taxes...................................... 32 SECTION 10.03. Capital Adequacy........................... 34 SECTION 10.04. Issuing Bank as Bank....................... 35 ARTICLE XI. MISCELLANEOUS SECTION 11.01. Notices.................................... 35 SECTION 11.02. No Waivers................................. 35 SECTION 11.03. Expenses; Indemnification.................. 36 SECTION 11.04. Sharing of Set-Offs........................ 36 SECTION 11.05. Amendments and Waivers..................... 37 SECTION 11.06. Successors and Assigns..................... 38 SECTION 11.07. Collateral................................. 40 SECTION 11.08. Governing Law; Submission to Jurisdiction.. 40 SECTION 11.09. Counterparts; Integration.................. 40 SECTION 11.10. WAIVER OF JURY TRIAL....................... 41 ii EXHIBIT A - FORM OF SERIES A LETTER OF CREDIT EXHIBIT B - FORM OF SERIES B LETTER OF CREDIT EXHIBIT C - AMENDMENT OF SERIES A LETTER OF CREDIT EXHIBIT D - AMENDMENT OF SERIES B LETTER OF CREDIT EXHIBIT E - SECURITIES PLEDGE AND SECURITY AGREEMENT EXHIBIT F - OFFICER'S CERTIFICATE AS TO CONTINUED ACCURACY OF REPRESENTATIONS AND NO DEFAULT EXHIBIT G - OPINION OF SPECIAL COUNSEL TO THE COMPANY EXHIBIT H - OPINION OF INTERNAL COUNSEL TO THE COMPANY EXHIBIT I - OPINION OF SPECIAL CAYMAN ISLANDS COUNSEL TO NME INTERNATIONAL (CAYMAN) LIMITED iii AMENDED AND RESTATED LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT AGREEMENT dated as of February 28, 1995 among NATIONAL MEDICAL ENTERPRISES, INC., as account party (the "COMPANY"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, THE BANK OF NEW YORK, BANKERS TRUST COMPANY and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Banks, and THE BANK OF NEW YORK, as the Issuing Bank. BACKGROUND On December 21, 1989, the Company, by and through its wholly owned subsidiary NME Hospitals, Inc. ("HOSPITALS"), requested Metrocrest Hospital Authority ("MHA") to refinance certain existing bonds of MHA, dated as of August 1, 1982 (the "PRIOR BONDS"), issued pursuant to that certain Indenture of Mortgage and Deed of Trust, dated as of August 1, 1982, providing for the issuance of up to $68,000,000 in Prior Bonds, to finance the cost of the premium paid to redeem the Prior Bonds, and to finance a portion of the cost of acquiring, constructing, improving, maintaining and equipping certain hospital facilities known as the RHD Memorial Medical Center and the Trinity Medical Center owned by MHA and constructing a parking garage and medical office building at the RHD Memorial Medical Center (the "PROJECT"). MHA elected to accomplish such financing and refinancing of the Prior Bonds and financing of the Project through the issuance of the Bonds pursuant to the terms of that certain Indenture of Mortgage and Deed of Trust, dated as of December 1, 1989, as amended and restated pursuant to the Amended and Restated Indenture of Mortgage and Deed of Trust, dated as of November 1, 1994 (as the same may be further amended, modified or supplemented from time to time, the "INDENTURE"). Hospitals and MHA entered into that certain Fourth Amendment and Restatement of Lease Agreement, dated as of December 21, 1989, as amended and restated pursuant to the Fifth Amendment and Restatement of Lease Agreement, dated as of November 1, 1994 (as the same may be further amended, modified or supplemented from time to time, the "LEASE AGREEMENT"), providing for the lease by Hospitals of the RHD Memorial Medical Center and the Trinity Medical Center, as described in the Lease Agreement. The interest of Hospitals in and to the Lease Agreement has been assigned by Hospitals to NME Hospitals Dallas, Inc. (a Delaware corporation wholly owned by Hospitals (the "LESSEE")). The obligations of the Lessee under the Lease Agreement were unconditionally guaranteed by the Company and Hospitals pursuant to the terms of that certain Second Amendment and Restatement of Lease Guaranty, dated as of December 21, 1989, as amended and restated pursuant to the Third Amendment and Restatement of Lease Guaranty, dated as of November 1, 1994 (as the same may be further amended, and the Guaranty of Lease Obligations of even date therewith as each may be modified or supplemented from time to time, collectively the "LEASE GUARANTY") executed by the Company and Hospitals. In connection with the foregoing, the Company and The Sanwa Bank Limited, acting through its Dallas agency ("Sanwa"), entered into that certain Letter of Credit and Reimbursement Agreement, dated as of December 21, 1989 wherein Sanwa agreed to issue, upon the terms and conditions set forth therein, its direct pay letters of credit (the "SANWA LETTERS OF CREDIT") to provide for the payment of the Bonds. MHA and Texas Commerce Bank National Association (as trustee under the Indenture, the "TRUSTEE") have entered into the amendment and restatement of the Indenture referred to above. Contemporaneously therewith, the Company requested, and MHA consented to, the substitution of the Sanwa Letters of Credit with the Letters of Credit (as hereinafter defined), which were issued by the Issuing Bank under the $91,350,000 Letter of Credit and Reimbursement Agreement dated as of November 1, 1994 among the Company as Account Party, the Banks and the Issuing Bank (as amended prior to the Closing Date (as hereinafter defined), the "ORIGINAL AGREEMENT") and the Company and Hospitals entered into the Third Amendment and Restatement of Lease Guaranty to guarantee payment of the "Lease Obligations" as defined therein. Prior to the Closing Date, the Company will enter into a $2,300,000,000 Credit Agreement dated as of February 28, 1995 among the Company, the lenders party thereto, Morgan Guaranty Trust Company of New York, Bank of America National Trust and Savings Association, The Bank of New York and Bankers Trust Company, as Arranging Agents, and Morgan Guaranty Trust Company of New York, as Administrative Agent (the "Morgan Credit Agreement"). The Company has requested that the Original Agreement be amended and restated in its entirety as provided herein and that the Letters of Credit be amended to refer to this Agreement as so amended and restated, and the Issuing Bank and the other Banks are willing to do so, on the terms and conditions set forth herein; - 2 - NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "ACCURATE AND COMPLETE" means, when referring to any representation and warranty, that such representation and warranty is true in all material respects and that the Company, or MHA, as the case may be, has not failed to disclose to the Banks in writing any fact which if not disclosed to the Banks would make the facts actually stated materially misleading. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Issuing Bank and submitted to the Issuing Bank, with a copy to the Company, duly completed by such Bank. "AFFILIATE" means, as to any Person, any Person directly or indirectly controlling, controlled by or under common control with such Person, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" means the Original Agreement as originally executed, as amended and restated as set forth herein and as the same may be further amended, restated, supplemented or otherwise modified from time to time. "ALTERNATE BASE RATE" means, on any date, a rate of interest per annum equal to the higher of (i) the BNY Rate in effect on such date or (ii) 1/2 of 1% plus the Federal Funds Rate in effect on such date. "APPLICABLE CREDIT OFFICE" means, with respect to any Bank, its office located at its address set forth in its Administrative Questionnaire or such other office as such Bank may hereafter designate as its Applicable Credit Office by notice to the Company and the Issuing Bank. "ASSIGNEE" has the meaning set forth in Section 11.06(c). "BANK" means each bank listed on the signature pages - 3 - hereof, each Assignee which becomes a Bank pursuant to Section 11.06(c), and their respective successors. "BNY RATE" means a rate of interest per annum equal to the rate of interest publicly announced from time to time in New York City by the Issuing Bank as its prime commercial lending rate, such rate to be adjusted automatically (without notice) on the effective date of any change in such publicly announced rate. "BOND DOCUMENT" has the meaning set forth in Section 7.01(g) hereof. "BONDS" mean the Series A Bonds and the Series B Bonds (as hereinafter described) authenticated and delivered under the Indenture and the Remarketing Agreement and any additional bonds authenticated and issued under the Indenture after the date hereof. The "SERIES A BONDS" shall mean the Bonds in the aggregate principal amount on the date hereof of $68,600,000, maturing on August 1, 2007, the proceeds of which were used to redeem the Prior Bonds, to finance the cost of the premium paid to redeem the Prior Bonds, and, to the extent of any remaining Series A Bond proceeds, to pay the costs and expenses associated with the issuance of the Bonds. The "SERIES B BONDS" shall mean the Bonds in the maximum aggregate principal amount on the date hereof of $22,750,000, maturing on August 1, 2008, the proceeds of which were used to finance a portion of the Project and to pay any remaining costs and expenses associated with the issuance of the Bonds that were not paid out of the Series A Bond proceeds. "BUSINESS DAY" means any day other than (1) a Saturday or a Sunday or (2) a legal holiday or the equivalent on which banking institutions generally are authorized or required to close in New York, New York or in the city in which is located (a) the principal corporate trust office of the Trustee, the Tender Agent or the Remarketing Agent or (b) the office of the Issuing Bank or of its agent at which drafts or claims for payment under the Letters of Credit are to be presented, or (3) a day on which the New York Stock Exchange is closed. "CLOSING DATE" means the date this Agreement is amended and restated in accordance with Section 5.01. - 4 - "COLLATERAL AGENT" means Morgan Guaranty Trust Company of New York, in its capacity as Collateral Agent under the Security Agreement, and its successors in such capacity. "COMMITMENT" means, with respect to each Bank, the amount set forth opposite the name of such Bank on Schedule I hereto as its Commitment, as such Commitment may be reduced from time to time. "COMPANY" means National Medical Enterprises, Inc., a Nevada corporation, and its successors. "DEFAULT" means any of the events specified in Article VII, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "EVENT OF DEFAULT" means any of the events specified in Article VII, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXTENDED AMOUNT" has the meaning set forth in Section 2.01(c) hereof. "EXTENSION DATE" has the meaning set forth in Section 2.01(l) hereof. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, PROVIDED that (i) 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 as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to The Bank of New York on such day on such transactions as determined by the Issuing Bank. "INDEMNITEE" has the meaning set forth in Section 11.03(b). - 5 - "INDENTURE" has the meaning set forth in the Background section hereof. "INELIGIBLE SECURITIES" means securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. "ISSUING BANK" means The Bank of New York in its capacity as issuer of the Letters of Credit and as agent for the Banks, and its successors in such capacity. "L/C BANK ACCOUNT" means GL Account 111115, Funds Transfer Area, Attention: Standby Letter of Credit Department, Trefik A. Antonio, Ref: L/C Nos. S00013638, S00013639, at The Bank of New York, ABA No. 021000018. "L/C PAYMENT" means any payment by the Issuing Bank under any of the Letters of Credit. "LEASE AGREEMENT" has the meaning set forth in the Background section hereof. "LEASE GUARANTY" has the meaning set forth in the Background section hereof. "LESSEE" has the meaning set forth in the Background section hereof. "LETTER OF CREDIT FEE" means the LC Fee Rate (as defined in the Morgan Credit Agreement). "LETTER OF CREDIT FRONTING FEE" means 25 basis points per annum. "LETTERS OF CREDIT" means (i) prior to the closing on the Closing Date, those two certain irrevocable direct pay letters of credit originally issued by the Issuing Bank in favor of the Trustee for the account of the Company under the Original Agreement, in the form of Exhibits A and B, respectively, and (ii) after the closing on the Closing Date, said two letters of credit as amended on the Closing Date by amendments substantially in the form of Exhibit C and Exhibit D, respectively. Said letters of credit, as originally issued and as amended from time to time, are herein referred to as the "Series A L/C" and "Series B L/C", respectively. "MARGIN STOCK" has the meaning assigned to the term - 6 - "margin stock" in subsection 221.2(h) of Regulation U of the Board of Governors of the Federal Reserve System, as the same may be amended, supplemented or modified from time to time. "MORGAN CREDIT AGREEMENT" has the meaning set forth in the Background section hereof. "OBLIGATIONS" mean any and all of the debts, obligations and liabilities of the Company provided for or arising under this Agreement (including, without limitation the Reimbursement Obligations and the obligation to pay interest thereon), whether now existing or hereafter arising, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased, extinguished and later increased, created or incurred. "ORIGINAL AGREEMENT" has the meaning set forth in the Background section hereof. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 11.06(b). "PERSON" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or other entity or a government or any agency or political subdivision thereof. "PRINCIPAL DRAWING" means a drawing (other than a Tender Drawing) under either Letter of Credit in respect of the payment of the principal of the Bonds. "PRIOR BONDS" has the meaning set forth in the Background section hereof. "PROJECT" has the meaning set forth in the Background section hereof. "PURCHASE DATE" has the meaning set forth in the Indenture. "REIMBURSEMENT OBLIGATION" means any obligation of the Company to reimburse the Issuing Bank for a drawing under a Letter of Credit or any portion of any such obligation to which a Bank has become subrogated pursuant to Section - 7 - 2.01(e). "REMARKETING AGENT" means the Remarketing Agent named as such under the Indenture, until a substitute Remarketing Agent becomes such pursuant to and in accordance with the terms of the Indenture, and thereafter "REMARKETING AGENT" shall mean such successor or any further successor thereto. "REMARKETING AGREEMENT" means the Remarketing Agreement dated as of November 1, 1994, among the Remarketing Agent and the Company, as the same may be amended, modified or supplemented from time to time. "REQUIRED BANKS" means at any time (i) Banks having at least 51% of the aggregate amount of the Commitments or (ii) if the Commitments shall have been terminated, Banks holding unpaid Reimbursement Obligations that comprise at least 51% of the aggregate unpaid principal amount of all the Reimbursement Obligations outstanding at such time. "SECTION 20 SUBSIDIARY" means a subsidiary of the bank holding company controlling any Bank, which subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. "SECURED PARTIES" has the meaning set forth in the Security Agreement. "SECURED OBLIGATIONS" has the meaning set forth in the Security Agreement. "SECURITIES PLEDGE AND SECURITY AGREEMENT" means the Securities Pledge and Security Agreement dated as of November 1, 1994, among the Company, the Trustee and the Issuing Bank, as originally executed in the form of Exhibit E and as the same may be amended, restated, modified or supplemented from time to time. "SECURITY AGREEMENT" means a Security Agreement among the Company, N.M.E. International (Cayman) Limited and the Collateral Agent, substantially in the form of Exhibit B to the Morgan Credit Agreement, as such agreement may be amended from time to time in accordance with the terms thereof. "SERIES A L/C" has the meaning set forth in the definition of "Letters of Credit". "SERIES B L/C" has the meaning set forth in the - 8 - definition of "Letters of Credit". "SUBSIDIARY" means any corporation of which more than 50% of the outstanding shares of stock of each class having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. "TEMPORARY CASH INVESTMENTS" means any investment in (i) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, (ii) commercial paper rated at least A-1 by Standard & Poor's Ratings Group and at least P-1 by Moody's Investors Service, Inc. or (iii) time deposits with, including certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and has capital, surplus and undivided profits aggregating at least $1,000,000,000, PROVIDED in each case that such investment matures within 30 days from the date of acquisition thereof by the Issuing Bank. "TENDER DRAWING" means a drawing under either Letter of Credit in respect of the payment of the purchase price of Bonds purchased by the Tender Agent (as defined in the Indenture) for the account of the Company pursuant to the Indenture. "TERMINATION DATE" means the date which is five Business Days prior to the "Final Maturity Date" under and as defined in the Morgan Credit Agreement. "TRUSTEE" has the meaning set forth in the Background section hereof. "UNITES STATES" means the United States of America, including the states thereof and the District of Columbia, but excluding its territories and possessions. SECTION 1.02. CERTAIN USAGES. The words "HEREOF", "HEREIN", and "HEREUNDER" and words of similar import, when used in this Agreement shall refer to this Agreement as a whole, including all Exhibits and Schedules hereto and not to any particular provision of this Agreement. - 9 - SECTION 1.03. INTERPRETATION. All references in this Agreement to any other agreement or instrument shall mean such other agreement or instrument as the same may be amended, restated, extended, supplemented or otherwise modified from time to time. ARTICLE II. LETTER OF CREDIT FACILITY; PAYMENT SECTION 2.01. THE LETTERS OF CREDIT. (a) LETTERS OF CREDIT ISSUED. Prior to the date hereof, pursuant to the Original Agreement, the Issuing Bank issued the Letters of Credit in favor of the Trustee for the benefit of the holders of the Bonds and for the account of the Company, to provide a source of funds for the payment of the principal or the purchase price of the Bonds. On the Closing Date, the Letters of Credit shall be amended by amendments in the forms of Exhibits C and D hereto, respectively. The Series A L/C was issued in the original face amount of $68,600,000 (Sixty Eight Million Six Hundred Thousand Dollars) as such amount may be decreased pursuant to Section IV of the Series A L/C, and, except in connection with reinstatement as hereinafter provided, will not be increased. The Series B L/C was issued in the original face amount of $22,750,000 (Twenty Two Million Seven Hundred Fifty Thousand Dollars), as such amount may be decreased pursuant to Section D of the Series B L/C, and, except in connection with reinstatement as hereinafter provided, will not be increased. All amounts disbursed by the Issuing Bank pursuant to draws under the Letters of Credit shall be from the Issuing Bank's own funds. (b) REIMBURSEMENT OF L/C PAYMENTS; INTEREST ON PAST DUE AMOUNTS. Except as provided in Section 2.01(c) hereof, the Company agrees that following each L/C Payment it will immediately reimburse the Issuing Bank for the full amount of such L/C Payment, such reimbursement to be made on the date such L/C Payment is made. The Company agrees that it will pay to the Issuing Bank on demand interest on the amount of any L/C Payment which is not paid when due from and including the date such L/C Payment is due to but excluding the date of payment thereof at a rate per annum equal to the lesser of (a) the Alternate Base Rate plus 2%, and (b) the highest - 10 - lawful rate in effect from time to time under applicable law. The obligation of the Company to reimburse the Issuing Bank for any L/C Payment, and to pay interest thereon, is and shall be absolute, irrevocable and unconditional under any and all circumstances whatsoever and shall not be subject to any set-off, counterclaim or defense to payment which the Company may have against the Trustee, the holder of any Bond, the Banks or any other Person. (c) DEFERRAL OF PAYMENTS. If any Bond is purchased with the proceeds of a Tender Drawing and such Bond is not remarketed on the same day such Tender Drawing is made, the Company will reimburse the Issuing Bank the amount of such Tender Drawing (the "EXTENDED AMOUNT") on or before 2:00 p.m., New York City time, on the earlier to occur of (i) the day such Bond is remarketed and (ii) the earlier of (a) the thirtieth (30th) day following the day such Tender Drawing is made or (b) the Termination Date, in either case notwithstanding the provisions of Section 2.01(b) hereof, but subject to the provisions of Article VII hereof. The Extended Amount will bear interest from the date of such Tender Drawing at a per annum rate equal to, subject to Section 2.01(b), the Alternate Base Rate, such interest to be payable monthly in arrears on the last Business Day of each calendar month. (d) REMARKETING OF BONDS. Subject to the terms hereof, the Issuing Bank hereby consents to the remarketing of the Bonds and, provided that no Default or Event of Default shall have occurred and be continuing, the periodic repurchase and remarketing thereof pursuant to the terms of the Indenture and the Remarketing Agreement. (e) PAYMENTS BY BANKS WITH RESPECT TO LETTERS OF CREDIT. (i) Each Bank shall make available an amount equal to its ratable share of any drawing under a Letter of Credit, which is not repaid to the Issuing Bank by the Company as required by this Agreement in Federal or other funds immediately available in New York City, to the Issuing Bank by 3:00 p.m (New York City time) on the Business Day following the required date for payment of such drawing by the Company, together with interest on such drawing to but excluding the day such payment is due from such Bank at the Federal Funds Rate for such day, at the Issuing Bank's - 11 - address specified in or pursuant to Section 11.01; PROVIDED each Bank's obligation shall be reduced by its pro rata share of any reimbursement theretofore paid by the Company in respect of such drawing pursuant to Section 2.01(b) or (c). The Issuing Bank shall notify each Bank of the amount of such Bank's obligation in respect of any drawing under a Letter of Credit not later than 1:00 p.m. (New York City time) on the day such payment by such Bank is due. Upon payment in full thereof, each Bank shall be subrogated to the rights of the Issuing Bank against the Company to the extent of such Bank's pro rata share of the related Reimbursement Obligation (including interest accrued thereon). (ii) If any Bank fails to pay any amount required pursuant to subclause (i) of this clause (a) on the date on which such payment is due, interest shall accrue on such Bank's obligation to make such payment, for each day from and including the date such payment becomes due to but excluding the date such Bank makes such payment, whether before or after judgment, at a rate per annum equal to (A) in the case of each day from and including the day such payment is due through and including the first succeeding Business Day (and any intervening days), the Federal Funds Rate for each such day as determined by the Issuing Bank and (B) for each day thereafter, the sum of 2% plus the Base Rate for such day. Any payment made by any Bank after 3:00 p.m., New York City time, on any Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Business Day. (iii) If the Company shall reimburse the Issuing Bank for any drawing under a Letter of Credit after any Bank shall have made funds available to the Issuing Bank with respect to such drawing in accordance with subclause (i) of this clause (e), the Issuing Bank shall promptly upon receipt of such reimbursement distribute to such Bank its pro rata share thereof, including interest, to the extent received by the Issuing Bank. (iv) The obligations of each Bank under this Section 2.01(e) shall be absolute and unconditional under any and all circumstances, irrespective of any set-off, counterclaim, or defense to payment which such Bank may have or have had against the Issuing Bank, the beneficiary of any Letter of Credit, the Company or any other Person and irrespective of any Default or Event of Default. (f) PAYMENT UPON ACCELERATION. If the Issuing Bank - 12 - directs the Company pursuant to Section 7.02(a) to make the payment required by this clause (f), the Company shall pay to the Issuing Bank for application to drawings under any then outstanding Letters of Credit an amount equal to the aggregate amount which is then, or may thereafter (under any contingency) become, available for drawing under such Letters of Credit. The Issuing Bank shall invest any amount paid to it pursuant to the first sentence of this clause (f) in Temporary Cash Investments. Any amount paid by the Company to the Issuing Bank pursuant to the first sentence of this clause (f) with respect to a Letter of Credit and not applied to a drawing thereunder (together with interest or other income, to the extent received by the Issuing Bank on the related Temporary Cash Investments) shall, as promptly as practicable after such Letter of Credit expires or is fully drawn and all related Obligations (together with all interest accrued thereon, whether or not allowed or allowable as a claim in a proceeding referred to in clause (g) or (h) of Section 7.01) are paid, be applied by the Issuing Bank to pay any other amounts then due and payable by the Company hereunder. When all such amounts shall have been paid in full, the Issuing Bank shall repay the remaining balance, if any, to the Company. (g) INCREASED COST AND REDUCED RETURN. If, on or after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank or the Issuing Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall impose, modify or deem applicable any tax, reserve, special deposit or similar requirement against or with respect to or measured by reference to letters of credit or participations therein, and the result of any of the foregoing is to increase the cost to such Bank or the Issuing Bank of issuing or maintaining any Letter of Credit or any participation therein, or to reduce any amount receivable by any Bank or the Issuing Bank under this Section 2.01 in respect of any Letter of Credit or any participation therein (which increase in cost, or reduction in amount receivable, shall be the result of such Bank's or the Issuing Bank's reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, within 15 days after demand by such Bank or the Issuing Bank, the Company agrees to pay to such Bank or the Issuing Bank, - 13 - from time to time as specified by such Bank or the Issuing Bank, such additional amounts as shall be sufficient to compensate such Bank or the Issuing Bank for such increased cost or reduction. A certificate of such Bank or the Issuing Bank submitted to the Company pursuant to this Section 2.01(g) and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. (h) EXCULPATORY PROVISIONS. The Company's obligations under this Section 2.01 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Company may have or have had against the Issuing Bank, any Bank, the beneficiary of any Letter of Credit or any other Person. The Company assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to its use of such Letter of Credit. The Company agrees that the Issuing Bank and the Banks and their respective officers, directors, employees and agents shall not be responsible for, and the obligations of each Bank to make payments (other than obligations of such Bank resulting solely from the gross negligence or willful misconduct of the Issuing Bank), and of the Company to reimburse the Issuing Bank for drawings, pursuant to this Section shall not be excused or affected by, among other things, (i) the use which may be made of any Letter of Credit or any acts or omissions of either beneficiary or any transferee in connection therewith; (ii) the validity, sufficiency or genuineness of documents presented under any Letter of Credit or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (iii) payment by the Issuing Bank against presentation of documents to the Issuing Bank which do not comply with the terms of any Letter of Credit or (iv) any dispute between or among the Company, any of its Subsidiaries, the beneficiary of any Letter of Credit or any other Person or any claims or defenses whatsoever of the Company, any of its Subsidiaries or any other Person against the beneficiary of any Letter of Credit. The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Company agrees that any action taken or omitted by the Issuing Bank or any Bank under or in connection with any Letter of Credit and the related drafts and documents, if done without willful misconduct or gross negligence, shall be binding upon the Company and shall not place the Issuing Bank - 14 - or any Bank under any liability to the Company. (i) RELIANCE, ETC. To the extent not inconsistent with Section 2.01(h), the Issuing Bank shall be entitled to rely, and shall be fully protected in relying upon advice and statements of legal counsel, independent accountants and other experts selected by the Issuing Bank and upon any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary unless the beneficiary and the Company shall have notified the Issuing Bank that such documents do not comply with the terms and conditions of such Letter of Credit. The Issuing Bank shall be fully justified in refusing to take any action requested of it under this Section 2.01 in respect of any Letter of Credit unless it shall first have received such advice or concurrence of the Required Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take, or omitting or continuing to omit, any such action. Notwithstanding any other provision of this Section 2.01, the Issuing Bank shall in all cases be fully protected in acting, or in refraining from acting, under this Section 2.01 in respect of any Letter of Credit in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of participations in such Letter of Credit. (j) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Bank and the Issuing Bank (the "LC INDEMNITEES") from and against any and all claims and damages, losses, liabilities, costs or expenses (including, without limitation, the reasonable fees and disbursements of counsel) which any such LC Indemnitee may reasonably incur (or which may be claimed against any such LC Indemnitee by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit or any actual or proposed use of any Letter of Credit, including any claims, damages, losses, liabilities, costs or expenses which the Issuing Bank may incur by reason of or in connection with - 15 - the failure of any Bank to fulfill or comply with its obligations to the Issuing Bank hereunder (but nothing herein contained shall affect any rights the Company may have against any defaulting Bank); PROVIDED that the Company shall not be required to indemnify any LC Indemnitee for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (ii) the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.01(j) is intended to limit the obligations of the Company under any other provision of this Section 2.01. (k) INDEMNIFICATION BY THE BANKS. Each Bank shall, ratably in accordance with its Commitment, indemnify the Issuing Bank, its affiliates and their respective directors, officers, agents and employees (to the extent not promptly reimbursed by the Company) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitee's gross negligence or willful misconduct or the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit) that any such indemnitee may suffer or incur in connection with this Section 2.01 or any action taken or omitted by such indemnitee under this Section 2.01. (l) EXTENSIONS OF LETTERS OF CREDIT. Subject to satisfaction of the conditions set forth in Section 5.02, the Issuing Bank shall extend the expiry date of the Letters of Credit for a period of one year from the then current expiry date; PROVIDED that, the Issuing Bank shall have no obligation to extend the expiry date of either Letter of Credit to a date after the Termination Date, regardless of whether the conditions set forth in Section 5.02 have been satisfied. Each date on which the expiry date of either Letter of Credit is extended is herein referred to as an "Extension Date". - 16 - ARTICLE III. FEES; PAYMENTS; COMPUTATIONS SECTION 3.01. FEES. The Company agrees to pay to the Issuing Bank: (a) LETTER OF CREDIT FEE. For the account of the Banks, the Letter of Credit Fee multiplied by the average daily outstanding face amount of the Series A L/C and the Series B L/C during the period from and including January 1, 1995 to and including the Termination Date, payable quarterly in arrears on the last Business Day of each March, June, September and December and on the Termination Date. (b) LETTER OF CREDIT FRONTING FEE. For the account of the Issuing Bank, the Letter of Credit Fronting Fee multiplied by the sum of the face amounts of the Series A L/C and the Series B L/C for the period from April 6, 1995 through and including December 5, 1995, payable quarterly in arrears on the last Business Day of each June, September and December during such period. (c) DRAWING FEE. For the account of the Issuing Bank, a drawing fee of $250 on each L/C Payment, payable at the time of each such L/C Payment. (d) EXTENSION FEE. For the account of the Issuing Bank, an extension fee of $500 per Letter of Credit, payable on each Extension Date (other than the first Extension Date). (e) AMENDMENT FEE. For the account of the Issuing Bank, an amendment fee of $500 per Letter of Credit, payable on the date of effectiveness of each amendment to such Letter of Credit (other than the amendment to be entered into on the Closing Date). Section 3.02. MANNER OF PAYMENTS. (a) Each payment by the Company of a Reimbursement Obligation under this Agreement shall be made by transferring the amount thereof in immediately available Dollars to the Trustee for credit (i) to the Purchase Reimbursement Fund (as such term is defined in the Indenture), in the case of reimbursement of the amount of any Tender Drawing, or (ii) to the Credit Reimbursement Fund (as such term is defined in the Indenture), in the case of reimbursement of the amount of any Principal Drawing. All other payments payable by the Company hereunder shall be paid to the Issuing Bank. All payments - 17 - payable by the Company hereunder shall be made not later than 2:00 p.m. (New York City time) on the date on which such payment shall become due, in each case without set-off or counterclaim and shall be free and clear of, and without deduction for, any taxes, duties, levies, imposts or other charges of a similar nature. Time is of the essence of this Agreement. If any payment due hereunder shall be paid on the date when due, but following the time of day required above, the Company shall pay to the Issuing Bank, on demand, as an additional fee hereunder, an amount equal to the Federal Funds Rate for such day plus 1%, multiplied by the amount of such payment, divided by 360. (b) The Issuing Bank shall have the right to determine the order in which amounts paid by the Company are applied to the amounts then due and payable hereunder, regardless of any application designated by the Company. The Company agrees to pay any interest or other amounts due under this Agreement to the Issuing Bank at the L/C Bank Account or such other account as may be designated by the Issuing Bank. Section 3.03. EXTENSION OF PAYMENTS. If any payment under this Agreement shall become due on a day which is not a Business Day, the due date thereof shall be extended to the next following day which is a Business Day, and such extension shall be taken into account in computing the amount of any interest or fees then due and payable hereunder. Section 3.04. COMPUTING OF INTEREST AND FEES. All interest and fees payable under this Agreement shall be computed on the basis of a year of 360 days for the actual number of days elapsed. Section 3.05. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Issuing Bank will promptly distribute to each Bank its ratable share of each payment received by the Issuing Bank for the account of the Banks. Whenever any payment shall be due on a day which is not a Business Day, the date for payment thereof, except as otherwise expressly provided herein, shall be extended to the next succeeding Business Day. If the date for any payment is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. - 18 - (b) Unless the Issuing Bank shall have received notice from the Company prior to the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full, the Issuing Bank may assume that the Company has made such payment in full to the Issuing Bank on such date and the Issuing Bank may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Company shall not have so made such payment, each Bank shall repay to the Issuing Bank forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank to but excluding the date such Bank repays such amount to the Issuing Bank, at a rate per annum equal to (A) in the case of each day from and including the day such payment is due through and including the first succeeding Business Day (and any intervening days), the Federal Funds Rate for each such day as determined by the Issuing Bank and (B) for each day thereafter, the sum of 2% plus the Alternate Base Rate for such day. Any payment made by any Bank after 3:00 p.m., New York City time, on any Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Business Day. ARTICLE IV. REPRESENTATIONS AND WARRANTIES In order to induce the Banks and the Issuing Bank to enter into this Agreement and to extend the credit herein provided for, the Company hereby represents and warrants to each Bank and the Issuing Bank that: SECTION 4.01. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. (a) The Company has the corporate power, authority and legal right to make, deliver and perform this Agreement, the Security Agreement and the Securities Pledge and Security Agreement, to cause the Letters of Credit to be issued under the Original Agreement and incur the related Reimbursement Obligations and to enter into any amendments to the Letters of Credit and any extensions of the expiry thereof, and has taken all necessary corporate action to authorize the issuance of the Letters of Credit, the incurrence of the related Reimbursement Obligations and the execution, delivery and performance of this Agreement, the Security Agreement and the Securities Pledge and Security Agreement. - 19 - (b) No consent of any other Person (including without limitation stockholders and creditors of the Company), and no authorization of, notice to, or other act by or in respect of the Company by any governmental authority, agency or instrumentality is required in connection with the issuance, amendment or extension of the Letters of Credit or the execution, delivery, performance, validity or enforceability of this Agreement, the Security Agreement and the Securities Pledge and Security Agreement. (c) Each of this Agreement, the Security Agreement and the Securities Pledge and Security Agreement has been duly executed and delivered on behalf of the Company and constitutes a legal, valid and binding agreement or obligation of the Company enforceable against the Company in accordance with its terms. SECTION 4.02. INCORPORATION BY REFERENCE. Each of the representations made by the Company in Sections 4.04 through 4.17 of the Morgan Credit Agreement is true and correct. Defined terms used in Sections 4.04 through 4.17 of the Morgan Credit Agreement have the meanings assigned to such terms in the Morgan Credit Agreement, except that, for purposes of this Agreement, the term "Financing Documents" shall include this Agreement, the Lease Guaranty and the Letters of Credit. ARTICLE V. CONDITIONS PRECEDENT SECTION 5.01. CONDITIONS TO AMENDMENT AND RESTATEMENT. The Original Agreement shall not be amended and restated as provided herein until the date (the "CLOSING DATE") on which all of the following conditions have been satisfied (or waived, in accordance with Section 11.05): (a) The Issuing Bank shall have received counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Issuing Bank shall have received, in form satisfactory to it, telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). (b) The Issuing Bank shall have received a copy of the Security Agreement and the Securities Pledge and Security - 20 - Agreement, in each case signed by all parties thereto. (c) The Issuing Bank shall have received a copy of the Morgan Credit Agreement in the form signed by all parties thereto. (d) The Issuing Bank shall have received, with an original counterpart for each Bank, a certificate dated the Closing Date, substantially in the form of Exhibit F, executed by an Executive Vice President, a Senior Vice President or the Treasurer of the Company. (e) The Issuing Bank shall have received, with an original counterpart for each Bank, a certificate executed by a duly authorized officer of the Company and dated the Closing Date certifying that no material adverse change has occurred in the financial condition, results of operations or business of the Combined Companies (as such term is defined in the Morgan Credit Agreement), taken as a whole, since November 30, 1994. (f) The Issuing Bank shall have received, with an original counterpart for each Bank, an opinion of special counsel for the Company, dated the Closing Date and addressed to the Issuing Bank and the Banks, substantially in the form of Exhibit G and covering such other matters incident to the transactions contemplated by this Agreement as the Issuing Bank or any Bank shall reasonably request. (g) The Issuing Bank shall have received, with an original counterpart for each Bank, an opinion of internal counsel for the Company, dated the Closing Date and addressed to the Issuing Bank and the Banks, substantially in the form of Exhibit H and covering such other matters incident to the transactions contemplated by this Agreement as the Issuing Bank or any Bank shall reasonably request. (h) The Issuing Bank shall have received, with an original counterpart for each Bank, an opinion from special Cayman Islands counsel to N.M.E. International (Cayman) Limited, dated the Closing Date and addressed to the Issuing Bank and the Banks, substantially in the form of Exhibit I and covering such other matters incident to the transactions contemplated by this Agreement as the Issuing Bank or any Bank shall reasonably request. (i) The Issuing Bank shall have received, with an original counterpart for each Bank, a certificate of the Sec- - 21 - retary of the Company, dated the Closing Date, as to the articles of incorporation and bylaws of the Company, no amendments thereto, the adoption by the board of directors of the Company of the resolutions with respect to the transactions contemplated hereby and the incumbency and signature of each officer of the Company authorized to sign this Agreement, the Security Agreement and the Securities Pledge and Security Agreement and each certificate or other document to be delivered pursuant to this Agreement, together with evidence of the incumbency of such Secretary. (j) The Issuing Bank shall have received, with a copy for each Bank, a copy (in form and substance satisfactory to the Issuing Bank) of the resolutions of the board of directors of the Company authorizing the execution, delivery and performance of this Agreement and the Security Agreement and the incurrence of the obligations hereunder and thereunder, certified to be in full force and effect without modification by the Secretary of the Company on the Closing Date. (k) The Issuing Bank shall have received, with an original counterpart for each Bank, a true copy of any consent or approval of any Person which may be required in connection with the transactions contemplated by this Agreement, including, without limitation, any consent required under the Overdraft Facility Agreement and the Advance Account Agreement (as such terms are defined in the Morgan Credit Agreement). (l) The Company shall have paid all expenses payable by the Company on or before the Closing Date pursuant to Section 11.03 of this Agreement. (m) The Issuing Bank shall have received a written acknowledgment of the Lessee and the Company to the effect that (i) each such party consents to the execution, delivery and performance of this Agreement and all documents, instruments and agreements relating hereto or delivered herewith, (ii) the Lease Agreement is and, immediately after the execution and delivery hereof shall be, in full force and effect, enforceable against the Lessee in accordance with its terms, (iii) all consents necessary to the enforceability of this Agreement and exercise of the rights of the Issuing Bank and the Banks hereunder in connection with the Lease Agreement have been obtained, (iv) the obligations of the Lessee under the Lease Agreement are absolute and not subject to defenses, offsets or counterclaims except as, and only to the extent, - 22 - provided for in the Lease Agreement, and (v) on and after the date hereof all references to the "Reimbursement Agreement" in the Lease Agreement shall be to this Agreement as the same may from time to time be amended, restated, supplemented, extended or otherwise modified. (n) The Closing Date (as defined in the Morgan Credit Agreement) shall have occurred. (o) The Issuing Bank shall have received an amendment to the Series A L/C, substantially in the form of Exhibit C and an amendment to the Series B L/C, substantially in the form of Exhibit D, in each case signed by the parties thereto. (p) The Issuing Bank shall have received a notice from the Company requesting an extension of the current expiry date of the Letters of Credit. (q) The Issuing Bank shall have received all documents the Issuing Bank may reasonably request relating to the existence of the Company, the corporate authority for and the validity of this Agreement, the Security Agreement and the Securities Pledge and Security Agreement, and any other matters relevant hereto, all in form and substance satisfactory to the Issuing Bank. On the Closing Date the Original Agreement will be automatically amended and restated in its entirety to read as set forth herein. On and after the Closing Date the rights and obligations of the parties hereto shall be governed by this Agreement; PROVIDED that the rights and obligations of the parties hereto with respect to the period prior to the Closing Date shall continue to be governed by the provisions of the Original Agreement. The Issuing Bank shall promptly notify the Company and the Banks of the amendment and restatement of this Agreement, and such notice shall be conclusive and binding on all parties hereto. SECTION 5.02. CONDITIONS TO EXTENSIONS OF LETTERS OF CREDIT. The obligation of the Issuing Bank to extend the Letters of Credit on any Extension Date and of the Banks to participate in the Letters of Credit thereafter is subject to the satisfaction of the following conditions: - 23 - (a) the fact that the Issuing Bank shall have received a notice from the Company requesting such extension not more than 90 or less than 30 days prior to the then current expiry date of the Letters of Credit; (b) the fact that the representations and warranties made by the Company in this Agreement, the Security Agreement and the Securities Pledge and Security Agreement or which are contained in any certificate, document or financial or other statement furnished at any time hereunder or in connection herewith, will be true and correct on and as of the date of extension of the Letters of Credit as if made on and as of such date (except that representations and warranties made with respect to specified dates or periods will be true and correct as of such specified dates or for such specified periods, as the case may be); and (c) the fact that no Default or Event of Default will have occurred and be continuing on the date of extension of such Letters of Credit before or after giving effect thereto. Each extension of the Letters of Credit hereunder shall constitute a representation and warranty by the Company hereunder as of the date of such extension that the conditions in clauses (a), (b) and (c) of this Section have been satisfied. ARTICLE VI. COVENANTS SECTION 6.01. INCORPORATION BY REFERENCE. The Company agrees that, so long as any Commitment remains in effect, any amount remains available for drawing under any Letter of Credit or any amount is owing to any Bank or the Issuing Bank hereunder, the Company shall observe and perform each of its covenants and undertakings set forth in Article V of the Morgan Credit Agreement and such covenants and undertakings are hereby incorporated herein by reference. Defined terms used in Article V of the Morgan Credit Agreement have the meanings assigned such terms in the Morgan Credit Agreement; PROVIDED that for purposes of this Section 6.01 (i) the term "Lenders" shall mean the Banks, (ii) the term "Financing Documents" shall include this Agreement, the Lease Guaranty and the Letters of Credit, (iii) the term "Required Lenders" shall mean the Required Banks, (iv) the term "Default" shall mean a Default as such term is defined herein, and (v) the term "Administrative Agent" shall mean - 24 - the Issuing Bank. SECTION 6.02. USE OF PROCEEDS, INELIGIBLE SECURITIES. The Company shall not, directly or indirectly, use any portion of the proceeds of the Loans (i) knowingly to purchase Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Company or any Affiliate of the Company. ARTICLE VII. EVENTS OF DEFAULT SECTION 7.01. EVENTS OF DEFAULT. Upon the occurrence of any of the following Events of Default: (a) The Company shall fail to pay when due any Reimbursement Obligation, or shall fail to pay any interest on any Reimbursement Obligation, any fee payable hereunder or any other amount payable hereunder within three Business Days after such interest, fee or other amount becomes due; or (b) Any representation or warranty made or deemed made by the Company in this Agreement, the Security Agreement and the Securities Pledge and Security Agreement or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company shall default in the observance or performance of any agreement or covenant contained in Article VI hereof, Section 4(b) or 5 of the Security Agreement or Section 8 of the Securities Pledge and Security Agreement; or (d) The Company shall default in the observance or - 25 - performance of any other agreement or covenant contained in this Agreement, the Security Agreement or the Securities Pledge and Security Agreement, and such default shall not have been remedied within 30 days; or (e) An Event of Default under and as defined in the Morgan Credit Agreement shall have occurred and be continuing; or (f) Any representation or warranty made or deemed made by the Company in this Agreement, the Remarketing Agreement, the Lease Guaranty, the Indenture or any certificate, financial statement or other document delivered pursuant hereto or thereto shall not be Accurate and Complete on any date as of which made or deemed made; or (g) Any "Default" or "Event of Default" (as such terms are defined in the Bond Documents) shall occur and be continuing under the Bonds, the Indenture, the Lease Agreement, or the Lease Guaranty, or any material breach shall occur and be continuing under the Remarketing Agreement or any other document or instrument executed in connection herewith or therewith (collectively, the "BOND DOCUMENTS" and individually, a "BOND DOCUMENT"); or any party to any Bond Document shall default in the payment when due of any principal, interest, rental or other amount due thereunder beyond the period of grace, if any, provided in the applicable Bond Document; or default in the observance or performance by any party thereto of any other agreement, term or condition contained in any Bond Document, if such event is continuing and the effect of such event is to cause, or to permit any other party thereto, or any holder of debt or obligations evidenced or secured by such Bond Document (or a trustee on its behalf) to cause, the principal, interest, rental or other amounts due under such Bond Document to become due prior to its stated maturity or date of payment; or (h) The Lease Agreement, the Lease Guaranty, or the Indenture shall (i) be amended, modified, or otherwise changed, or any default or event of default thereunder shall be waived, without the prior written consent of the Required Banks, or (ii) shall terminate, either by its terms or by the act of any party thereto. Section 7.02. DEFAULT REMEDIES. (a) MANDATORY PAYMENT. If an Event of Default has - 26 - occurred and is continuing, upon request of the Required Banks, the Issuing Bank shall direct the Company to make the payment to the Issuing Bank provided for in Section 2.01(f) hereof. (b) REFUSE TO REINSTATE. If, prior to 9:00 a.m., New York City time, on any Purchase Date for any Bond, an Event of Default or Default has occurred and is continuing, the Issuing Bank may give notice to the Trustee that, as a consequence of such Event of Default or Default, the Issuing Bank will not reinstate the Series A L/C or the Series B L/C in the amount of any draw or draws made thereunder on such Purchase Date, and the Issuing Bank may instruct the Remarketing Agent by notice, a copy of which shall be promptly delivered to the Company, to cease remarketing and selling Bonds from and after the date such notice is received by the Remarketing Agent and until the Issuing Bank shall have rescinded such instruction in writing. The Issuing Bank agrees that if, after giving notice to the Trustee that it will not reinstate either Letter of Credit in the amount of a draw or draws hereunder, or after giving instruction pursuant hereto to cease remarketing the Bonds as the result of the occurrence of an Event of Default or Default, such Event of Default or Default is no longer in existence and no other Event of Default or Default shall have occurred and be continuing, the Issuing Bank shall cause each Letter of Credit to be reinstated in the amount of any such draws, and will give the Trustee and the Remarketing Agent notice thereof and shall rescind its instructions to cease remarketing the Bonds. (c) REMEDIES IN GENERAL. The foregoing rights and remedies are in addition to all other rights and remedies which the Issuing Bank or the Banks may have as a matter of law or otherwise. ARTICLE VIII. THE ISSUING BANK SECTION 8.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Issuing Bank (i) to take such action as agent on its behalf and to exercise such powers under this Agreement, the Security Agreement and the Securities Pledge and Security Agreement as are delegated to the Issuing Bank by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto, (ii) to execute and deliver - 27 - the Securities Pledge and Security Agreement and (iii) to issue the Letters of Credit, and to enter into any amendments thereto or extensions thereof in accordance with the terms set forth in this Agreement. SECTION 8.02. ISSUING BANK AND AFFILIATES. The Bank of New York shall have the same rights and powers under this Agreement, the Security Agreement and the Securities Pledge and Security Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Issuing Bank, and The Bank of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or Affiliate of the Company as if it were not the Issuing Bank hereunder. SECTION 8.03. ACTION BY ISSUING BANK. The obligations of the Issuing Bank under this Agreement and the Securities Pledge and Security Agreement are only those expressly set forth herein and therein. Without limiting the generality of the foregoing, the Issuing Bank shall not be required to take any action with respect to any Default, except as expressly provided in Section 7.02. SECTION 8.04. CONSULTATION WITH EXPERTS. The Issuing Bank may consult with legal counsel (who may be counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 8.05. LIABILITY OF ISSUING BANK. Neither the Issuing Bank nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Issuing Bank nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement; (ii) the performance or - 28 - observance of any of the covenants or agreements of the Company; (iii) the satisfaction of any condition specified in Article V, except receipt of items required to be delivered to the Issuing Bank; or (iv) the validity, effectiveness or genuineness of this Agreement, the Security Agreement, the Securities Pledge and Security Agreement, or any other instrument or writing furnished in connection herewith. The Issuing Bank shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 8.06. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment, indemnify the Issuing Bank, its affiliates and their respective directors, officers, agents and employees (to the extent not promptly reimbursed by the Company) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement, the Security Agreement or the Securities Pledge and Security Agreement or any action taken or omitted by such indemnitees hereunder or thereunder. SECTION 8.07. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon the Issuing Bank or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Issuing Bank or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 8.08. ISSUING BANK'S FEE. The Company shall pay to the Issuing Bank for its own account fees in the amounts and at the times previously agreed upon between the Company and the Issuing Bank. - 29 - ARTICLE IX. THE COLLATERAL AGENT SECTION 9.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Security Agreement as are delegated to the Collateral Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 9.02. COLLATERAL AGENT AND AFFILIATES. Morgan Guaranty Trust Company of New York shall have the same rights and powers under this Agreement, the Security Agreement and the Securities Pledge and Security Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Collateral Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Company or any Subsidiary or Affiliate of the Company as if it were not the Collateral Agent under the Security Agreement. SECTION 9.03. ACTION BY COLLATERAL AGENT. The obligations of the Collateral Agent under the Security Agreement are only those expressly set forth therein. Without limiting the generality of the foregoing, the Collateral Agent shall not be required to take any action with respect to any Default, except as expressly provided in Section 14(a) of the Security Agreement. SECTION 9.04. CONSULTATION WITH EXPERTS. The Collateral Agent may consult with legal counsel (who may be counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 9.05. LIABILITY OF COLLATERAL AGENT. Neither the Collateral Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection with the Security Agreement (i) with the - 30 - consent or at the request of the Required Lenders or the Required Secured Parties (as such terms are defined in the Security Agreement) or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Collateral Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any Letter of Credit issued hereunder; (ii) the performance or observance of any of the covenants or agreements of the Company; (iii) the satisfaction of any condition specified in Article V; or (iv) the validity, effectiveness or genuineness of this Agreement, the Securities Pledge and Security Agreement, the Security Agreement or any other instrument or writing furnished in connection herewith. The Collateral Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 9.06. SUCCESSOR COLLATERAL AGENT. The Collateral Agent may resign, and a successor Collateral Agent may be appointed at any time as provided in Section 14 of the Security Agreement. After any retiring Collateral Agent's resignation under the Security Agreement as Collateral Agent, the provisions of this Article shall inure to the benefit of the Collateral Agent as to any actions taken or omitted to be taken by it while it was Collateral Agent. ARTICLE X. CHANGE IN CIRCUMSTANCES SECTION 10.01. ILLEGALITY. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall in the reasonable opinion of counsel to the Issuing Bank, make it - 31 - unlawful or impossible for the Issuing Bank to issue or maintain any portion of the Letters of Credit or to make L/C Payments, then the Issuing Bank may instruct the Company and the Remarketing Agent to cease remarketing the Bonds. If individual employees of the Issuing Bank with knowledge of this Section 10.01 become aware of pending legislation, or executive or administrative action, which such employees know will cause the issuance or maintenance of any portion of the Letters of Credit, or the making of L/C Payments, to become unlawful, the Issuing Bank will promptly notify the Company of such pending matter; PROVIDED, however, the Issuing Bank will have no liability, and is hereby fully and completely released from any liability or damage, for failure to comply with this sentence. SECTION 10.02. TAXES. (a) For purposes of this Section 10.02, the following terms have the following meanings: "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Company pursuant to this Agreement and all liabilities with respect thereto, EXCLUDING (i) in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Credit Office is located and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement or from the execution or delivery of, or otherwise with respect to, this Agreement. (b) Any and all payments by the Company to or for the account of any Bank or the Issuing Bank hereunder shall be made without deduction for any Taxes or Other Taxes; PROVIDED that, if the Company shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to ad- - 32 - ditional sums payable under this Section 10.02) such Bank or the Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions, (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Company shall furnish to the Issuing Bank, at its address referred to in Section 11.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Company agrees to indemnify each Bank and the Issuing Bank for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 11.02) paid by such Bank or the Issuing Bank (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Issuing Bank (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date on which it becomes a Bank, and from time to time thereafter if requested in writing by the Company (but only so long as such Bank remains lawfully able to do so), shall provide the Company and the Issuing Bank with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts such Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Company and the Issuing Bank with the appropriate form pursuant to Section 10.02(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 10.02(b) or (c) with respect to Taxes imposed by the United States; PROVIDED that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes - 33 - because of its failure to deliver a form required hereunder, the Company shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Company is required to pay additional amounts to or for the account of any Bank pursuant to this Section 10.02, then such Bank will change the jurisdiction of its Applicable Credit Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 10.03. CAPITAL ADEQUACY. (a) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Issuing Bank), the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (b) Each Bank will promptly notify the Company and the Issuing Bank of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Credit Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. - 34 - SECTION 10.04. ISSUING BANK AS BANK. For all purposes of Article X, the term "Bank" shall include the Issuing Bank. ARTICLE XI. MISCELLANEOUS SECTION 11.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Company or the Issuing Bank, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Issuing Bank and the Company. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; PROVIDED that notices to the Issuing Bank under Article II or Article VII shall not be effective until received. SECTION 11.02. NO WAIVERS. No failure or delay by the Issuing Bank or any Bank in exercising any right, power or privilege hereunder or under the Securities Pledge and Security Agreement or any other document or agreement delivered in connection herewith or therewith shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. - 35 - SECTION 11.03. EXPENSES; INDEMNIFICATION. (a) The Company shall pay (i) all out-of-pocket expenses of the Issuing Bank, including fees and disbursements of counsel, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Issuing Bank and each Bank, including (without duplication) the fees and disbursements of counsel and the allocated cost of internal counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Company agrees to indemnify the Issuing Bank, each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "INDEMNITEE") and hold each Indemnitee harmless from and against any and all liabilities, claims, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or the Letters of Credit or any actual or proposed use of the proceeds of drawings under the Letters of Credit; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 11.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Reimbursement Obligation held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Reimbursement Obligation held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Reimbursement Obligations held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Reimbursement Obligations held - 36 - by the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Company other than its indebtedness hereunder. The Company agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Reimbursement Obligation, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Company in the amount of such participation. SECTION 11.05. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Company, the Required Banks and the Issuing Bank; PROVIDED that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease any Commitment of any Bank (except for a ratable decrease in the corresponding Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Reimbursement Obligation, any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of any Reimbursement Obligation or any fees hereunder or for the expiration of any Letter of Credit or the termination of any Commitment, (iv) release any Bonds from the lien of the Securities Pledge and Security Agreement, (v) waive any condition specified in Section 5.01, (vi) waive any provision hereof requiring payments to the Banks to be made ratably or (vii) change the percentage of the Commitments or of the aggregate unpaid principal amount of Reimbursement Obligations, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement; PROVIDED that (x) no amendment or waiver which would change any of the material obligations of the Issuing Bank (solely in its capacity as issuer of the Letters of Credit) to the Trustee or would change the obligations of the Issuing Bank under the last sentence of Section 11.06(c) shall be effective unless (1) at least 30 days prior written notice of such amendment or waiver shall have been provided to Moody's Investors Service, Inc. and Standard and Poor's Ratings Group or (2) the Issuing Bank shall have received the written confirmation from Moody's Investors Service, Inc. and Standard and Poor's Ratings Group - 37 - that such amendment or waiver will not result in a withdrawal or reduction in the rating of the Bonds and (y) no amendment or waiver (including without limitation any such amendment or waiver described in clause (b) below) shall be effective unless a copy of such amendment or waiver substantially in the form to be entered into by the parties hereto shall have been provided to the Trustee at least five Business Days prior to the effectiveness of such amendment or waiver (unless the Trustee shall have expressly waived such requirement). (b) Any amendment or waiver of any provision of Articles IV and V (or any related definition) of the Morgan Credit Agreement shall be effective for purposes of Articles IV and VI of this Agreement if signed by the Company and the Required Banks hereunder in their respective capacities as "Lenders" under the Morgan Credit Agreement. SECTION 11.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "PARTICIPANT") participating interests in its Commitment or any or all of its Reimbursement Obligations. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Company and the Issuing Bank, such Bank shall remain responsible for the performance of its obligations hereunder, and the Company and the Issuing Bank shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, the Security Agreement and the Securities Pledge and Security Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Company under this Agreement, the Security Agreement and the Securities Pledge and Security Agreement including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement, the Security Agreement or the Securities Pledge and Security Agreement; PROVIDED that such participation agreement may provide that - 38 - such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 11.05(a) without the consent of the Participant. The Company agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article X with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "ASSIGNEE") all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000) of all of its rights and obligations under this Agreement and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit J hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Issuing Bank (but without the Company's consent); PROVIDED that no such consent shall be required if (i) the Assignee is an Affiliate of the transferor Bank and is of a credit quality equal to or better than the credit quality of the transferor Bank or (ii) the Assignee was a Bank immediately prior to such assignment. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. In connection with any such assignment, the transferor Bank shall pay to the Issuing Bank an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States or a state thereof, it shall deliver to the Company and the Issuing Bank certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 10.02. Notwithstanding the foregoing, the Issuing Bank shall not assign any of its rights or obligations hereunder unless (i) it shall have provided at least 30 days prior written notice to Moody's Investors Service, Inc. and Standard and Poor's Ratings Group or (ii) it shall have received written - 39 - confirmation from Moody's Investors Service, Inc. and Standard and Poor's Ratings Group that the credit rating assigned to the Bonds by Moody's Investors Service, Inc. and Standard and Poor's Ratings Group, respectively, will not be reduced or withdrawn as a result of such assignment. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 10.02 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 10.02 requiring such Bank to designate a different Applicable Credit Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 11.07. COLLATERAL. Each of the Banks represents to the Issuing Bank and each of the other Banks that it in good faith is not relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 11.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SECURITY AGREEMENT, THE SECURITIES PLEDGE AND SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SECTION 11.09. COUNTERPARTS; INTEGRATION. This Agreement may be signed in any number of coun- - 40 - terparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 11.10. WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE ISSUING BANK AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. - 41 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date and year first above written. NATIONAL MEDICAL ENTERPRISES, INC. By: /S/ TERENCE P. MCMULLEN ---------------------------- Title: Senior Vice President 2700 Colorado Avenue Santa Monica, California 90404 Attn: Treasurer Telecopy: (310) 998-6507 with a copy to: Attn: General Counsel Telecopy: (310) 998-6688 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /S/ WYATT R. RITCHIE ---------------------------- Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /S/ ROBERT M. OSIESKI ---------------------------- Title: Vice President - 42 - BANKERS TRUST COMPANY By: /S/ MARY JO JOLLY ---------------------------- Title: Assistant Vice President THE BANK OF NEW YORK, as a Bank By: /S/ LISA BROWN ---------------------------- Title: Vice President THE BANK OF NEW YORK, as Issuing Bank By: /S/ LISA BROWN ---------------------------- Title: Vice President 101 Barclay Street New York, New York 10286 Attn: SBLC Department Telecopy: (212) 815-2829 - 43 - EXHIBIT A FORM OF SERIES A LETTER OF CREDIT OUR REFERENCE NO.: DATE: S00031638 December 6, 1994 Texas Commerce Bank National Association, Trustee 600 Travis, Suite 1150 Houston, TX 77002 Attention: Corporate Trust Administration Account No. 60730-00 Ladies and Gentlemen: I. At the request and for the account of National Medical Enterprises, Inc. (the "COMPANY"), The Bank of New York (the "BANK") hereby irrevocably establishes in favor of Texas Commerce Bank National Association (the "TRUSTEE") for the benefit of the holders of the Series A Bonds referred to below, this direct pay Series A Letter of Credit in an aggregate amount of US $68,600,000 (SIXTY EIGHT MILLION SIX HUNDRED THOUSAND) AND 00/100 U.S. DOLLARS) (as adjusted pursuant to paragraphs 4 and 5 hereof, the "STATED AMOUNT"), available from time to time in respect of the face amount of Series A 1989 Bonds in the aggregate principal amount of $68,600,000 (the "SERIES A BONDS") issued by the Metrocrest Hospital Authority ("MHA") pursuant to and in accordance with the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994 (the "INDENTURE") executed by MHA in favor of the Trustee. II. Funds under this Letter of Credit are available to (i) the Trustee, with respect to a drawing made for the payment of the principal, at maturity, by redemption, upon acceleration under Section 10.02 of the Indenture or otherwise, of the Series A Bonds (a "PRINCIPAL DRAWING"), against the sight draft(s) of the Trustee, accompanied by a written certificate purportedly signed by an authorized officer of the Trustee in the form of Annex I attached hereto, appropriately completed; and (ii) the Trustee, with respect to the payment of the purchase price of the Series A Bonds purchased by the Tender Agent (as such term is defined in the Indenture) for the account of the Company pursuant to Section 7.01 of the Indenture (a "TENDER DRAWING"), against the sight draft(s) of the Trustee, accompanied by a written certificate purportedly signed by an authorized officer of the Trustee in the form of Annex II attached hereto, appropriately completed. In connection with any Tender Drawing, Series A Bonds in aggregate principal amount equal to the amount of the sight draft presented by the Trustee in respect of any such drawing shall be delivered by the Trustee to the Bank or its agent or designee as promptly as practicable, and in any event within three (3) days, after any such Tender Drawing if, prior to such delivery, such Series A Bonds have not been resold by the Remarketing Agent (as such term is defined in the Indenture). Drafts drawn under this Letter of Credit shall state on their face "Drawn under The Bank of New York Irrevocable Letter of Credit No. S00031638 dated December 6, 1994". Presentation of each draft and certificate required hereunder must be made at the Bank's office located at 101 Barclay Street, New York, New York 10286, Attention: Manager, Standby Letter of Credit Dept., Floor 8 East, not later than April 5, 1995 (the "FINAL EXPIRATION DATE"). All drawings under this Letter of Credit shall be paid only with funds of the Bank and not from any payments made by the Company to the Bank. III. The Bank hereby agrees that all drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored by the Bank upon delivery of the documents, as specified, if presented at such office on or before the Final Expiration Date, unless this Letter of Credit is terminated earlier as provided in paragraph 9 hereof. If a drawing in respect of payment is made hereunder at or prior to 10:00 a.m., New York City time, on a Business Day, and provided that such drawing and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified, in immediately available funds, not later than the close of business on such Business Day. If a drawing is made after 10:00 a.m., New York City time, on a Business Day, and provided that such drawing and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified not later than 12:00 noon, New York City time, on the next succeeding Business Day. Payment under this Letter of Credit to the Trustee shall be transferred by fed wire transfer to Account No. 7001109635800, at - 2 - Texas Commerce Bank - Houston, ABA #1130-00609, Attention: Ms. Donna Edmundson. For purposes of this Letter of Credit, "BUSINESS DAY" shall mean any day other than (i) a Saturday or Sunday or (ii) a legal holiday or the equivalent on which banking institutions are generally authorized or required to close in New York, New York or in the city in which is located (a) the principal corporate trust office of the Trustee, the Tender Agent (as defined in the Indenture) or the principal office of the Remarketing Agent (as defined in the Indenture) or (b) the office of the Issuing Bank or of its agent at which drafts or claims for payment under the Letter of Credit are to be presented, or (iii) a day on which the New York Stock Exchange is closed. IV. Multiple drawings may be made hereunder, provided that, subject to paragraph 5 hereof, each drawing honored by the Bank hereunder shall PRO TANTO reduce the amount available under this Letter of Credit. Payments made in respect of any drawing (whether or not complying with the terms of this Letter of Credit) which have been deposited in any account specified in paragraph 3 hereof (or which have been received by the Trustee in another account specified by the recipient for such payment) shall automatically reduce the amount which the Trustee may draw hereunder, notwithstanding any acts or omissions, whether authorized or unauthorized, of the Trustee, or any officer, director, employee or agent of the Trustee in connection with any drawing hereunder or the proceeds thereof or otherwise in connection with this Letter of Credit. V. Upon payment by the Bank of a Tender Drawing on any Purchase Date (as defined in the Indenture) for the purchase by the Company of any Series A Bond or Bonds, the amount available under this Letter of Credit shall be automatically reinstated, in the amount of such payment and as to such Series A Bond or Bonds, unless (i) prior to 9:00 a.m., New York City time, on such Purchase Date, the Trustee and the Remarketing Agent receive telephonic notice from the Bank, confirmed in writing at any time on the same day, that a Default or Event of Default (as such terms are defined in the Reimbursement Agreement) has occurred and is continuing under the Letter of Credit and Reimbursement Agreement, dated as of November 1, 1994, among the Company, the banks party thereto and the Bank, as issuing bank and agent (the "REIMBURSEMENT AGREEMENT"), that the Remarketing Agent is to cease remarketing the Bonds and that the Letter of Credit will not be reinstated except as provided in Section 7.04B of the Indenture; or (ii) on any such date, there is in effect one or more letters of credit, or similar facilities providing credit and liquidity support, accepted by the Trustee before such date in substitution for this Letter of Credit. - 3 - VI. Only the Trustee may make a drawing under this Letter of Credit. Upon payment to the Trustee, as provided in paragraph 3 hereof, of the amount specified in any sight draft(s) drawn hereunder, the Bank shall be fully discharged of the Bank's obligation under this Letter of Credit with respect to such sight draft(s), and the Bank shall not thereafter be obligated to make any further payments under this Letter of Credit in respect of such sight draft(s) to the Trustee or any other person who makes or who may have made to the Trustee a demand for payment of principal of, redemption price of, or Purchase Price (as such term is defined in the Indenture) of, any Series A Bond. VII. This Letter of Credit may not be drawn against for payment of principal of, redemption price of, or Purchase Price of any Series A Bond which is owned by MHA, the Company, NME Hospitals, the Corporation or any Guarantor (as such terms are defined in the Indenture). VIII. This Letter of Credit is effective immediately and shall expire at 5:00 p.m., New York City time, on the Final Expiration Date, unless terminated earlier pursuant to Section 9 or unless the Final Expiration Date is extended by the Bank by delivering to the Trustee a Notice of Extension in the form of Annex IV hereto. The Bank may deliver to the Trustee a new Letter of Credit in exchange herefor, or an amendment hereto, to reflect any such extension. IX. This Letter of Credit shall automatically terminate, and shall be delivered to the Bank for cancellation, upon the earliest to occur of the following events: (i) the payment by the Bank of the final drawing available to be made hereunder which is not subject to reinstatement; (ii) the Bank's receipt of a certificate purportedly signed by a duly authorized officer of the Trustee and a duly authorized officer of the Company stating that: "The undersigned, ______________________, a duly authorized officer of Texas Commerce Bank National Association, and _______________, a duly authorized officer of National Medical Enterprises, Inc., state that no Series A Bonds remain Outstanding under the Indenture and (ii) upon receipt by The Bank of New York of this Certificate, The Bank of New York Irrevocable - 4 - Letter of Credit No. S00031638 shall terminate."; (iii) 5:00 p.m., New York City time, on the Final Expiration Date, as the same may be extended from time to time. X. This Letter of Credit, unless otherwise expressly stated, is subject to the terms and provisions of the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500 (the "UNIFORM CUSTOMS"), including the provisions thereof providing that parties may expressly agree to terms and provisions other than as provided in the Uniform Customs, and, to the extent not inconsistent with the Uniform Customs, shall be governed by the laws of the State of New York, including without limitation, Article 5 of the Uniform Commercial Code as in effect in the State of New York. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to the Bank at 101 Barclay Street, New York, New York 10286, Telecopier: (212) 349-3955, Telephone: (212) 815-3429, Attention: Manager, Standby Letter of Credit Dept., Floor 8 East, specifically referring thereon to "The Bank of New York Irrevocable Letter of Credit No. S00031638". XI. This Letter of Credit is transferable in its entirety (but not in part) to any transferee who has succeeded to the Trustee under the Indenture. Transfer of the available drawing(s) under this Letter of Credit to any such transferee shall be effected by the presentation to the Bank of this original Letter of Credit and any amendments for endorsement thereof on such transfer accompanied by a transfer letter in the form attached hereto as Annex III purportedly signed by an authorized officer of the Trustee and an authorized officer of such transferee. XII. This Letter of Credit sets forth in full the Bank's undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein (including, without limitation, the Series A Bonds), except only the certificate(s), sight draft(s), Notice(s) of Extension and transfer letter(s) referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificate(s), sight draft(s), Notice(s) of Extension and transfer letter(s). XIII. The Bank has no responsibility for determining (a) the genuineness of any documents or certificates presented in accordance herewith or (b) the authority of any officers or - 5 - purported officers who execute and deliver such documents or certificates. Very truly yours, Authorized Signature - 6 - ANNEX I TO SERIES A LETTER OF CREDIT CERTIFICATE FOR PRINCIPAL DRAWING The undersigned, Texas Commerce Bank National Association (the "TRUSTEE"), hereby certifies to The Bank of New York (the "BANK"), with reference to Irrevocable Letter of Credit No. S00031638 (the "LETTER OF CREDIT") issued by the Bank in favor of the Trustee, that: (1) The Trustee is the Trustee under the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994 (the "INDENTURE"), executed by the Metrocrest Hospital Authority in favor of the Trustee. (2) The Trustee is making a drawing under the Letter of Credit with respect to the payment of the principal of certain Series A Bonds pursuant to Section 4.01 of the Indenture. (3) The principal amount of the Series A Bonds in respect of which this draw is made is $_______________, and the amount of the sight draft accompanying this Certificate does not exceed such amount. (4) The amount of the sight draft accompanying this Certificate, together with the aggregate of all prior payments made pursuant to Principal Drawings under the Letter of Credit does not exceed $68,600,000.00. (5) The amount of the sight draft accompanying this Certificate was computed in accordance with the terms and conditions of the Series A Bonds and the Indenture and does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of the Series A Bonds. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ___ day of ___________, 19__. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, TRUSTEE By:____________________________ Title: ________________________ 2 ANNEX II TO SERIES A LETTER OF CREDIT CERTIFICATE FOR TENDER DRAWING The undersigned, Texas Commerce Bank National Association (the "TRUSTEE"), hereby certifies to The Bank of New York (the "BANK"), with reference to Irrevocable Letter of Credit No. S00031638 (the "LETTER OF CREDIT") issued by the Bank in favor of the Trustee, as trustee under the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994 (the "INDENTURE") executed by the Metrocrest Hospital Authority in favor of the Trustee, that: (1) The Trustee is the Trustee under the Indenture. (2) The Trustee is making a drawing in the amount of $_______________ under the Letter of Credit to pay the Purchase Price of Series A Bonds purchased for the account of the Company pursuant to Section 4.04 of the Indenture and will cause to be delivered to the Bank, pursuant to that certain Securities Pledge and Security Agreement, dated as of November 1, 1994, within three (3) days after the date of this Certificate, Series A Bonds having an aggregate face amount equal to $_____________ if such Bonds are not resold by the Remarketing Agent prior to that time. (3) The amount of the sight draft accompanying this Certificate does not exceed the amount of the Purchase Price that is due and payable on the date the draft accompanying this Certificate is payable with respect to such Series A Bonds to holders thereof other than MHA or the Company. (4) The amount of the sight draft accompanying this Certificate was computed in accordance with the terms and conditions of the Series A Bonds and the Indenture and does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of the Purchase Price of Series A Bonds purchased by the Tender Agent pursuant to Section 7.01 of the Indenture. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. - 1 - IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ___ day of ___________, 19___. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, TRUSTEE By:____________________________ Title: ________________________ - 2 - ANNEX III TO SERIES A LETTER OF CREDIT ______________, 19__ The Bank of New York 101 Barclay Street New York, New York 10286 Attention: Manager, Standby Letter of Credit Dept. Floor 8 East Re: The Bank of New York Irrevocable Letter of Credit No. S00031638 (the "LETTER OF CREDIT") Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to the following institution (the "TRANSFEREE"), which has succeeded to us as Trustee under the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994, from the Metrocrest Hospital Authority in favor of the undersigned, all rights of the beneficiary to draw under the Letter of Credit in its entirety. (Name of Transferee) (Address) By this transfer, all rights of the undersigned beneficiary in the Letter of Credit are transferred to the Transferee, and the Transferee shall have the sole rights as beneficiary of the Letter of Credit, including sole rights relating to any amendments, whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised direct to the Transferee without necessity of any consent of or notice to us. The Transferee hereby directs the Bank to make all payments of drafts drawn by the Transferee under the Letter of Credit to account number ________ at ___________________________. - 1 - The advice of such Letter of Credit is returned herewith, and the Trustee asks the Bank to endorse the transfer on the reverse thereof, and forward the Letter of Credit to the Transferee with the Bank's customary notice of transfer. Very truly yours, SIGNATURE AUTHENTICATED _____________________, Trustee _________________________ (Bank) By: __________________________ Title: _______________________ _________________________ (Authorized Signature) SIGNATURE AUTHENTICATED _______________________________ By: ____________________________ Title: _________________________ _________________________ Transferee (Bank) _________________________ (Authorized Signature) ANNEX IV TO SERIES A LETTER OF CREDIT NOTICE OF EXTENSION OF LETTER OF CREDIT NO. S00031638 ________________, 19__ _____________________________, Trustee _____________________________ _____________________________ _____________________________ National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Re: The Bank of New York Irrevocable Letter of Credit No. S00031638 (the "LETTER OF CREDIT") Ladies and Gentlemen: The Final Expiration Date of the above-captioned Letter of Credit has been extended from ____________, 19__, to ____________, 19__. Very truly yours, THE BANK OF NEW YORK By: _______________________ Name: _____________________ Title: ____________________ EXHIBIT B FORM OF SERIES B LETTER OF CREDIT OUR REFERENCE NO.: DATE: S00031639 December 6, 1994 Texas Commerce Bank National Association, Trustee 600 Travis, Suite 1150 Houston, TX 77002 Attention: Corporate Trust Administration Account No. 60730-00 Ladies and Gentlemen: A. At the request and for the account of National Medical Enterprises, Inc. (the "COMPANY"), The Bank of New York (the "BANK") hereby irrevocably establishes in favor of Texas Commerce Bank National Association (the "TRUSTEE") for the benefit of the holders of the Series B Bonds referred to below, this direct pay Series B Letter of Credit in an aggregate amount of US $22,750,000 (TWENTY TWO MILLION SEVEN HUNDRED FIFTY THOUSAND) AND 00/100 U.S. DOLLARS (as adjusted pursuant to paragraphs 4 and 5 hereof, the "STATED AMOUNT"), available from time to time in respect of the face amount of Series B 1989 Bonds in the aggregate principal amount of $22,750,000 (the "SERIES B BONDS") issued by the Metrocrest Hospital Authority ("MHA") pursuant to and in accordance with the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994 (the "INDENTURE") executed by MHA in favor of the Trustee. B. Funds under this Letter of Credit are available to: 1. the Trustee, with respect to a drawing made for the payment of the principal, at maturity, by redemption, upon acceleration under Section 10.02 of the Indenture or otherwise, of the Series B Bonds (a "PRINCIPAL DRAWING"), against the sight draft(s) of the Trustee, accompanied by a written certificate purportedly signed by an authorized officer of the Trustee in the form of Annex I attached hereto, appropriately completed; and the Trustee, with respect to the payment of the purchase price of the Series B Bonds purchased by the Tender Agent (as such term is defined in the Indenture) for the account of the Company pursuant to Section 7.01 of the Indenture (a "TENDER DRAWING"), against the sight draft(s) of the Trustee, accompanied by a written certificate purportedly signed by an authorized officer of the Trustee in the form of Annex II attached hereto, appropriately completed. In connection with any Tender Drawing, Series B Bonds in aggregate principal amount equal to the amount of the sight draft presented by the Trustee in respect of any such drawing shall be delivered by the Trustee to the Bank or its agent or designee as promptly as practicable, and in any event within three (3) days, after any such Tender Drawing if, prior to such delivery, such Series B Bonds have not been resold by the Remarketing Agent (as such term is defined in the Indenture). Drafts drawn under this Letter of Credit shall state on their face "Drawn under The Bank of New York Irrevocable Letter of Credit No. S00031639 dated December 6, 1994". Presentation of each draft and certificate required hereunder must be made at the Bank's office located at 101 Barclay Street, New York, New York 10286, Attention: Manager, Standby Letter of Credit Dept., Floor 8 East, not later than April 5, 1995 (the "FINAL EXPIRATION DATE"). All drawings under this Letter of Credit shall be paid only with funds of the Bank and not from any payments made by the Company to the Bank. C. The Bank hereby agrees that all drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored by the Bank upon delivery of the documents, as specified, if presented at such office on or before the Final Expiration Date, unless this Letter of Credit is terminated earlier as provided in paragraph 9 hereof. If a drawing in respect of payment is made hereunder at or prior to 10:00 a.m., New York City time, on a Business Day, and provided that such drawing and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified, in immediately available funds, not later than the close of business on such Business Day. If a drawing is made after 10:00 a.m., New York City time, on a Business Day, and provided that such drawing and the documents presented in connection therewith conform to the terms and conditions hereof, payment shall be made of the amount specified not later than 12:00 noon, New York City time, on the next succeeding Business Day. Payment under this Letter of Credit to the Trustee shall be transferred by fed wire transfer to Account No. 7001109635800, at Texas Commerce Bank - Houston, ABA #1130-00609, Attention: Ms. Donna Edmundson. For purposes of this Letter of Credit, 2 "BUSINESS DAY" shall mean any day other than (i) a Saturday or Sunday or (ii) a legal holiday or the equivalent on which banking institutions are generally authorized or required to close in New York, New York or in the city in which is located (a) the principal corporate trust office of the Trustee, the Tender Agent (as defined in the Indenture) or the principal offices of the Remarketing Agent (as defined in the Indenture) or (b) the office of the Issuing Bank or of its agent at which drafts or claims for payment under the Letter of Credit are to be presented, or (iii) a day on which the New York Stock Exchange is closed. D. Multiple drawings may be made hereunder, provided that, subject to paragraph 5 hereof, each drawing honored by the Bank hereunder shall PRO TANTO reduce the amount available under this Letter of Credit. Payments made in respect of any drawing (whether or not complying with the terms of this Letter of Credit) which have been deposited in any account specified in paragraph 3 hereof (or which have been received by the Trustee in another account specified by the recipient for such payment) shall automatically reduce the amount which the Trustee may draw hereunder, notwithstanding any acts or omissions, whether authorized or unauthorized, of the Trustee, or any officer, director, employee or agent of the Trustee in connection with any drawing hereunder or the proceeds thereof or otherwise in connection with this Letter of Credit. E. Upon payment by the Bank of a Tender Drawing on any Purchase Date (as defined in the Indenture) for the purchase by the Company of any Series B Bond or Bonds, the amount available under this Letter of Credit shall be automatically reinstated, in the amount of such payment and as to such Series B Bond or Bonds, unless (i) prior to 9:00 a.m., New York City time, on such Purchase Date, the Trustee and the Remarketing Agent receive telephonic notice from the Bank, confirmed in writing at any time on the same day, that a Default or Event of Default (as such terms are defined in the Reimbursement Agreement) has occurred and is continuing under the Letter of Credit and Reimbursement Agreement dated as of November 1, 1994, among the Company, the banks party thereto and the Bank, as issuing bank and agent (the "REIMBURSEMENT AGREEMENT"), that the Remarketing Agent is to cease remarketing the bonds and that the Letter of Credit will not be reinstated except as provided in Section 7.04 B. of the Indenture; or (ii) on any such date, there is in effect one or more letters of credit, or similar facilities providing credit and liquidity support, accepted by the Trustee before such date in substitution for this Letter of Credit. F. Only the Trustee may make a drawing under this Letter of 3 Credit. Upon payment to the Trustee, as provided in paragraph 3 hereof, of the amount specified in any sight draft(s) drawn hereunder, the Bank shall be fully discharged of the Bank's obligation under this Letter of Credit with respect to such sight draft(s), and the Bank shall not thereafter be obligated to make any further payments under this Letter of Credit in respect of such sight draft(s) to the Trustee or any other person who makes or who may have made to the Trustee a demand for payment of principal of, redemption price of, or Purchase Price (as such term is defined in the Remarketing Agreement) of, any Series B Bond. G. This Letter of Credit may not be drawn against for payment of principal of, redemption price of, or Purchase Price of any Series B Bond which is owned by MHA, the Company, NME Hospitals, the Corporation or any Guarantor (as such terms are defined in the Indenture). H. This Letter of Credit is effective immediately and shall expire at 5:00 p.m., New York City time, on the Final Expiration Date, unless terminated earlier pursuant to Section 9 or unless the Final Expiration Date is extended by the Bank by delivering to the Trustee a Notice of Extension in the form of Annex IV hereto. The Bank may deliver to the Trustee a new Letter of Credit in exchange herefor, or an amendment hereto, to reflect any such extension. I. This Letter of Credit shall automatically terminate, and shall be delivered to the Bank for cancellation, upon the earliest to occur of the following events: J. the payment by the Bank of the final drawing available to be made hereunder which is not subject to reinstatement; (ii) the Bank's receipt of a certificate purportedly signed by a duly authorized officer of the Trustee and a duly authorized officer of the Company stating that: "The undersigned, _________________, a duly authorized officer of Texas Commerce Bank National Association, and __________, a duly authorized officer of National Medical Enterprises, Inc., state that no Series B Bonds remain Outstanding under the Indenture and (ii) upon receipt by The Bank of New York of this Certificate, The Bank of New York Irrevocable Letter of Credit No. S00031639 shall terminate."; 4 (iii) 5:00 p.m., New York City time, on the Final Expiration Date, as the same may be extended from time to time. K. This Letter of Credit, unless otherwise expressly stated, is subject to the terms and provisions of the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication 500 (the "UNIFORM CUSTOMS"), including the provisions thereof providing that parties may expressly agree to terms and provisions other than as provided in the Uniform Customs, and, to the extent not inconsistent with the Uniform Customs, shall be governed by the laws of the State of New York, including without limitation, Article 5 of the Uniform Commercial Code as in effect in the State of New York. Communications with respect to this Letter of Credit shall be in writing and shall be addressed to the Bank at 101 Barclay Street, New York, New York 10286, Telecopier: (212) 349-3955, Telephone: (212) 815-3429, Attention: Manager, Standby Letter of Credit Dept., Floor 8 East, specifically referring thereon to "The Bank of New York Irrevocable Letter of Credit No. S00031639". L. This Letter of Credit is transferable in its entirety (but not in part) to any transferee who has succeeded to the Trustee under the Indenture. Transfer of the available drawing(s) under this Letter of Credit to any such transferee shall be effected by the presentation to the Bank of this original Letter of Credit and any amendments for endorsement thereof on such transfer accompanied by a transfer letter in the form attached hereto as Annex III purportedly signed by an authorized officer of the Trustee and an authorized officer of such transferee. M. This Letter of Credit sets forth in full the Bank's undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein (including, without limitation, the Series B Bonds), except only the certificate(s), sight draft(s), Notice(s) of Extension and transfer letter(s) referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificate(s), sight draft(s), Notice(s) of Extension and transfer letter(s). N. The Bank has no responsibility for determining (a) the genuineness of any documents or certificates presented in accordance herewith or (b) the authority of any officers or purported officers who execute and deliver such documents or certificates. 5 Very truly yours, __________________________ Authorized Signature 6 ANNEX I TO SERIES B LETTER OF CREDIT CERTIFICATE FOR PRINCIPAL DRAWING The undersigned, Texas Commerce Bank National Association (the "TRUSTEE"), hereby certifies to The Bank of New York (the "BANK"), with reference to Irrevocable Letter of Credit No. S00031639 (the "LETTER OF CREDIT") issued by the Bank in favor of the Trustee, that: O. The Trustee is the Trustee under the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994 (the "INDENTURE"), executed by the Metrocrest Hospital Authority in favor of the Trustee. P. The Trustee is making a drawing under the Letter of Credit with respect to the payment of the principal of certain Series B Bonds pursuant to Section 4.01 of the Indenture. Q. The principal amount of the Series B Bonds in respect of which this draw is made is $___________, and the amount of the sight draft accompanying this Certificate does not exceed such amount. R. The amount of the sight draft accompanying this Certificate, together with the aggregate of all prior payments made pursuant to Principal Drawings under the Letter of Credit does not exceed $22,750,000. S. The amount of the sight draft accompanying this Certificate was computed in accordance with the terms and conditions of the Series B Bonds and the Indenture and does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of the Series B Bonds. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ____ day of _____________, 199_. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, TRUSTEE By:_____________________________ Title:__________________________ 2 ANNEX II TO SERIES B LETTER OF CREDIT CERTIFICATE FOR TENDER DRAWING The undersigned, Texas Commerce Bank National Association (the "TRUSTEE"), hereby certifies to The Bank of New York (the "BANK"), with reference to Irrevocable Letter of Credit No. S00031639 (the "LETTER OF CREDIT") issued by the Bank in favor of the Trustee, as trustee under the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994 (the "INDENTURE") executed by the Metrocrest Hospital Authority in favor of the Trustee, that: T. The Trustee is the Trustee under the Indenture. U. The Trustee is making a drawing in the amount of $____________ under the Letter of Credit to pay the Purchase Price of Series B Bonds purchased for the account of the Company pursuant to Section 4.04 of the Indenture and will cause to be delivered to the Bank, pursuant to that certain Securities Pledge and Security Agreement, dated as of November 1, 1994, within three (3) days after the date of this Certificate, Series B Bonds having an aggregate face amount equal to $____________ if such Bonds are not resold by the Remarketing Agent prior to that time. V. The amount of the sight draft accompanying this Certificate does not exceed the amount of the Purchase Price that is due and payable on the date the draft accompanying this Certificate is payable with respect to such Series B Bonds to holders thereof other than MHA or the Company. W. The amount of the sight draft accompanying this Certificate was computed in accordance with the terms and conditions of the Series B Bonds and the Indenture and does not exceed the amount available on the date hereof to be drawn under the Letter of Credit in respect of the Purchase Price of Series B Bonds purchased by the Tender Agent pursuant to Section 7.01 of the Indenture. Any capitalized term used herein and not defined shall have its respective meaning as set forth in the Letter of Credit. IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as of the ____ day of _____________, 19__. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, TRUSTEE By:____________________________ Title:_________________________ 2 ANNEX III TO SERIES B LETTER OF CREDIT _______________________, 19__ The Bank of New York 101 Barclay Street New York, New York 10286 Attention: Manager, Standby Letter of Credit Dept. Floor 8 East Re: The Bank of New York Irrevocable Letter of Credit No. S00031639 (the "LETTER OF CREDIT") Gentlemen: For value received, the undersigned beneficiary hereby irrevocably transfers to the following institution (the "TRANSFEREE"), which has succeeded to us as Trustee under the Amended and Restated Indenture of Mortgage and Deed of Trust dated as of November 1, 1994, from the Metrocrest Hospital Authority in favor of the undersigned, all rights of the beneficiary to draw under the Letter of Credit in its entirety. (Name of Transferee) (Address) By this transfer, all rights of the undersigned beneficiary in the Letter of Credit are transferred to the Transferee, and the Transferee shall have the sole rights as beneficiary of the Letter of Credit, including sole rights relating to any amendments, whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised direct to the Transferee without necessity of any consent of or notice to us. The Transferee hereby directs the Bank to make all payments of drafts drawn by the Transferee under the Letter of Credit to account number _____________ at ____________________. The advice of such Letter of Credit is returned herewith, and the Trustee asks the Bank to endorse the transfer on the reverse thereof, and forward the Letter of Credit to the Transferee with the Bank's customary notice of transfer. Very truly yours, SIGNATURE AUTHENTICATED ____________________, Trustee ________________________ By:__________________________ (Bank) Title:_______________________ ________________________ (Authorized Signature) SIGNATURE AUTHENTICATED _____________________________ By:__________________________ Title:_______________________ Transferee ________________________ (Bank) ________________________ (Authorized Signature) 2 ANNEX IV TO SERIES B LETTER OF CREDIT NOTICE OF EXTENSION OF LETTER OF CREDIT NO. S00031639 ______________________, 19___ _______________________, Trustee _______________________ _______________________ _______________________ National Medical Enterprises, Inc. 2700 Colorado Avenue Santa Monica, California 90404 Re: The Bank of New York Irrevocable Letter of Credit No. S00031639 (the "LETTER OF CREDIT") Gentlemen: The Final Expiration Date of the above-captioned Letter of Credit has been extended from ___________________, 19___, to ______________________, 19__. Very truly yours, THE BANK OF NEW YORK By:____________________________ Name:__________________________ Title:_________________________ EXHIBIT C AMENDMENT OF SERIES A LETTER OF CREDIT Reference is made to Irrevocable Letter of Credit No. S00031638 (the "Series A L/C") issued by The Bank of New York in favor of Texas Commerce Bank National Association, Trustee. 1. The definition of "Reimbursement Agreement" in paragraph V of the Series A L/C is amended by deleting the following words: Letter of Credit and Reimbursement Agreement, dated as of November 1, 1994, among the Company, the banks party thereto and the Bank, as issuing bank and agent (the "Reimbursement Agreement") and substituting the following words: Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of February 28, 1995, among the Company, the banks party thereto and the Bank, as issuing bank and agent (as amended from time to time, the "Reimbursement Agreement") IN WITNESS WHEREOF the undersigned have signed this Amendment as of March 1, 1995. THE BANK OF NEW YORK By: ______________________ Title: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, Trustee By: ______________________ Title: EXHIBIT D AMENDMENT OF SERIES B LETTER OF CREDIT Reference is made to Irrevocable Letter of Credit No. S00031639 (the "Series B L/C") issued by The Bank of New York in favor of Texas Commerce Bank National Association, Trustee. 1. The definition of "Reimbursement Agreement" in paragraph V of the Series B L/C is amended by deleting the following words: Letter of Credit and Reimbursement Agreement, dated as of November 1, 1994, among the Company, the banks party thereto and the Bank, as issuing bank and agent (the "Reimbursement Agreement") and substituting the following words: Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of February 28, 1995, among the Company, the banks party thereto and the Bank, as issuing bank and agent (as amended from time to time, the "Reimbursement Agreement") IN WITNESS WHEREOF the undersigned have signed this Amendment as of March 1, 1995. THE BANK OF NEW YORK By: ______________________ Title: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, Trustee By: ______________________ Title: 2 EXHIBIT E SECURITIES PLEDGE AND SECURITY AGREEMENT This SECURITIES PLEDGE AND SECURITY AGREEMENT, dated as of November 1, 1994 ("AGREEMENT"), is made by and among National Medical Enterprises, Inc., a Nevada corporation (the "PLEDGOR"), Texas Commerce Bank National Association, as Trustee and as Bond Registrar ("REGISTRAR") under the Indenture (hereinafter defined) and The Bank of New York, as Issuing Bank under and as defined in the Reimbursement Agreement (hereinafter defined), on behalf of itself and the Banks. PRELIMINARY STATEMENTS: WHEREAS, the Metrocrest Hospital Authority (the "ISSUER") has agreed with the Pledgor to issue its first-mortgage hospital revenue bonds, Series 1989A and Series 1989B (the "BONDS"), under the Indenture of Mortgage and Deed of Trust, dated as of December 1, 1989, as amended and restated pursuant to the Amended and Restated Indenture of Mortgage and Deed of Trust, dated as of November 1, 1994 (as amended, modified or supplemented from time to time, the "INDENTURE"), between the Issuer and Texas Commerce Bank National Association, as Trustee (the "TRUSTEE"); and WHEREAS, in connection with the issuance of the Bonds the Pledgor has entered into a Letter of Credit and Reimbursement Agreement dated as of November 1, 1994 (as amended, modified or supplemented from time to time, the "REIMBURSEMENT AGREEMENT") with certain banks and The Bank of New York, as Issuing Bank and Agent, pursuant to which the Issuing Bank has agreed to issue its letters of credit (the "LETTERS OF CREDIT") which may be used, among other things, to pay the Purchase Price (as such term is defined in the Indenture) of Bonds that are purchased by the Pledgor pursuant to certain provisions of the Indenture and the Remarketing Agreement, dated November 1, 1994 (as amended, modified or supplemented from time to time, the "REMARKETING AGREEMENT") among the Pledgor, NME Hospitals, Inc., the Trustee, Texas Commerce Bank National Association, as Tender Agent (the "TENDER AGENT") and Merrill, Lynch, Pierce, Fenner & Smith, Incorporated, as Remarketing Agent (the "REMARKETING Agent"); WHEREAS, it is a condition precedent to the obligation of the Issuing Bank to issue the Letters of Credit under the Reimbursement Agreement that the Pledgor shall have entered into this Agreement, and it is a condition precedent to the effectiveness of the Reimbursement Agreement that the Pledgor shall have entered into this Agreement; NOW, THEREFORE, in consideration of the premises set forth herein and in order to induce the Issuing Bank to issue the Letters of Credit, the Pledgor, the Trustee, the Registrar and the Issuing Bank hereby agree as follows: SECTION 1. DEFINITIONS. Terms defined in the Reimbursement Agreement and not otherwise defined herein shall have the respective meanings provided for in the Reimbursement Agreement. SECTION 2. PLEDGE. The Pledgor hereby pledges and grants to the Issuing Bank for the benefit of the Issuing Bank and the Banks a security interest in the following (the "PLEDGED COLLATERAL"): (a) all of the right, interest and title of the Pledgor in and to the Bonds and the certificates representing the Bonds, whether now owned or hereafter acquired; (b) all proceeds of any and all of the foregoing Pledged Collateral; and (c) all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. SECTION 3. SECURITY FOR OBLIGATIONS. The security interest and lien granted by this Agreement secures the payment and performance of all debt, liabilities and obligations of the Pledgor to the Issuing Bank and the Banks, fixed or contingent, joint or several, now existing or hereafter arising, including but not limited to all obligations under and debt evidenced by the Reimbursement Agreement, and all obligations of the Pledgor to the Issuing Bank and the Banks now or hereafter existing under this Agreement and any other agreement or document executed in connection herewith or in connection with the Reimbursement Agreement (all such obligations and liabilities of the Pledgor being the "OBLIGATIONS"). SECTION 4. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing any Pledged Collateral which is not remarketed pursuant to the Remarketing Agreement within three (3) days following the day on which such Pledged Collateral is acquired by the Tender Agent for the account of the Company under the Indenture, shall be 2 delivered by the Trustee to and held by or on behalf of the Issuing Bank pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by instruments of transfer or assignment duly executed in blank, all in form and substance satisfactory to the Issuing Bank. The Issuing Bank shall have the right at any time after an Event of Default or any event that, with or without the passage of time or giving of notice (or both), would constitute an Event of Default (as hereinafter defined) shall have occurred and be continuing, (i) to transfer to or register in the name of the Issuing Bank or any of its nominees any or all of the Pledged Collateral, and (ii) to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, and the Registrar under the Indenture, agrees to so register the Pledged Collateral on written demand by the Issuing Bank. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants as follows: a. To the best of its knowledge, the Bonds have been duly authorized and validly issued. b. The Pledgor has not granted a security interest or lien in or on any of the Pledged Collateral, except for the security interest created by this Agreement. c. The pledge of the Pledged Collateral pursuant to this Agreement creates a valid first priority security interest in the Pledged Collateral, securing the payment of the Obligations, which will be perfected by the delivery of possession of the Pledged Collateral (either actual or constructive possession) to the Issuing Bank or its bailee. d. No consent by any other Person and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is, to the best knowledge of Pledgor, required either (i) for the pledge hereunder by the Pledgor of the Pledged Collateral or for the execution, delivery or performance of this Agreement by the Pledgor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest), or (iii) for the exercise of the voting or other rights provided for in this Agreement or the remedies hereunder in respect of the Pledged Collateral (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally). 3 e. The Pledgor has, independently and without reliance upon the Issuing Agent or the Banks and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. SECTION 6. FURTHER ASSURANCES. The Pledgor agrees that at any time and from time to time, at its own expense, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that the Issuing Bank may reasonably request in good faith, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Issuing Bank to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. SECTION 7. VOTING RIGHTS; DIVIDEND; ETC. a. So long as no Event of Default (as such term is defined in the Reimbursement Agreement) shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Reimbursement Agreement; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in the Issuing Bank's reasonable judgment, such action would cause a material adverse change in the value of such Pledged Collateral. (ii) The Pledgor shall be entitled to receive and retain any and all payments paid in respect of the Pledged Collateral owned by it, provided, however, that any and all (A) payments paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any such Pledged Collateral, and (B) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any such Pledged Collateral, shall be, and shall be forthwith delivered to the Issuing Bank to hold as, Pledged Collateral hereunder and shall, if received by the Pledgor, be received in trust for the benefit of the Issuing Bank, be segregated from the other property or funds of the 4 Pledgor, and be forthwith delivered to the Issuing Bank as Pledged Collateral hereunder in the same form as so received (with any necessary endorsement or assignment). (iii) The Issuing Bank shall execute and deliver (or cause to be executed and delivered) to the Pledgor all proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default (as such term is defined in the Reimbursement Agreement): (i) All rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) hereof and to receive the payments which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) hereof shall cease, and all such rights shall thereupon become vested in the Issuing Bank who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral hereunder such payments. (ii) All payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b) shall be received in trust for the benefit of the Issuing Bank, shall be segregated from other funds of the Pledgor, and be forthwith paid over to the Issuing Bank as Pledged Collateral hereunder in the same form as so received (with any necessary endorsement or assignment). SECTION 8. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, except pursuant to the Remarketing Agreement, or (ii) create or permit to exist any lien upon or with respect to any such Pledged Collateral, except for the security interest under this Agreement. SECTION 9. ISSUING BANK APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby appoints the Issuing Bank the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, at any time upon the occurrence and during the continuance of any Event of 5 Default, to take any action and to execute any instrument which the Issuing Bank reasonably may deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any interest payment or other distribution in respect of the Pledged Collateral owned by it or any part thereof and to give full discharge for the same. SECTION 10. ISSUING BANK MAY PERFORM. If the Pledgor fails to perform any agreement contained herein, the Issuing Bank may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Issuing Bank incurred in connection therewith shall be payable by the Pledgor under Section 14 hereof. SECTION 11. ISSUING BANK'S DUTIES. The powers conferred on the Issuing Bank hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. The Issuing Bank shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Issuing Bank accords its own property, it being understood that except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, the Issuing Bank shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, tenders or other matters relative to any Pledged Collateral, whether or not the Issuing Bank has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. SECTION 12. REMEDIES UPON DEFAULT. If any Event of Default (as such term is defined in the Reimbursement Agreement) shall have occurred and be continuing: (a) The Issuing Bank may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") in effect in the State of New York at that time, and the Issuing Bank may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Issuing Bank's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as shall be commercially reasonable. 6 The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' written notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Issuing Bank shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Issuing Bank may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by the Issuing Bank as Pledged Collateral and all cash proceeds received by the Issuing Bank in respect of any sale of, collection from, or other realization upon, all or any part of the Pledged Collateral may, in the discretion of the Issuing Bank, be held by the Issuing Bank as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Issuing Bank pursuant to Section 14 hereof) in whole or in part by the Issuing Bank against all or any part of the Obligations. Any surplus of such cash or cash proceeds held by the Issuing Bank and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 13. REGISTRATION RIGHTS. If the Issuing Bank shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to Section 12 hereof, and shall determine in good faith that it is necessary or advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as from time to time amended ("Securities Act") in order to sell such Pledged Collateral in foreclosure of the security interest of the Issuing Bank, the Pledgor agrees that, upon the reasonable request of the Issuing Bank, the Pledgor will, at its own expense: (a) execute and deliver, and cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Issuing Bank, advisable to register such Pledged Collateral under the provisions of the Securities Act, and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Issuing Bank, are necessary or advisable, all in conformity with 7 the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws of the required states and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Issuing Bank; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earning statement which will satisfy the provisions of Section 11(a) of the Securities Act; and (d) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Issuing Bank by reason of the failure by the Pledgor to perform any of the covenants contained in this Section and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Pledged Collateral on the date the Issuing Bank shall demand compliance with this Section. SECTION 14. INDEMNITY AND EXPENSES. The Pledgor agrees to indemnify each of the Issuing Bank, each Bank and the Trustee from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the Issuing Bank's, such Bank's or the Trustee's, as the case may be, gross negligence or willful misconduct. SECTION 15. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Issuing Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 16. ADDRESSES FOR NOTICES. Unless otherwise provided herein, all notices, requests, consents, demands and 8 other communications to any party hereto shall be in writing and shall be mailed, certified mail with return receipt requested, postage prepaid, or telegraphed, cabled, telexed, telecopied or otherwise physically delivered to its respective address as set forth in the Reimbursement Agreement, or the Indenture or, as to any party, to such other address as may be designated by it in written notice to all other parties. All notices, requests, consents and demands hereunder will be effective, if addressed to the Issuing Bank or the Pledgor or the Trustee as aforesaid, when mailed by certified mail, postage prepaid, return receipt requested, or upon delivery if telegraphed, cabled, telexed, telecopied or otherwise physically delivered, addressed as aforesaid. SECTION 17. CONTINUING SECURITY INTEREST; RELEASE. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full of the Obligations, (ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies hereunder, to the benefit of the Issuing Bank and its respective successors, transferees and assigns; provided however, notwithstanding the foregoing, the security interest granted herein in any Bond now owned or hereafter acquired by the Pledgor shall be deemed released with respect to such Bond if, after it is acquired by the Pledgor, it is sold by the Remarketing Agent pursuant to the Remarketing Agreement. Upon the payment in full of the Obligations and the termination and expiration of the Letters of Credit, the Pledgor shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 18. SECURITY INTEREST ABSOLUTE. All rights of the Issuing Bank and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective, to the extent permitted by applicable law, of: (a) any lack of validity or enforceability of the Reimbursement Agreement, any other document or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Reimbursement Agreement, or any other document; 9 (c) any taking, exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any part of the Obligation or any other assets of the Pledgor or any Subsidiary of the Pledgor; (e) any change, restructuring or termination of the corporate structure or existence of the Pledgor or any Subsidiary of the Pledgor; or (f) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Pledgor or a third party pledgor (except for payment of the Obligations in full). SECTION 19. ACTIONS BY ISSUING BANK. (a) The Pledgor specifically waives any notice of the creation, advancement, existence, extension or renewal of, or of any indulgence with respect to, the Obligations or any part thereof, and of nonpayment thereof or default thereon, and waives demand, protest, presentment and notice of demand, protest and presentment with respect to the Obligations, and waives notice of the amount of the Obligations outstanding at any time, and agrees that the maturity of the Obligations, and any part thereof, may be accelerated, extended or renewed by the Issuing Bank or other Persons entitled thereto in its or their discretion or as may be agreed without notice to or consent by the Pledgor. (b) The execution and delivery of this Agreement in no manner shall impair or affect any other security (by endorsement or otherwise) for the payment of the Obligations and no security taken hereafter as security for payment of the Obligations shall impair in any manner or affect this Agreement, all such present and further additional security to be considered as cumulative security. Any of the collateral for, or any obligor on, any of the Obligations may be released without altering, varying or diminishing in any way the force, effect, lien, security interest, or charge of this Agreement as to the Pledged Collateral not expressly released, and this Agreement shall continue as a security interest and charge on all of the Pledged Collateral not expressly released until all the Obligations secured hereby have been paid in full. 10 SECTION 20. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the State of New York. SECTION 21. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same agreement. SECTION 22. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR, THE REGISTRAR AND THE ISSUING BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11 IN WITNESS WHEREOF, each of the Pledgor, the Trustee, and the Issuing Bank have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. NATIONAL MEDICAL ENTERPRISES, INC. By: ________________________ Its: ________________________ 12 IN WITNESS WHEREOF, each of the Pledgor, the Trustee, and the Issuing Bank have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS TRUSTEE AND AS REGISTRAR By: ________________________ Its: ________________________ 13 IN WITNESS WHEREOF, each of the Pledgor, the Trustee, and the Issuing Bank have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. THE BANK OF NEW YORK, AS ISSUING BANK By: ________________________ Its: ________________________ 14 EXHIBIT F OFFICER'S CERTIFICATE AS TO CONTINUED ACCURACY OF REPRESENTATIONS AND NO DEFAULT Pursuant to Section 5.01(d) of the Amended and Restated Letter of Credit and Reimbursement Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc. (the "Company"), the Banks party thereto and The Bank of New York, as Issuing Bank and Agent (as the same may be amended from time to time, the "Agreement"), the undersigned Executive Vice President, Senior Vice President, Treasurer or Assistant Treasurer of the Company hereby certifies as follows: 1. The representations and warranties of the Company set forth or incorporated by reference in the Agreement or which are contained in any certificate, document or financial or other statement furnished in connection with the Agreement are true and correct on and as of the date hereof with the same effect as if made on the date hereof; 2. Immediately after the Agreement becomes effective, no Default or Event of Default (both as defined in the Agreement) will have occurred and be continuing under the Agreement. Dated: ____________, 1995 NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation By:_____________________________ Title: EXHIBIT I [Closing Date] To: Bank of America NT&SA Bankers Trust Company Morgan Guaranty Trust Company of New York and The Bank of New York, Re: Amended and Restated Credit and Reimbursement Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc., the Banks and the Issuing Bank Ladies and Gentlemen: We have acted as special counsel to N.M.E. International (Cayman) Limited, a Cayman Islands company ("NME (Cayman)"). Reference is made to the Security Agreement dated as of February 28, 1995 (the "Security Agreement") among National Medical Enterprises, Inc. NME (Cayman) and Morgan Guaranty Trust Company of New York, as Collateral Agent. Terms defined in the Security Agreement and not otherwise defined herein are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Based upon the foregoing, we are of the opinion that: (1) NME (Cayman) is a validly existing company in good standing under the law of the Cayman Islands, with requisite corporate power and legal right (i) to own and operate its properties and conduct its business as now conducted and (ii) to execute and deliver, and perform its obligations under, the Security Agreement as Collateral Agent pursuant to which NME (Cayman) will pledge the Westminster stock to NME's Banks, including, without limitation, to pledge the Westminster stock owned by it to secure the Secured Obligations (as defined in the Security Agreement); (2) The execution and delivery of the Security Agreement by NME (Cayman), and performance of its obligations thereunder (including, without limitation, the pledge of the Westminster stock owned by it to secure the Secured Obligations), has been duly authorized by all necessary corporate action on the part of NME (Cayman) and, upon execution of the Security Agreement by officers of NME (Cayman) then incumbent, the Security Agreement will have been duly executed by NME (Cayman); (3) No consents, approvals or authorizations by, or filings or recordings with, any governmental authority in the Cayman Islands is necessary to be obtained or made in connection with the execution and delivery by NME (Cayman) of the Security Agreement, or performance of its obligations thereunder, including, without limitation, the pledge by NME (Cayman) of the Westminster stock owned by it to secure the Secured Obligations; (4) The execution and delivery by NME (Cayman) of the Security Agreement, and performance of its obligations thereunder (including, without limitation, the pledge by NME (Cayman) of the Westminster stock owned by it to secure the Secured Obligations), does not violate any law, rule or regulation of the Cayman Islands or any Cayman Islands governmental or judicial order or decree of which we are aware to which NME (Cayman) is subject. 2 EXHIBIT J ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee") and THE BANK OF NEW YORK, as Issuing Bank (the "Issuing Bank"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement relates to the Amended and Restated Reimbursement Agreement dated as of February 28, 1995 among National Medical Enterprises, Inc., as Account Party, Bank of America National Trust and Savings Association, The Bank of New York, Bankers Trust Company and Morgan Guaranty Trust Company of New York, as Banks, and The Bank of New York, as Issuing Bank (as amended from time to time, the "Agreement"); WHEREAS, as provided under the Agreement, the Assignor has a Commitment in an aggregate amount not to exceed $__________ to participate in the Letters of Credit issued thereunder; WHEREAS, as of the date hereof Reimbursement Obligations in an amount equal to $_______________ are outstanding under the Agreement; WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Agreement in respect of a pro-rata portion of its Commitment in an amount equal to $_______________ (the "Assigned Amount"), and the Assignee proposes to accept such assignment of such rights and assume the corresponding obligations from the Assignor; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties 3 hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein have the respective meanings set forth in the Agreement. SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Agreement with respect to its Commitment to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of a pro-rata portion of the Reimbursement Obligations outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, the Company and the Issuing Bank and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Agreement with a Commitment in an aggregate amount equal to the Assigned Amount and a corresponding portion of Reimbursement Obligations, (ii) the Commitment of the Assignor shall, as of the date hereof, be correspondingly reduced and the Assignor released from its obligations under the Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. PAYMENTS. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them. It is understood that fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. SECTION 4. CONSENT OF THE ISSUING BANK. This Agreement is conditioned upon the consent of the Issuing Banks pursuant to Section 11.06(c) of the Agreement. 4 SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition or statements of the Company, the existence or value of the Collateral or the validity and enforceability of the obligations of the Company in respect of any Financing Document. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Company. SECTION 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 5 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By___________________ Title: [ASSIGNEE] By___________________ Title: The undersigned consents to the foregoing assignment: THE BANK OF NEW YORK, as Issuing Bank By____________________ Title: 6 SCHEDULE I LIST OF COMMITMENTS BANK COMMITMENT - ---- ---------- The Bank of New York $22,837,500 Bank of America National Trust and Savings Association 22,837,500 Bankers Trust Company 22,837,500 Morgan Guaranty Trust Company of New York 22,837,500 ----------- TOTAL $91,350,000 ----------- ----------- 7 EX-11 7 EXHIBIT 11 EXHIBIT 11 NATIONAL MEDICAL ENTERPRISES, INC. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS * (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED FEBRUARY 28, FEBRUARY 28, ------------------------ ------------------------ 1995 1994 1995 1994 --------- --------- --------- --------- FOR PRIMARY EARNINGS PER SHARE Shares outstanding at beginning of period . . . . . . . . 166,361 165,899 166,081 165,898 Shares issued upon exercise of stock options . . . . . . 52 22 224 21 Dilutive effect of outstanding stock options . . . . . . 1,489 -- 1,921 -- Shares issued as grants of restricted stock, net of cancellations . . . . . . . . . . . . . . . . . . . -- (49) -- (32) --------- --------- --------- --------- Weighted average number of shares and share equivalents outstanding . . . . . . . . . . . . . . 167,902 165,872 168,226 165,887 --------- --------- --------- --------- --------- --------- --------- --------- Income from continuing operations before cumulative effect of a change in accounting principle . . . . . $ 48,854 $ 90,717 $ 159,100 $ 204,625 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share from continuing operations before cumulative effect of a change in accounting principle . . . . . . . . . . . . . . . . . . . . . $ 0.29 $ 0.55 $ 0.95 $ 1.23 --------- --------- --------- --------- --------- --------- --------- --------- FOR FULLY DILUTED EARNINGS PER SHARE Weighted average number of shares used in primary calculation . . . . . . . . . . . . . . . . . . . . 167,902 165,872 168,226 165,887 Additional dilutive effect of stock options . . . . . . . 343 -- 226 -- Assumed conversion of dilutive convertible debentures . . . . . . . . . . . . . . . . . . . . 13,825 13,978 13,251 13,978 --------- --------- --------- --------- Fully diluted weighted average number of shares . . . . . 182,070 179,850 181,703 179,865 --------- --------- --------- --------- --------- --------- --------- --------- Income from continuing operations used in primary calculation . . . . . . . . . . . . . . . . . . . . $ 48,854 $ 90,717 $ 159,100 $ 204,625 Adjustments for interest expense, contractual allowances and income taxes . . . . . . . . . . . . 1,775 1,648 5,503 4,139 --------- --------- --------- --------- Adjusted income from continuing operations used in fully diluted calculation . . . . . . . . . . . . . $ 50,629 $ 92,365 $ 164,603 $ 208,764 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share from continuing operations before cumulative effect of a change in accounting principle . . . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.51 $ 0.91 $ 1.16 --------- --------- --------- --------- --------- --------- --------- --------- ____________________ * All shares in these tables are weighted on the basis of the number of days the shares were outstanding or assumed to be outstanding during each period.
26 EX-27 8 EXHIBIT 27
5 1,000 9-MOS MAY-31-1994 FEB-28-1995 144,500 51,600 766,500 71,300 55,300 1,016,800 2,663,200 876,500 3,330,700 624,900 725,600 13,900 0 0 1,471,100 3,330,700 0 1,962,100 0 1,634,800 0 68,900 52,900 264,100 105,000 159,100 0 0 0 159,100 .95 .91
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