-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G+3Vq0/8XDo19mdrvUCMnIPBCaFc63SzvcBduBm6ib3neyei2b2XMp2tUe+tMmSF VUdlICwLEBP4n6aKlISQeQ== 0000950144-98-009910.txt : 19980817 0000950144-98-009910.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950144-98-009910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYCOR INC/TN CENTRAL INDEX KEY: 0000881400 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 621344801 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19786 FILM NUMBER: 98689987 BUSINESS ADDRESS: STREET 1: 30 BURTON HILLS BLVD STREET 2: STE 400 CITY: NASHVILLE STATE: TN ZIP: 37215 BUSINESS PHONE: 6156659066 MAIL ADDRESS: STREET 1: 30 BURTON HILLS BLVD STREET 2: STE 400 CITY: NASHVILLE STATE: TN ZIP: 37215 10-Q 1 PHYCOR, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________. COMMISSION FILE NUMBER: 0-19786 PHYCOR, INC. ------------ (Exact Name of Registrant as Specified in Its Charter) TENNESSEE 62-1344801 ------------------------------ ------------------ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 30 BURTON HILLS BLVD., SUITE 400 NASHVILLE, TENNESSEE 37215 --------------------------------------- ----------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (615) 665-9066 -------------- NOT APPLICABLE -------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- As of August 12, 1998, 78,245,363 shares of the Registrant's Common Stock were outstanding. 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements PHYCOR, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1998 (unaudited) and December 31, 1997 (All dollar amounts are expressed in thousands)
JUNE 30, DECEMBER 31, ASSETS 1998 1997 - ------- ----- ----- (Unaudited) Current assets: Cash and cash equivalents $ 63,336 38,160 Accounts receivable, net 436,759 391,668 Inventories 20,692 18,578 Prepaid expenses and other current assets 72,931 48,158 ---------- --------- Total current assets 593,718 496,564 Property and equipment, net 271,571 235,685 Intangible assets, net 997,057 807,726 Other assets 30,000 22,801 ---------- --------- Total assets $1,892,346 1,562,776 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Current installments of long-term debt $ 5,526 1,144 Current installments of obligations under capital leases 3,214 3,564 Accounts payable 43,471 34,622 Due to physician groups 57,217 50,676 Purchase price payable 87,085 114,971 Salaries and benefits payable 41,979 37,141 Other accrued expenses and liabilities 120,060 51,145 ---------- --------- Total current liabilities 358,552 293,263 Long-term debt, excluding current installments 354,539 210,893 Obligations under capital leases, excluding current installments 4,153 5,093 Purchase price payable 27,646 23,545 Deferred tax credits and other liabilities 47,420 57,918 Convertible subordinated notes payable to physician groups 52,799 61,576 Convertible subordinated debentures 200,000 200,000 ---------- --------- Total liabilities 1,045,109 852,288 ---------- --------- Shareholders' equity: Preferred stock, no par value; 10,000,000 shares authorized: -- -- Common stock, no par value; 250,000,000 shares authorized; issued and outstanding, 71,878,000 in 1998 and 63,273,000 shares in 1997 774,222 645,288 Retained earnings 73,015 65,200 ---------- --------- Total shareholders' equity 847,237 710,488 ---------- --------- Total liabilities and shareholders' equity $1,892,346 1,562,776 ========== =========
See accompanying notes to consolidated financial statements. 2 3 PHYCOR, INC. AND SUBSIDIARIES Consolidated Statements of Operations Three months and six months ended June 30, 1998 and 1997 (All amounts are expressed in thousands, except for earnings per share) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net revenue $ 371,450 267,354 694,145 518,006 Operating expenses: Cost of provider services 26,024 -- 26,024 -- Clinic salaries, wages and benefits 126,980 100,722 247,691 195,586 Clinic supplies 56,543 42,374 109,649 81,638 Purchased medical services 9,337 7,661 18,573 14,689 Other clinic expenses 53,657 41,284 102,559 80,307 General corporate expenses 7,685 6,672 15,141 13,159 Rents and lease expense 31,650 23,717 61,713 45,960 Depreciation and amortization 22,835 14,938 41,010 28,660 Provision for clinic restructuring and merger expenses -- -- 36,196 -- --------- -------- -------- -------- Net operating expenses 334,711 237,368 658,556 459,999 --------- -------- -------- -------- Earnings from operations 36,739 29,986 35,589 58,007 Interest income (747) (660) (1,492) (1,713) Interest expense 9,281 5,266 16,803 11,425 --------- -------- -------- -------- Earnings before income taxes and minority interest 28,205 25,380 20,278 48,295 Income tax expense 8,993 8,689 5,738 16,393 Minority interest in earnings of consolidated partnerships 3,899 2,985 6,725 5,889 --------- -------- -------- -------- Net earnings $ 15,313 13,706 7,815 26,013 ========= ======== ======== ======== Earnings per share: Basic $ .22 .22 .12 .43 Diluted .22 .20 .11 .39 ========= ======== ======== ======== Weighted average number of shares and dilutive share equivalents outstanding: Basic 68,779 63,570 67,516 61,095 Diluted 70,857 68,191 70,024 65,932 ========= ======== ======== ========
See accompanying notes to consolidated financial statements. 3 4 PHYCOR, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Three months and six months ended June 30, 1998 and 1997 (All dollar amounts are expressed in thousands) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Cash flows from operating activities: Net earnings $ 15,313 13,706 7,815 26,013 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 22,835 14,938 41,010 28,660 Minority interests 3,899 2,985 6,725 5,889 Provision for clinic restructuring and merger expenses -- -- 36,196 -- Increase (decrease) in cash, net of effects of acquisitions, due to changes in: Accounts receivable (991) 1,522 (22,122) (13,894) Inventories (260) (876) 22 (758) Prepaid expenses and other current assets (5,731) (6,108) (8,811) (2,783) Accounts payable (2,107) 2,818 (2,732) (2,667) Due to physician groups (2,278) (2,409) 5,038 5,277 Other accrued expenses and liabilities 7,163 (1,221) 11,271 (2,496) --------- ------- -------- -------- Net cash provided by operating activities 37,843 25,355 74,412 43,241 --------- ------- -------- -------- Cash flows from investing activities: Payments for acquisitions, net (105,455) (31,414) (139,994) (182,373) Purchase of property and equipment (17,815) (14,349) (37,970) (32,271) Payments to acquire other assets (821) (373) (11,133) (2,171) --------- ------- -------- -------- Net cash used by investing activities (124,091) (46,136) (189,097) (216,815) --------- ------- -------- -------- Cash flows from financing activities: Net proceeds from issuance of stock and warrants 9,497 11,231 16,460 223,796 Proceeds from long-term borrowings 103,000 27,000 139,000 182,000 Repayment of long-term borrowings (2,136) (8,127) (9,056) (218,225) Repayment of obligations under capital leases (1,131) (203) (1,898) (2,175) Distributions of minority interests (3,190) (2,999) (4,369) (3,675) Loan costs incurred (276) -- (276) -- --------- ------- -------- -------- Net cash provided by financing activities 105,764 26,902 139,861 181,721 --------- ------- -------- -------- Net increase in cash and cash equivalents 19,516 6,121 25,176 8,147 Cash and cash equivalents - beginning of period 43,820 32,556 38,160 30,530 --------- ------- -------- -------- Cash and cash equivalents - end of period $ 63,336 38,677 63,336 38,677 ========= ======= ======== ========
See accompanying notes to consolidated financial statements. 4 5 PHYCOR, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued Three months and six months ended June 30, 1998 and 1997 (All dollar amounts are expressed in thousands) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES: Effects of acquisitions: Assets acquired, net of cash $ 207,365 22,168 292,946 279,736 Liabilities paid (assumed), net of deferred purchase price payments (16,212) 9,246 (41,730) (80,513) Issuance of convertible subordinated notes payable -- -- (1,317) (8,672) Issuance of common stock and warrants (84,517) -- (105,974) (8,178) Cash received from disposition of clinic assets (1,181) -- (3,931) -- --------- ------ -------- -------- Payments for acquisitions $ 105,455 31,414 139,994 182,373 ========= ====== ======== ======== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Capital lease obligations incurred to acquire equipment $ 258 146 438 310 ========= ====== ======== ======== Conversion of subordinated notes payable to common stock $ -- 3,888 2,000 11,558 ========= ====== ======== ========
See accompanying notes to consolidated financial statements. 5 6 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements Three months and six months ended June 30, 1998 and 1997 (1) BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the unaudited interim financial statements contained in this report reflect all adjustments, consisting of only normal recurring accruals which are necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 1997. (2) ACQUISITIONS (A) MULTI-SPECIALTY MEDICAL CLINICS Through June 30, 1998 and during 1997, the Company, through wholly-owned subsidiaries, acquired certain operating assets of the following clinics:
CLINIC EFFECTIVE DATE LOCATION ------ -------------- -------- 1998: Grove Hill Medical Center March 1, 1998 New Britain, Connecticut Watson Clinic (A) May 1, 1998 Lakeland, Florida Desert Valley Medical Group and Hospital May 1, 1998 Victorville, California 1997: Vancouver Clinic January 1, 1997 Vancouver, Washington First Physicians Medical Group February 1, 1997 Palm Springs, California St. Petersburg-Suncoast Medical Group February 28, 1997 St. Petersburg, Florida Greater Chesapeake Medical Group May 1, 1997 Annapolis, Maryland Welborn Clinic June 1, 1997 Evansville, Indiana White-Wilson Medical Center July 1, 1997 Ft. Walton Beach, Florida Maui Medical Group September 1, 1997 Maui, Hawaii Murfreesboro Medical Clinic October 1, 1997 Murfreesboro, Tennessee West Florida Medical Center Clinic October 1, 1997 Pensacola, Florida Northern California Medical Association December 1, 1997 Santa Rosa, California Lakeview Medical Center (B) December 1, 1997 Suffolk, Virginia
(A) Watson Clinic entered into an interim management agreement effective May 1, 1998. (B) Lakeview Medical Center was operated under a management agreement during December 1997. Effective January 1, 1998, the Company completed the purchase of certain clinic operating assets and entered into a long-term service agreement with the affiliated physician group. (Continued) 6 7 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements The acquisitions were accounted for as purchases, and the accompanying consolidated financial statements include the results of their operations from the dates of their respective acquisitions. Simultaneous with each acquisition, the Company entered into a long-term service agreement with the related clinic physician group. The service agreements are 40 years in length. In conjunction with certain acquisitions, the Company is obligated to make deferred payments to physician groups. (B) NORTH AMERICAN MEDICAL MANAGEMENT, INC. (NORTH AMERICAN) Effective January 1, 1995, the Company completed its merger with North American, an operator and manager of independent practice associations (IPAs). The Company made additional payments for the North American acquisition pursuant to an earn-out formula during 1996 and 1997 totaling $35.0 million. A final payment of $35.0 million was made in April 1998, of which $13.0 million was paid in shares of the Company's Common Stock. (C) PHYCOR MANAGEMENT CORPORATION (PMC) In June 1995, the Company purchased a minority interest of approximately 9% in PMC and has managed PMC pursuant to a 10-year administrative services agreement. PMC develops and manages IPAs and provides other services to physician organizations. PhyCor acquired the remaining interests of PMC on March 31, 1998 for an aggregate purchase price of approximately $21.0 million paid in shares of the Company's Common Stock. (D) PRIMECARE INTERNATIONAL, INC. (PRIMECARE) In May 1998, the Company acquired PrimeCare, a physician practice management company serving southern California's Inland Empire area, in a purchase business combination. PrimeCare's delivery network is comprised of an integrated campus, including the Desert Valley Medical Group, Desert Valley Hospital and Apple Valley Surgery Center, as well as the Inland Empire area IPA network. (3) NET REVENUE Net revenue of the Company is comprised of net clinic service agreement revenue, IPA management revenue, and net hospital revenues. Clinic service agreement revenue is equal to the net revenue of the clinics, less amounts retained by physician groups. Net clinic revenue is recorded by the physician groups and net hospital revenue is recorded at established rates reduced by provisions for doubtful accounts and contractual adjustments. Contractual adjustments arise as a result of the terms of certain reimbursement and managed care contracts. Such adjustments represent the difference between charges at established rates and estimated recoverable amounts and are recognized in the period the services are rendered. Any differences between estimated contractual adjustments and actual final settlements under reimbursement contracts are recognized as contractual adjustments in the year final settlements are determined. With the exception of PrimeCare, the physician groups, rather than the Company, enter into managed care contracts. Through calculation of its service fees, the Company shares indirectly in any capitation risk assumed by its affiliated physician groups. IPA management revenue is equal to the difference between the amount of capitation and risk pool payments due to the IPAs managed by the Company less amounts retained by the IPA. The Company has not historically been a party to capitated contracts entered into by the IPAs, but it is exposed to losses to the extent of its share of deficits, if any, of the capitated revenue of the IPAs. With the acquisition of PrimeCare, the Company became a party to certain managed care contracts. Accordingly, the cost of provider services for the PrimeCare contracts is not included as a deduction to net revenue of the Company but is reported as an operating expense. (Continued) 7 8 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements The following represent amounts included in the determination of net revenue (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Gross physician group and hospital revenue $883,479 686,126 1,724,998 1,329,283 Less: Provisions for doubtful accounts and contractual adjustments 351,810 260,369 691,099 503,202 -------- ------- --------- --------- Net physician group and hospital revenue 531,669 425,757 1,033,899 826,081 IPA revenue 176,114 98,637 297,097 185,627 -------- ------- --------- --------- Net physician group, hospital and IPA revenue 707,783 524,394 1,330,996 1,011,708 Less amounts retained by physician groups and IPAs: Physician groups 185,824 157,809 361,857 305,584 Clinic technical employee compensation 23,567 17,437 46,795 34,732 IPAs 126,942 81,794 228,199 153,386 -------- ------- --------- --------- Net revenue $371,450 267,354 694,145 518,006 ======== ======= ========= =========
(4) ASSETS TO BE DISPOSED OF AND RESTRUCTURED In the fourth quarter of 1997, the Company recorded a pre-tax charge to earnings of $83.4 million related to the revaluation of assets of seven of the Company's multi-specialty clinics. Included in the seven clinics were three clinic operations the Company determined to dispose of because of a variety of negative operating and market-specific issues. The Company completed the disposal of one clinic in the first quarter of 1998, a second clinic in April 1998 and the third clinic in July 1998. Amounts received upon the dispositions approximated net book value of those assets. Clinic net assets to be disposed of include current assets, property and equipment, intangibles and other assets totaling $1,397,000 and $3,237,000 at June 30, 1998 and December 31, 1997, respectively. Net losses from the clinics to be disposed of totaled $19,000 and $171,000 in the second quarter and first six months of 1998, respectively, and $666,000 in 1997. In addition, restructuring charges totaling $22.0 million were recorded in the first quarter of 1998 with respect to the seven clinics that are being sold or restructured and included facility and lease termination costs, severance costs and other exit costs in the amount of $15,316,000, $4,611,000 and $2,073,000, respectively. The Company is closing, consolidating or subleasing various leased facilities associated with the related physician groups and expects to complete such closings or subleases in 1998. During the second quarter of 1998 and the first six months of 1998, the Company paid approximately $1.0 million and $2.3 million, respectively, in costs associated with the above activities. (Continued) 8 9 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements (5) MERGER EXPENSES The Company recorded a pre-tax charge to earnings of approximately $14.2 million in the first quarter of 1998 relating to the termination of its merger agreement with MedPartners, Inc. This charge represents the Company's share of investment banking, legal, travel, accounting and other expenses incurred during the merger negotiation process. (6) NEW ACCOUNTING PRONOUNCEMENT Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No.130 "Reporting Comprehensive Income". Comprehensive income generally includes all changes in equity during a period except those resulting from investments by shareholders and distributions to shareholders. Net income was the same as comprehensive income for the second quarter and first six months of 1998 and 1997. (7) CHANGE IN ACCOUNTING POLICY Effective April 1, 1998, the Company changed its policy with respect to amortization of intangible assets. All existing and future intangible assets will be amortized over a period not to exceed 25 years from the inception of the respective intangible assets. Had the Company adopted this policy at the beginning of 1997, amortization expense would have increased and diluted earnings per share would have decreased by approximately $2.8 million and $0.02, respectively, in the second quarter of 1997 and $5.6 million and $0.05, respectively, in the first six months of 1997. On the same basis, for the first quarter of 1998, amortization expense would have increased by approximately $3.3 million, resulting in a decrease in diluted earnings per share of $0.03. (8) SUBSEQUENT EVENTS In July 1998, the Company completed three previously announced acquisitions. The Company acquired Seattle-based CareWise, Inc., a nationally recognized leader in the health care decision-support industry and Atlanta-based First Physician Care, Inc., a provider of practice management services. Both of these transactions were accounted for as poolings-of-interests and treated as tax free exchanges, and the Company issued approximately 6.1 million shares of Common Stock in conjunction with these transactions. The Company also completed its acquisition of The Morgan Health Group, Inc., an Atlanta-based IPA. On July 23, 1998, the Company announced it expects to record a pre-tax asset impairment charge of approximately $65 million in the third quarter of 1998. This expected charge relates primarily to continuing negative operating trends for those clinic operations which were included in the fourth quarter 1997 asset impairment charge and corresponding initiatives to dispose of these assets. 9 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW PhyCor, Inc. ("PhyCor" or the "Company") is a physician practice management company that acquires and operates multi-specialty medical clinics, develops and manages independent practice associations ("IPAs") and provides health care decision-support services, including demand management and disease management services to managed care organizations, health care providers, employers and other group associations. Including the pending transaction discussed below, the Company currently operates 60 clinics with approximately 4,045 physicians in 29 states and manages IPAs with approximately 26,000 physicians in 36 markets. The Company's affiliated physicians provide medical services under capitated contracts to approximately 1,517,000 patients, including approximately 253,000 Medicare/Medicaid eligible patients. The Company provides health care decision-support services to more than approximately 1.8 million individuals within the United States and an additional 500,000 under foreign country license agreements. The Company's strategy is to position its affiliated multi-specialty medical clinics and IPAs to be the physician component of organized health care systems. PhyCor believes physician organizations create the value in these networks because physician decisions determine the cost and quality of health care. A substantial majority of the Company's revenue in the first six months of 1998 and 1997 was earned under service agreements with multi-specialty medical clinics. Revenue earned under substantially all of the service agreements is equal to the net revenue of the clinics, less amounts retained by physician groups. The service agreements contain financial incentives for the Company to assist the physician groups in increasing clinic revenues and controlling expenses. To increase clinic revenue, the Company works with the affiliated physician groups to recruit additional physicians, merge other physicians practicing in the area into the affiliated physician groups, negotiate contracts with managed care organizations and provide additional ancillary services. To reduce or control expenses, among other things, PhyCor utilizes national purchasing contracts for key items, reviews staffing levels to make sure they are appropriate and assists the physicians in developing more cost-effective clinical practice patterns. The Company has increased its focus on the development of IPAs to enable the Company to provide services to a broader range of physician organizations, to enhance the operating performance of existing clinics and to further develop physician relationships. The Company develops IPAs that include affiliated clinic physicians to enhance the clinics' attractiveness as providers to managed care organizations. On May 11, 1998, the Company announced that it had entered into an interim management agreement and letter of intent to acquire certain assets and enter into a long-term service agreement with Watson Clinic, a 167-physician multi-specialty group based in Lakeland, Florida. On May 18, 1998, the Company acquired PrimeCare International, Inc. ("PrimeCare"), a physician practice management company serving southern California's Inland Empire area. PrimeCare's delivery network is comprised of an integrated campus, including the 60-physician Desert Valley Medical Group, the 83-bed Desert Valley Hospital and Apple Valley Surgical Center, as well as the Inland Empire area IPA Network, a network of 10 IPAs consisting of 210 primary care physicians and approximately 2,000 affiliated specialty physicians. 10 11 In addition to the acquisition of PrimeCare, the Company affiliated with one other multi-specialty clinic and numerous smaller medical practices and completed its purchase of certain operating assets of Lakeview Medical Center located in Suffolk, Virginia, which was operated under a management agreement during December 1997, adding a total of $248.6 million in assets during the first six months of 1998. The principal assets acquired were accounts receivable, property and equipment, prepaid expenses, and service agreement rights, an intangible asset. The consideration for the acquisitions consisted of approximately 49% cash, 21% liabilities assumed, 29% Common Stock and 1% convertible notes. The cash portion of the purchase price was funded by a combination of operating cash flow and borrowings under the Company's bank credit facility. Property and equipment acquired consists mostly of clinic operating equipment. Since June 30, 1998, the Company has completed its acquisition of The Morgan Health Group, Inc., an Atlanta-based IPA whose network of approximately 400 primary care physicians and 1,800 specialists provide care to approximately 57,000 managed care members under capitated contracts. The Company also completed its previously announced acquisitions of Atlanta-based First Physician Care, Inc. ("FPC"), a provider of practice management services, and Seattle-based CareWise, Inc. ("CareWise"), a nationally recognized leader in the consumer decision-support industry. The FPC and CareWise transactions were accounted for as poolings-of-interests. The Company issued approximately 6.1 million shares of Common Stock in conjunction with the FPC and CareWise transactions. The Company has historically amortized the goodwill and other intangible assets related to its service agreements over the periods during which the agreements are effective, ranging from 25 to 40 years. Effective April 1, 1998, the Company adopted a maximum of 25 years as the useful life for amortization of its intangible assets, including those acquired in prior years. Had this policy been in place for 1997, amortization expense would have increased by approximately $2.8 million in the second quarter of 1997, approximately $5.6 million in the first six months of 1997, and approximately $11.2 million for the full year. Applying the Company's historical tax rate, diluted earnings per share would have been reduced by $0.02 in the second quarter of 1997, $0.05 for the first six months of 1997, and $0.10 for the full year of 1997 . On the same basis, for the first quarter of 1998, amortization expense would have increased by approximately $3.3 million, resulting in a decrease in diluted earnings per share of $0.03. RESULTS OF OPERATIONS The following table shows the percentage of net revenue represented by various expense and other income items reflected in the Company's Consolidated Statements of Operations.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net revenue................................. 100.0% 100.0% 100.0% 100.0% Operating expenses Cost of provider services................ 7.0 -- 3.7 -- Clinic salaries, wages and benefits...... 34.2 37.7 35.7 37.8 Clinic supplies.......................... 15.2 15.8 15.8 15.8 Purchased medical services............... 2.5 2.9 2.7 2.8 Other clinic expenses.................... 14.4 15.4 14.8 15.5 General corporate expenses............... 2.1 2.5 2.2 2.5 Rents and lease expense................. 8.5 8.9 8.9 8.9 Depreciation and amortization............ 6.2 5.6 5.9 5.5 Provision for clinic restructuring and merger expenses.............. -- -- 5.2 -- ------ ------ ------- ------- Operating expenses.......................... 90.1 88.8 94.9 (A) 88.8 ------ ------ ------- -------
11 12 Earnings from operations.............. 9.9 11.2 5.1 (A) 11.2 Interest income............................. (0.2) (0.3) (0.2) (0.3) Interest expense............................ 2.5 2.0 2.4 2.2 ------ ------ ------- ------- Earnings before income taxes and minority interest................ 7.6 9.5 2.9 (A) 9.3 Income tax expense.......................... 2.4 3.3 .8 (A) 3.2 Minority interest........................ 1.1 1.1 1.0 1.1 ------ ------ ------ ------- Net earnings.......................... 4.1% 5.1% 1.1% (A) 5.0% ====== ====== ====== ======
(A) Excluding the effect of the provision for clinic restructuring and merger expenses in 1998, operating expenses, earnings from operations, earnings before income taxes and minority interest, income tax expense and net earnings, as a percent of net revenue, would have been 89.7%, 10.3%, 8.1%, 3.0% and 4.1%, respectively, for the six months ended June 30, 1998. 1998 Compared to 1997 Net revenue increased $104.1 million, or 38.9%, from $267.4 million for the second quarter of 1997 to $371.5 million for the second quarter of 1998, and from $518.0 million to $694.1 million for the first six months of 1997 compared to 1998, an increase of 34.0%. The increase in clinic net revenue from the second quarter of 1997 compared to 1998 was $67.2 million, including $55.2 million in service fees resulting from newly acquired clinics in 1998 or the timing of entering into new service agreements in 1997 and was comprised of (i) a $62.2 million increase in service fees for reimbursement of clinic expenses incurred by the Company and (ii) a $5.0 million increase in the Company's share of clinic operating income and net physician group revenue. The increase in clinic net revenue from the first six months of 1997 compared to 1998 was $134.8 million, including $106.5 million in service fees resulting from newly acquired clinics in 1998 or the timing of entering into new service agreements in 1997 and was comprised of (i) a $121.2 million increase in service fees for reimbursement of clinic expenses incurred by the Company and (ii) a $13.6 million increase in the Company's share of clinic operating income and net physician group revenue. The increases in clinic net revenue have been reduced as a result of assets disposed in 1998 by $4.8 million and $5.2 million in the second quarter and the first six months of 1998, compared to the same periods in 1997, respectively. Net revenue from the 39 service agreements and 27 IPA markets (excluding clinics being restructured or sold) in effect for both quarters, increased by $26.8 million, or 12.8%, for the quarter and $50.5 million, or 12.0%, for the six months ended June 30, 1998, compared with the same period in 1997. Same market growth resulted from the addition of new physicians, the expansion of ancillary services and increases in patient volume and fees. During the second quarter and first six months of 1998, most categories of operating expenses varied as a percentage of net revenue when compared to the same periods in 1997. The addition of cost of provider services is a result of the acquisition of PrimeCare in the second quarter of 1998. PrimeCare manages a network of 10 IPAs in the Inland Empire area of southern California, and is a party to certain managed care contracts, resulting in the company presenting such revenues on a "gross-up basis," where the cost of provider services (payments to physicians and other providers under subcapitation and other reimbursement contracts) is not included as a deduction to net revenue of the Company but is reported as an operating expense. This revenue reporting has an impact on the Company's operating expenses as a percentage of net revenue. Excluding the impact of PrimeCare's revenue reporting, most categories of operating expenses as a percentage of net revenue during the second quarter and first six months of 1998 were comparable to the percentages in the same periods in 1997. Excluding the impact of PrimeCare's revenue reporting, clinic salaries, wages and benefits decreased as a percentage of net revenue resulting from the acquisition of clinic operations with lower levels of these expenses compared to the existing base of clinics and continued focus on efficiently staffing the existing clinic operations. The increase in depreciation and amortization expense as a percentage of net revenue resulted from the change in the amortization policy with respect to intangible assets. The addition of pharmacies at certain existing clinics and new clinics which operate pharmacies also resulted in increased clinic supplies expense, excluding the impact of PrimeCare's revenue reporting. While general corporate expenses decreased as a percentage of net revenue, the dollar amount of general corporate expenses increased as a result of the 12 13 addition of corporate personnel to accommodate growth and to respond to increasing physician group needs for support in managed care negotiations, information systems implementation and clinical outcomes management programs. The provision for clinic restructuring of $22.0 million in the first quarter of 1998 relates to seven of the Company's clinics that are being restructured or sold and includes facility and lease termination costs, severance and other exit costs. In the fourth quarter of 1997, the Company recorded a pre-tax charge of $83.4 million related to asset revaluation at these same clinics. The charges address operating issues which developed in four of the Company's multi-specialty clinics which represent the Company's earliest developments of such clinics through the formation of new groups. Three other clinics included in the 1997 charge represent clinics disposed of during 1998 because of a variety of negative operating and market issues. Losses on the three clinics divested approximated the amounts accrued. For additional discussion, see "Liquidity and Capital Resources." The Company also recorded a pre-tax charge to earnings of approximately $14.2 million in the first quarter of 1998 relating to the termination of its merger agreement with MedPartners, Inc. This charge represents PhyCor's share of investment banking, legal, travel, accounting and other expenses incurred during the merger negotiation process. The Company expects an effective tax rate of approximately 37.0% in 1998 before the tax benefit of the provision for clinic restructuring and merger expenses discussed above as compared to a rate of 38.5% in 1997. PhyCor has assessed its practice management systems, managed care information systems, business information systems and other clinic systems for compliance with the Year 2000 issue. The Company is in its normal process of standardizing the various systems utilized by its clinics and IPAs. This standardization includes implementation of Year 2000 compliant systems. The Company has performed an assessment of its various clinics and IPAs to identify which systems specifically require replacement or upgrade because of the Year 2000 issue in order to ensure timely upgrade or installation. The Company believes it has a replacement strategy in place such that the Year 2000 issue will not have a significant effect on its operations. Total capital costs to implement new systems and to address the Year 2000 issue are expected to be less than $20.0 million. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company had $235.2 million in working capital, compared to $203.3 million as of December 31, 1997. Also, the Company generated $37.8 million of cash flow from operations for the second quarter of 1998 compared to $25.4 million for the second quarter of 1997 and $74.4 million for the first six months of 1998 compared to $43.2 for the same period in 1997. At June 30, 1998, net accounts receivable of $436.8 million amounted to 70 days of net clinic revenue compared to $391.7 million and 72 days at the end of 1997. In the first six months of 1998, $2.0 million of convertible subordinated notes issued in connection with physician group asset acquisitions were converted into Common Stock. These conversions, option exercises, other issuances of Common Stock and net earnings for the first six months of 1998 resulted in an increase of $136.7 million in shareholders' equity compared to December 31, 1997. Capital expenditures during the first six months of 1998 totaled $38.0 million. The Company is responsible for capital expenditures at its affiliated clinics under the terms of its service agreements. The Company expects to make approximately $31.0 million in capital expenditures during the remainder of 1998. 13 14 In June 1995, the Company purchased a minority interest of approximately 9% in PhyCor Management Corporation ("PMC") and has managed PMC pursuant to a 10-year administrative services agreement. PMC develops and manages IPAs and provides other services to physician organizations. PhyCor acquired the remaining interests of PMC on March 31, 1998 for approximately 956,300 shares of the Company's Common Stock. Effective January 1, 1995, the Company completed its acquisition of North American Medical Management, Inc. ("North American"). The Company paid $20.0 million at closing and has made additional payments pursuant to an earn-out formula during 1996 and 1997 totaling $35.0 million. A final payment of $35.0 million was made pursuant to the earnout formula in April 1998. Of the final payment, $13.0 million was made in shares of the Company's Common Stock. In addition, deferred acquisition payments are payable to physician groups in the event such physician groups attain predetermined financial targets during established periods of time following acquisition. If each group satisfied its applicable financial targets for the periods covered, the Company would be required to pay an aggregate of approximately $82.9 million of additional consideration over the next five years, of which a maximum of $16.7 million would be payable during the remainder of 1998. In the fourth quarter of 1997, the Company recorded a pre-tax charge to earnings of $83.4 million related to the revaluation of assets of seven of the Company's multi-specialty clinics. In the first quarter of 1998, the Company also recorded an additional charge of approximately $22.0 million relating to these clinics that are being restructured or sold. The pre-tax charge was partially in response to issues which arose in four of the Company's multi-specialty clinics which represent the Company's earliest developments of such clinics through the formation of new groups. The clinics were considered to have an impairment of certain current assets, property and equipment, other assets and, primarily, intangible assets as a result of certain groups of physicians within a larger clinic terminating their relationship with the medical group affiliated with the Company and therefore affecting future cash flows. On July 23, 1998, the Company announced it expects to record a pre-tax asset impairment charge of approximately $65 million in the third quarter of 1998, primarily related to the same group formation multi-specialty clinics. This expected charge relates to continuing negative operating trends and corresponding initiatives to dispose of these assets. At June 30, 1998, the Company had a total of nine group formation multi-specialty clinics, which includes the four clinics associated with the charges discussed above. The total assets and intangible assets of the remaining five group formation clinics not included in the asset impairment charges totaled $80.4 million and $50.4 million at June 30, 1998, respectively. The Company has limited its growth through new group formations, and believes recent group formations have been more successful. Three other clinics included in the fourth quarter of 1997 charge represent clinics disposed of because of a variety of negative operating and market issues including those related to market position and clinic demographics, physician relations, operating results and ongoing viability of the existing medical group. Although these factors have been present individually from time to time in various affiliated clinics and could occur in future clinic operations, the combined effect of the existence of these factors at the clinics disposed of resulted in clinic operations that made it difficult for the Company to effectively manage the clinics. One of these clinics was sold in the first quarter of 1998, the second clinic in April 1998 and the third clinic in July 1998. These assets were sold below carrying value for the reasons noted above, and given such facts, a sale at a discount to original carrying value was considered more cost-effective than a liquidation which might have subjected the Company to additional costs. The Company recorded no gain or loss on the final disposition of these assets. The Company does not believe that the clinics included in the 14 15 charges are indicative of a trend in the Company's operations or the industry in which the Company operates. There can be no assurance, however, that in the future a similar combination of negative characteristics will not develop at a clinic affiliated with the Company and result in the termination of the service agreement or that in the future additional clinics will not terminate their relationships with the Company in a manner that may materially adversely affect the Company. PhyCor has been the subject of an audit by the Internal Revenue Service ("IRS") covering the years 1988 through 1993. The IRS has proposed adjustments relating to the timing of recognition for tax purposes of certain revenue and deductions relating to uncollectible accounts and a recharacterization of the Company's relationship with affiliated physician groups. PhyCor disagrees with the positions asserted by the IRS including any recharacterization and is vigorously contesting these proposed adjustments. The Company believes that any adjustments resulting from resolution of this disagreement would not affect reported net earnings of PhyCor but would defer tax benefits and change the levels of current and deferred tax assets and liabilities. For the years under audit, and potentially, for subsequent years, any such adjustments could result in material cash payments by the Company. PhyCor does not believe the resolution of this matter will have a material adverse effect on its financial condition, although there can be no assurance as to the outcome of this matter. In April 1998, the Company completed modifications to its bank credit facility which included the revision of certain terms and conditions. The Company's bank credit facility provides for a five-year, $500.0 million revolving line of credit for use by the Company prior to April 2003 for acquisitions, working capital, capital expenditures and general corporate purposes. The total drawn cost under the facility is either .275% to .75% above the applicable eurodollar rate or the agent's base rate plus .10% to .225% per annum. The total drawn cost of outstanding borrowings at June 30, 1998 was 6.36%. On October 17, 1997, the Company entered into an interest rate swap agreement to fix the interest rate on $100 million of debt at 5.85% relative to the three month floating LIBOR. The interest rate swap agreement matures in October 2002 with a lender's option to terminate beginning October 1999. The Company's bank credit facility contains covenants which, among other things, require the Company to maintain certain financial ratios and impose certain limitations or prohibitions on the Company with respect to (i) the incurring of certain indebtedness, (ii) the creation of security interests on the assets of the Company, (iii) the payment of cash dividends on, and the redemption or repurchase of, securities of the Company, (iv) investments and (v) acquisitions. The Company is required to obtain bank consent for an acquisition with an aggregate purchase price of $75.0 million or more. The Company was in compliance with such covenants at June 30, 1998. At June 30, 1998, the Company had cash and cash equivalents of approximately $63.3 million, and as of August 12, 1998, $154.7 million available under its bank credit facility. The Company believes that the combination of funds available under the Company's bank credit facility, together with cash reserves and cash flow from operations, should be sufficient to meet the Company's current planned capital expenditures and working capital needs over the next year. In addition, in order to provide the funds necessary for the continued pursuit of the Company's long-term acquisition and expansion strategy, the Company expects to continue to incur, from time to time, additional short-term and long-term indebtness and to issue equity and debt securities, the availability and terms of which will depend upon market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the Company. Forward-looking statements of PhyCor included herein or incorporated by reference including, but not limited to, those regarding future business prospects, the acquisition of additional clinics, the development of additional IPAs, the adequacy of PhyCor's capital resources, the adequacy of recent and proposed asset impairment and restructuring charges, the future profitability of capitated fee arrangements and other statements regarding trends relating to various revenue and expense 15 16 items, could be affected by a number of risks, uncertainties, and other factors described in the Company's Annual Report on Form 10-K, as amended on Form 10-K/A, for the year ended December 31, 1997. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. No disclosure required. PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting of shareholders of the Company was held on Tuesday, June 2, 1998. At this meeting, the following matters were voted upon by the Company's shareholders: (A) AMENDMENT AND RESTATEMENT OF THE COMPANY'S AMENDED 1988 INCENTIVE STOCK PLAN The Company's shareholders rejected the amendment and restatement of the Company's Amended 1988 Incentive Stock Plan to (i) increase from 17,000,000 to 18,300,000 the number of shares of Common Stock authorized thereunder, (ii) limit the number of Awards that can be made to any employee during the calendar year, (iii) modify the restriction on the transfer of Plan awards, other than incentive options, to allow transfers approved by the Compensation Committee of the Board of Directors, (iv) appoint the Compensation Committee as administrator of the Plan, and (v) make other administrative modifications with respect to the grant of options.
Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 15,647,107 26,823,726 145,898
(B) ADOPTION OF THE COMPANY'S 1998 INCENTIVE STOCK PLAN The shareholders of the Company rejected the adoption of the Company's 1998 Incentive Stock Plan.
Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 15,765,207 26,702,786 148,938
(C) ELECTION OF CLASS I DIRECTORS Winfield Dunn, C. Sage Givens, Joseph A. Hill and Richard D. Wright were elected to serve as Class I directors of the Company. The vote was as follows:
Names Votes Cast in Favor Votes Cast Against or Withheld ----- ------------------- ------------------------------ Winfield Dunn 54,182,989 503,335 C. Sage Givens 54,195,750 490,574 Joseph A. Hill 54,090,736 595,588 Richard D. Wright 54,095,463 590,861
(D) SELECTION OF AUDITORS The shareholders of the Company ratified the appointment of KPMG Peat Marwick LLP as the Company's independent auditors for the fiscal year ended December 31, 1998, by the following vote: 16 17
Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 54,539,130 105,880 41,314
ITEM 5. OTHER INFORMATION. The deadline for delivering to the Company notice of shareholder proposals, other than proposals to be included in the proxy statement, for the 1999 Annual Meeting of Shareholders will be March 16, 1999, pursuant to Rule 14a-4. The persons named as proxies in the proxy statement may exercise discretionary authority to vote on any proposals received after such date. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ ----------------------- 3.1 -- Restated Charter of Registrant(1) 3.2 -- Amendment to Restated Charter of the Registrant (2) 3.3 -- Amendment to Restated Charter of the Registrant (3) 3.4 -- Amended Bylaws of the Registrant (1) 4.1 -- Specimen of Common Stock Certificate (4) 4.2 -- Shareholder Rights Agreement, dated February 18, 1994, between the Registrant and First Union National Bank of North Carolina (5) 10.1 -- $500,000,000 Second Amended and Restated Credit Agreement, dated as of April 2, 1998, among the Registrant, the Banks named therein and Citibank, N.A . 10.2 -- Registrant's Nonqualified Stock Option Plan (6) 27.1 -- Financial Data Schedule (for SEC use only) 27.2 -- Financial Data Schedule (for SEC use only)
- ------------- (1) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, Commission No. 0-19786. (2) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-3, Registration No. 33-93018. (3) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-3, Registration No. 33-98528. (4) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-1, Registration No. 33-44123. (5) Incorporated by reference to exhibits filed with the Registrant's Current Report on Form 8-K dated February 18, 1994, Commission No. 0-19786. (6) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-8, Registration No. 333-58709. (B) REPORTS ON FORM 8-K. The Company filed a Current Report on Form 8-K on April 29, 1998 announcing the change in its policy with respect to amortization of intangible assets pursuant to Item 5 of Form 8-K; and a Current Report on Form 8-K on June 3, 1998 announcing the acquisition of PrimeCare International, Inc. pursuant to Item 2 of Form 8-K. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHYCOR, INC. By: /s/ John K. Crawford ------------------------------ John K. Crawford Chief Financial Officer Date: August 14, 1998 18 19 Exhibit Index
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------ ----------------------- 3.1 -- Restated Charter of Registrant(1) 3.2 -- Amendment to Restated Charter of the Registrant (2) 3.3 -- Amendment to Restated Charter of the Registrant (3) 3.4 -- Amended Bylaws of the Registrant (1) 4.1 -- Specimen of Common Stock Certificate (4) 4.2 -- Shareholder Rights Agreement, dated February 18, 1994, between the Registrant and First Union National Bank of North Carolina (5) 10.1 -- $500,000,000 Second Amended and Restated Credit Agreement, dated as of April 2, 1998, among the Registrant, the Banks named therein and Citibank, N.A . 10.2 -- Registrant's Nonqualified Stock Option Plan (6) 27.1 -- Financial Data Schedule (for SEC use only) 27.2 -- Financial Data Schedule (for SEC use only)
- ------------- (1) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, Commission No. 0-19786. (2) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-3, Registration No. 33-93018. (3) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-3, Registration No. 33-98528. (4) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-1, Registration No. 33-44123. (5) Incorporated by reference to exhibits filed with the Registrant's Current Report on Form 8-K dated February 18, 1994, Commission No. 0-19786. (6) Incorporated by reference to exhibits filed with the Registrant's Registration Statement on Form S-8, Registration No. 333-58709. EX-10.1 2 SECOND AMENDED REVOLVING CREDIT AGREEMENT 1 Exhibit 10.1 EXECUTION COPY U.S. $500,000,000 SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT DATED AS OF APRIL 2, 1998 AMONG PHYCOR, INC., AS BORROWER, THE BANKS NAMED HEREIN, AS BANKS, AND CITIBANK, N.A., AS AGENT 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................................1 SECTION 1.01. Certain Defined Terms...............................................1 SECTION 1.02. Computation of Time Periods........................................27 SECTION 1.03. Accounting Terms...................................................27 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES..............................................27 SECTION 2.01. The Committed Rate Advances........................................27 SECTION 2.02. The Competitive Bid Advances.......................................30 SECTION 2.03. Fees...............................................................34 SECTION 2.04. Optional Reduction of the Commitments..............................35 SECTION 2.05. Repayment..........................................................35 SECTION 2.06. Interest...........................................................35 SECTION 2.07. Interest Rate Determination and Protection.........................37 SECTION 2.08. Voluntary and Automatic Conversion of Committed Rate Advances......37 SECTION 2.09. Prepayments........................................................38 SECTION 2.10. Increased Costs....................................................39 SECTION 2.11. Illegality.........................................................40 SECTION 2.12. Payments and Computations..........................................40 SECTION 2.13. Taxes..............................................................42 SECTION 2.14. Sharing of Payments, Etc...........................................43 SECTION 2.15. Evidence of Debt/Register..........................................44 SECTION 2.16. Use of Proceeds....................................................44 SECTION 2.17. Outstanding Advances, Existing Collateral..........................44 ARTICLE III AMOUNT AND TERMS OF LETTERS OF CREDIT AND PARTICIPATIONS THEREIN..............45 SECTION 3.01. Letters of Credit..................................................45 SECTION 3.02. Issuing the Letters of Credit......................................46 SECTION 3.03. Reimbursement Obligations..........................................46 SECTION 3.04. Participations Purchased by the Banks..............................47 SECTION 3.05. Letter of Credit Fees..............................................48 SECTION 3.06. Indemnification: Nature of the Issuing Bank's Duties...............49 SECTION 3.07. Increased Costs....................................................50 SECTION 3.08. Uniform Customs and Practice.......................................51 ARTICLE IV CONDITIONS OF LENDING..........................................................51 SECTION 4.01. Conditions Precedent to Any Borrowing and Letter of Credit.........51 SECTION 4.02. Conditions Precedent to Initial Advances...........................52
i 3 ARTICLE V REPRESENTATIONS AND WARRANTIES..................................................54 SECTION 5.01. Representations and Warranties of the Borrower.....................54 ARTICLE VI COVENANTS OF THE BORROWER......................................................58 SECTION 6.01. Affirmative Covenants..............................................58 SECTION 6.02. Negative Covenants.................................................61 SECTION 6.03. Financial Covenants................................................72 SECTION 6.04. Reporting Requirements.............................................74 ARTICLE VII EVENTS OF DEFAULT.............................................................76 SECTION 7.01. Events of Default..................................................76 ARTICLE VIII THE AGENT....................................................................80 SECTION 8.01. Authorization and Action...........................................80 SECTION 8.02. Agent's Reliance, Etc..............................................80 SECTION 8.03. Citibank and Affiliates............................................81 SECTION 8.04. Bank Credit Decision...............................................81 SECTION 8.05. Indemnification....................................................81 SECTION 8.06. Successor Agent/Issuing Bank.......................................82 SECTION 8.07. Documentation Agent................................................83 ARTICLE IX MISCELLANEOUS..................................................................83 SECTION 9.01. Amendments, Etc....................................................83 SECTION 9.02. Notices, Etc.......................................................84 SECTION 9.03. No Waiver: Remedies................................................84 SECTION 9.04. Costs, Expenses and Taxes..........................................84 SECTION 9.05. Right of Set-off...................................................85 SECTION 9.06. Indemnification....................................................86 SECTION 9.07. Binding Effect.....................................................87 SECTION 9.08. Assignments and Participations.....................................87 SECTION 9.09. Headings...........................................................90 SECTION 9.10. Confidentiality....................................................90 SECTION 9.11. Severability of Provisions.........................................91 SECTION 9.12. Independence of Provisions.........................................91 SECTION 9.13. Consent to Jurisdiction............................................91 SECTION 9.14. GOVERNING LAW......................................................92 SECTION 9.15. WAIVER OF JURY TRIAL...............................................92 SECTION 9.16. Execution in Counterparts..........................................92
ii 4 SCHEDULES Schedule I - Real Property Schedule II - Subsidiaries Schedule III - Service Agreements Schedule IV - Existing Debt Schedule V - Existing Liens Schedule VI - Litigation Schedule VII - Existing Letters of Credit iii 5 EXHIBITS Exhibit A-1 - Form of Committed Rate Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B-1 - Form of Notice of Borrowing Exhibit B-2 - Form of Competitive Bid Request Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Subordination Agreement Exhibit E - Forms of Opinion of Counsel Exhibit F - Form of Acquisition Approval Letter Exhibit G - Form of Consent iv 6 Second Amended and Restated Revolving Credit Agreement, dated as of April 2, 1998 (this "Agreement"), among PHYCOR, INC., a Tennessee corporation (the "Borrower"), the banks (the "Banks") listed on the signature pages hereof and from time to time parties hereto, and CITIBANK, N.A. ("Citibank"), as an Issuing Bank hereunder, SunTrust Bank, Nashville, N.A., as the Swing Line Bank hereunder, Citibank, as administrative agent (the "Agent") for the Banks and the Issuing Banks and NationsBank, N.A., as documentation agent (the "Documentation Agent"). PRELIMINARY STATEMENT The Borrower has requested that the Amended and Restated Revolving Credit Agreement, dated as of July 1, 1997, as amended by the First Amendment dated as of February 13, 1998, among the Borrower, the banks named therein, NationsBank, N.A., as documentation agent, and Citibank, as an issuing bank thereunder and as agent (the "Existing Credit Agreement"), be amended and restated to provide for the making of advances to it and to provide for the issuance of letters of credit for its account under a revolving credit facility in the principal amount of up to $500,000,000 to refinance certain existing debt of the Borrower and to provide financing to the Borrower for general corporate purposes, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "$100,000,000 Synthetic Lease Facility" means the agreements and instruments, as amended, supplemented, restated or otherwise modified from time to time, providing financing for the acquisition and construction of property for physician clinics, medical offices and corporate offices, pursuant to which Borrower and/or one of more of its Subsidiaries shall lease such properties under one or more synthetic lease and under which the maximum amount of obligations issued to note holders and certificate holders shall not exceed $100,000,000. "Accounts" means all present and future rights of the Borrower or any Subsidiary of the Borrower to payment for goods (including medications) sold or leased or for services rendered pursuant to any Service Agreement (except 7 those evidenced by instruments or chattel paper), whether now existing or hereafter arising and wherever arising and whether or not earned by performance (including, without limitation, accounts receivable purchased by the Borrower or any of its Subsidiaries from any physician group which has entered into a Service Agreement with the Borrower or such Subsidiary). "Administrative Details Reply Form" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent, submitted by such Bank to the Agent (with a copy to the Borrower) and duly completed by such Bank. "Advance" means a Committed Rate Advance, Competitive Bid Advance or a Swing Line Advance. In the case of Committed Rate Advances, "Advance" also refers to a Base Rate Advance or Eurodollar Rate Advance (each of which shall be a "Type" of Committed Rate Advance). In the case of Competitive Bid Advances, "Advance" also refers to a Fixed Rate Advance or a LIBOR Advance (each of which shall be a "Type" of Competitive Bid Advance). "Affiliate" means, with respect to any Person, any other entity that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. "Agent" has the meaning specified in the recital of parties to this Agreement. "Applicable Eurodollar Rate Margin" means, for the Initial Effective Period (as defined below), 0.4375% per annum and thereafter 0.5250% per annum; provided, however, that if the Borrower shall have satisfied the Consolidated Debt/EBITDA Ratio test indicated in the table below, the Applicable Eurodollar Rate Margin for any Advance, as applicable, made on or after the fifth Business Day after the delivery of quarterly certified Consolidated financial statements and a schedule evidencing financial covenant compliance delivered to the Banks pursuant to Section 6.04(a) (each a "Quarterly Delivery"), and while the Borrower is in compliance with Section 6.04(a), shall be the percentage rate per annum set forth opposite the appropriate test for the fiscal quarter reported on for such Quarterly Delivery for such Advance in the table below. 2 8
Applicable Eurodollar Consolidated Rate Margin for Debt/EBITDA Ratio Advances -------------------------------------- --------------------- Greater than 3.25 to 1.00 0.5250% Less than or equal to 3.25 to 1.00 but 0.4375% greater than 2.50 to 1.00 Less than or equal to 2.50 to 1.00 but 0.3250% greater than 2.00 to 1.00 Less than or equal to 2.00 to 1.00 but 0.2875% greater than 1.50 to 1.00 Less than or equal to 1.50 to 1.00 0.2500%
The Applicable Eurodollar Rate Margin shall be determined by the Agent each quarter on the basis of quarterly certified Consolidated financial statements and a schedule evidencing financial covenant compliance delivered to the Banks pursuant to Section 6.04(b). The "Initial Effective Period" shall be the period commencing on the Closing Date and ending the fifth Business Day after the Quarterly Delivery for the fiscal quarter ended March 31, 1998. Notwithstanding the foregoing, the Applicable Eurodollar Rate Margin shall be deemed to be 0.5250% per annum in respect of Advances made on any day as of which the deliveries required to calculate the Applicable Eurodollar Rate Margin shall not have been made. "Applicable Facility Fee Rate" means for the Initial Effective Period 0.1875% per annum and thereafter for each Effective Period (as defined below) 0.2250% per annum; provided, however, that if the Borrower shall have satisfied the Consolidated Debt/EBITDA Ratio test indicated in the table below, the Applicable Facility Fee Rate for the Effective Period as to which such test is satisfied shall be the percentage rate per annum set forth opposite the appropriate test for the Commitment in the table below. 3 9
Applicable Facility Fee Consolidated Rate for Debt/EBITDA Ratio Advances -------------------------------------- ----------------------- Greater than 3.25 to 1.00 0.2250% Less than or equal to 3.25 to 1.00 but 0.1875% greater than 2.50 to 1.00 Less than or equal to 2.50 to 1.00 but 0.1750% greater than 2.00 to 1.00 Less than or equal to 2.00 to 1.00 but 0.1500% greater than 1.50 to 1.00 Less than or equal to 1.50 to 1.00 0.1250%
The Applicable Facility Fee Rate shall be determined by the Agent each quarter on the basis of quarterly certified Consolidated financial statements and a schedule evidencing financial covenant compliance delivered to the Banks pursuant to Section 6.04(b). The "Effective Period" with respect to the Applicable Facility Fee Rate shall be the period commencing on the fifth Business Day after the Borrower shall have delivered to the Agent the quarterly certified Consolidated financial statements and financial covenant compliance schedule for such quarter and ending on the date that is five Business Days after delivery to the Agent of quarterly certified Consolidated financial statements and financial covenant compliance certificate for the subsequent quarter. Notwithstanding the foregoing, the Applicable Facility Fee Rate shall be deemed to be 0.2250% per annum for each day during an Effective Period as of which the deliveries required to calculate the Applicable Facility Fee Rate shall not have been made. "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of a Base Rate Advance or a Fixed Rate Advance and such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance or a LIBOR Advance. "Asset Purchase Agreement" means any agreement between the Borrower or any of its Subsidiaries and any Person relating to the purchase by the Borrower or any of its Subsidiaries of the assets of any Facility or Related Business. "Assignment and Acceptance" means an assignment and acceptance entered into by an assigning Bank and an Eligible Assignee, and accepted by the Agent, in accordance with Section 9.08 and in substantially the form of Exhibit C. 4 10 "Banks" means the banks listed on the signature pages hereof and, after the date hereof, includes each Eligible Assignee that has entered into an Assignment and Acceptance which has been accepted by the Agent. "Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; or (b) 1/2 of one percent per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank in either case adjusted to the nearest 1/16 of one percent or, if there is no nearest 1/16 of one percent, to the next higher 1/16 of one percent; or (c) the Federal Funds Rate plus 1/2 of one percent. "Base Rate Advance" means a Committed Rate Advance which bears interest as provided in Section 2.06(a)(i). "Bid Due Date" has the meaning set forth in Section 2.02(c). "Borrowing" means a Borrowing that is a Committed Rate Borrowing, a Competitive Bid Borrowing or a Swing Line Borrowing. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances or LIBOR Advances, on which dealings in dollar deposits are carried on in the London interbank market. "Capital Expenditures" means, with respect to any Person for any period, the aggregate of all expenditures paid or accrued by such Person during such period that, in accordance with generally accepted accounting principles, should be included in or reflected by the property, plant or 5 11 equipment or similar fixed asset account reflected in the balance sheet of such Person. "Capital Investments" means (without duplication), with respect to any Person for any period, the aggregate of all investments by such Person in (i) Capital Expenditures, (ii) joint ventures, general or limited partnerships, limited liability companies or any other type of Person that is not a Subsidiary, including loans and advances to such Person (including loans and advances to any physician group or other third party related to a Facility or Related Business, or any third party with whom such Person has entered into a Service Agreement), (iii) capital investments in, and loans and advances to, a Subsidiary which becomes a Subsidiary as a result of such investment, (iv) the purchase of the homes of employees of such Person in connection with the relocation of such employees, and (v) Existing Clinic Acquisitions. "Capital Lease" of any Person means any lease of any property (whether real, personal or mixed) by such Person as lessee, which lease should, in accordance with generally accepted accounting principles, be required to be accounted for as a capital lease on the balance sheet of such Person. The leases included in the $100,000,000 Synthetic Lease Facility shall be deemed not to be Capital Leases. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.), and any regulations promulgated thereunder. "Change of Control" means the occurrence, after the date of this Agreement, of (i) any Person or two or more Persons acting in concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Borrower (or other securities convertible into such securities) representing 50% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors; or (ii) during any period of up to 24 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower ceasing for any reason to constitute a majority of the Board of Directors of the Borrower unless the Persons replacing such individuals were nominated by the Board of Directors of the Borrower; or (iii) any Person or two or more Persons acting in concert acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of the Borrower (or other securities convertible into such securities) representing 50% or more of the combined voting power of all securities of the Borrower entitled to vote in the election of directors. 6 12 "Closing Date" means the Business Day on which all of the conditions set forth in Section 4.02 shall have been fulfilled. "Committed Rate Advance" means an Advance pursuant to Section 2.01. "Committed Rate Borrowing" means a Borrowing pursuant to Section 2.01. "Committed Rate Note" means a promissory note of the Borrower payable to the order of a Bank, in substantially the form of Exhibit A-1, evidencing the aggregate indebtedness of the Borrower to such Bank resulting from the Committed Rate Advances made by such Bank, and "Committed Rate Notes" means such promissory notes collectively. "Commitment" means, as to any Bank, the amount of commitment to make Committed Rate Advances or participate in Letters of Credit set forth opposite such Bank's name on the signature pages hereof or, if such Bank has entered into one or more Assignments and Acceptances, the amount thereof set forth for such Bank in the Register maintained by the Agent pursuant to Section 9.08(c), as such amount may be reduced from time to time pursuant to Section 2.04. "Commitment Percentage" means, as to any Bank, the percentage equal to such Bank's Commitment divided by the aggregate Commitments of all Banks. "Common Stock" means Securities having ordinary voting power for the election of directors that are not entitled to any preference as to dividends or other distributions or on liquidation. "Competitive Bid" has the meaning set forth in Section 2.02(c). "Competitive Bid Advance" means an Advance made pursuant to Section 2.02. "Competitive Bid Borrowing" means a Borrowing pursuant to Section 2.02. "Competitive Bid Reduction" has the meaning set forth in Section 2.01(a). "Competitive Bid Note" means a promissory note of the Borrower payable to the order of a Designated Bidder, in substantially the form of Exhibit A-2, evidencing the indebtedness of the Borrower to such Designated Bidder resulting from Competitive Bid Advances made by such Designated 7 13 Bidder, and "Competitive Bid Notes" means such promissory notes collectively. "Competitive Bid Request" has the meaning set forth in Section 2.02(b). "Consolidated" and any derivative thereof each means, with reference to the accounts or financial reports of any Person, the consolidated accounts or financial reports of such Person and each Subsidiary of such Person determined in accordance with generally accepted accounting principles, including principles of consolidation, consistent with those applied in the preparation of the Borrower's December 31, 1996 Consolidated financial statements delivered to the Banks prior to the date hereof. "Contingent Obligation" of any Person means, without duplication, (i) any direct or indirect liability, contingent or otherwise, of such Person with respect to any obligation of the type specified in clause (ii) or (iii) below or other obligation of another Person, including, without limitation, any obligation directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), co-made, discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable (including, without limitation, liable through any agreement to purchase, repurchase or otherwise acquire such obligation or provide or purchase any security therefor, or to provide funds for the payment or discharge of such obligation, or to maintaining any financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease (regardless of the non-delivery or non-furnishing thereof), in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof), (ii) obligations of such Person with respect to undrawn letters of credit or unpaid bankers' acceptances, bankers' assurances or guarantees or similar items, and (iii) obligations of such Person with respect to any interest rate protection, hedge, cap, collar or similar agreement or any foreign exchange or forward sale agreement, or any similar agreement. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.07 or 2.08. "Current Liabilities" of any Person means, as of any date of determination, (i) all Debt (excluding any Debt under Operating Leases) which by its terms is payable on demand or matures within one year from the 8 14 date of creation (excluding any Debt renewable or extendible, at the exclusive option of the debtor, to a date more than one year from such date or arising under a revolving credit or similar agreement that unconditionally obligates the lender or lenders to extend credit in respect thereof during a period of more than one year from such date), and (ii) all other items (including taxes accrued as estimated) which in accordance with generally accepted accounting principles should be included as current liabilities of such Person, in each case, including all amounts required to be paid or prepaid with respect to any Debt of such Person within one year from the date of determination. "Debt" of any Person means, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (but excluding, in the case of the acquisition of any Facility (or the assets thereof), any Existing Clinic Acquisition or the acquisition of a Related Business, any contingent obligation to make payments (other than deferred purchase price payments) after the closing of such acquisition), (ii) all obligations of such Person in connection with any agreement to purchase, redeem, exchange, convert or otherwise acquire for value any Securities of such Person or any warrants, rights or options to acquire such Securities, now or hereafter outstanding, (iii) all obligations of such Person evidenced by bonds, notes, debentures, convertible debentures or other similar instruments, (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default, acceleration, or termination are limited to repossession or sale of such property), (v) all obligations of such Person under Capital Leases, (vi) the amount of all Contingent Obligations (other than guarantees of medical group real property leases at Facilities to the extent the amount thereof incurred in any twelve-month period does not exceed $5,000,000 in the aggregate), (vii) all Debt referred to in clause (i), (ii), (iii), (iv), (v) or (vi) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien, security interest or other charge or encumbrance upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt, (viii) all mandatorily redeemable preferred stock, valued at the applicable redemption price, plus accrued and unpaid dividends payable in respect of such mandatorily redeemable preferred stock, (ix) if an ERISA Event shall have occurred with respect to any Plan, the Insufficiency (if any) of such Plan (or, in the case of a Plan with respect to which an ERISA Event described in clauses (iii) through (vi) of the definition of ERISA Event shall have occurred, the liability related thereto), and (x) net obligations under any interest rate, currency or other protection, hedge, cap, collar, swap or similar agreement. The obligations of Borrower 9 15 and its Subsidiaries under the $100,000,000 Synthetic Lease Facility shall be deemed not to be Debt. "Debt/EBITDA Ratio" of any Person means, at any date of determination, the ratio that (a) the sum of (i) such Person's total Debt outstanding at such date of determination (including, without limitation, all Subordinated Debt other than, in the case of the Borrower and its Subsidiaries, the Excluded Convertible Acquisition Debt), and (ii) the aggregate amount of such Person's Synthetic Lease Attributable Indebtedness at such date, less (iii) the amount, if any, by which such Person's unrestricted cash and cash equivalents exceeds $15,000,000 at such date of determination, bears to (b) the sum of (i) such Person's EBITDA and (ii) such Person's Lease Expense under the $100,000,000 Synthetic Lease Facility for the period for which EBITDA is determined. "Deferred Acquisition Consideration" means, in the case of the acquisition of any Facility (or the assets thereof) or any Related Business, all deferred cash and non-cash consideration to be paid by the Borrower or any of its Subsidiaries after the closing of such acquisition; provided that Deferred Acquisition Consideration shall not include any contingent payments that may be made by the Borrower or any of its Subsidiaries after such closing. "Designated Bidder" means each Bank (or its nominee so long as the beneficial interest in the Competitive Bid Advances held by such nominee is retained by such Bank) unless such Bank has elected, by notice in writing to the Agent, the other Banks and the Borrower, not to be a potential bidder in respect of Competitive Bid Advances. Any such election may be terminated, at any time, by notice in writing to the Agent, the other Banks and the Borrower. "Documentation Agent" means NationsBank, N.A. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" in its Administrative Details Reply Form or on the signature page of the Assignment and Acceptance pursuant to which it became a Bank, or such other office or Affiliate of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EBITDA" means, with respect to any Person for any fiscal period, the sum (without duplication) of (i) Net Income (whether positive or negative), plus (ii) Interest Expense, plus (iii) income tax expense, plus (iv) depreciation expense, plus (v) amortization expense, plus (vi) extraordinary losses (determined in accordance with generally accepted accounting principles), minus (vii) extraordinary gains (determined in accordance with generally 10 16 accepted accounting principles), plus (viii) in the case of the fiscal quarter ending December 31, 1997, the aggregate amount of any reduction in Net Income attributable to any charge for the revaluation of assets made in accordance with generally accepted accounting principles in connection with the restructuring of operations, provided that such charge shall not exceed $83,000,000 (prior to any adjustment for income taxes), plus (ix) in the case of the fiscal quarter ending March 31, 1998, the aggregate amount of expense incurred in respect of (a) the termination of the Borrower's announced merger agreement with MedPartners, Inc. and (b) the Borrower's restructuring and consolidation of certain clinic operations, provided that such expense shall not exceed $37,000,000 (prior to any adjustment for income taxes). "EBITDAL" means, with respect to any Person for any fiscal period, the sum (without duplication) of EBITDA plus Lease Expense. "Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any state thereof, having a combined capital and surplus of at least $100,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; and having a combined capital and surplus of at least $100,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch, agency or Affiliate located in the United States or managed and controlled by a branch, agency or affiliate located in the United States; (iv) any Affiliate of any Bank if such Affiliate has Total Assets in excess of $100,000,000; (v) any insurance company organized under the laws of the United States or any state thereof, and having Total Assets in excess of $100,000,000 and any other commercial financial entity having Total Assets in excess of $100,000,000; and (vi) any other Person mutually agreed to in writing by the Borrower and the Agent. "Environmental Activity" means any past, present or future storage, holding, existence, release, threatened release, emission, discharge, generation, processing, abatement, disposition, handling or transportation of any Hazardous Substance (i) from, under, into or on any Facility, or (ii) relating to any Facility, or the ownership, use, operation or occupancy thereof, or any threat of such activity. "Environmental Laws" means any and all laws, statutes, ordinances, rules, regulations, judgments, orders, decrees, permits, licenses, or other governmental restrictions or requirements relating to the environment, any Hazardous Substance or any Environmental Activity in effect in any and all jurisdictions in which the Borrower or any of its Subsidiaries is or from time 11 17 to time may be doing business, or where any of the Facilities are from time to time located, including, without limitation, CERCLA and RCRA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person who for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated pursuant thereto and the rulings issued thereunder. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or any ERISA Affiliate to make a material payment to a Plan required under Section 302(f)(1) of ERISA; (vi) the adoption of an amendment to a Plan requiring the provision of initial or additional security to such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Eurodollar Lending Office" in its Administrative Details Reply Form or on the signature page of the Assignment and Acceptance pursuant to which it became a Bank (or, if no such office is specified, its Domestic Lending Office), or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance or LIBOR Advance comprising part of the same Borrowing, an 12 18 interest rate per annum obtained by dividing (i) the rate of interest determined by the Agent to be equal to the average (rounded upward to the nearest whole multiple of 1/16 of one percent per annum, if such average is not such a multiple) of the rate per annum at which deposits in United States dollars are offered by the principal office of Citibank in London to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the Advance comprising part of such Borrowing and for a period equal to such Interest Period by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. The Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance or LIBOR Advance comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from Citibank two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.07. "Eurodollar Rate Advance" means a Committed Rate Advance which bears interest as provided in Section 2.06(a)(ii). "Eurodollar Rate Reserve Percentage" of any Bank for any Interest Period for any Eurodollar Rate Advance or LIBOR Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Event of Default" has the meaning specified in Section 7.01. "Excluded Convertible Acquisition Debt" means the subordinated convertible notes issued by the Borrower or any of its Subsidiaries as consideration for the acquisition of Facilities that, at any date of determination, are convertible into shares of the Borrower's common stock having a Market Value, as of such date, equal to 140% of the conversion price of such notes. "Existing Clinic Acquisition" means the acquisition of an additional Facility or single-specialty clinic, or the assets thereof, by the Borrower or a Subsidiary of the Borrower which already owns and operates one or more 13 19 Facilities, or the addition of physicians to such Facilities, which acquisition or addition will supplement the operations of the existing Facilities. "Facility" means any multi-specialty medical clinic (including any satellite locations and all real, personal and mixed property relating to any such clinic) and related businesses certain of the assets of which are now owned or leased and operated or hereafter owned or leased and operated by the Borrower or any existing or future Subsidiary of the Borrower or, in the case of an acquisition, that such a Subsidiary intends to acquire. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fixed Charge Coverage Ratio" of any Person means, at any date of determination for any period, the ratio that such Person's EBITDAL for such period, bears to such Person's Interest Expense for such period plus Lease Expense for such period. "Fixed Rate" has the meaning set forth in Section 2.02(c). "Fixed Rate Advance" means a Competitive Bid Advance which bears interest as provided in Section 2.06(b). "Funded Debt" of any Person means Debt (including, without limitation, all Subordinated Debt other than, in the case of the Borrower and its Subsidiaries, the Excluded Convertible Acquisition Debt) which matures more than one year from the date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement which obligates the lender or lenders to extend credit during a period of more than one year from such date, including, without limitation, all amounts of Funded Debt required to be paid or prepaid within one year from the date of determination. "Guarantors" means the Subsidiaries listed on Schedule II hereto and each other Subsidiary that from time to time may enter into a Guaranty pursuant hereto; provided that Immaterial Subsidiaries shall not be required to be Guarantors; and provided further that Arnett Health Systems, Inc. and its Subsidiaries as of the date hereof (the "Arnett Subsidiaries") shall not be 14 20 Guarantors so long as less than 3.0% of the EBITDA of the Borrower and its Subsidiaries (calculated on a rolling four quarter basis) is attributable to their interests in the Arnett Subsidiaries. "Guaranty" means the Guaranty dated as of July 1, 1997 made by each of the Loan Parties (other than the Borrower) in favor of the Agent, as amended, supplemented, restated or otherwise modified from time to time. "Hazardous Substance" means (i) any hazardous substance and toxic substance as such terms are presently deemed or used in ss. 101(14) of CERCLA (42 U.S.C. ss. 9601(14)), in 33 U.S.C. ss. 1251 et seq. (Clean Water Act), or 15 U.S.C. ss. 2601 et seq. (Toxic Substances Control Act), (ii) any additional substances or materials which are now or hereafter hazardous or toxic substances under any applicable laws, and (iii) as of any date of determination, any additional substances or materials which are hereafter incorporated in or added to the definition or use of "hazardous substance" or "toxic substance" for purposes of CERCLA or any other applicable law. "Immaterial Subsidiary" means a Subsidiary of the Borrower that, on a Consolidated basis with its Subsidiaries, as of the end of each fiscal quarter, does not account for 1% or more of the Consolidated Total Assets of the Borrower or 1% or more of the Consolidated total revenues of the Borrower, as determined in accordance with generally accepted accounting principles; provided that if as of the end of any fiscal quarter the Immaterial Subsidiaries shall account, in the aggregate, for 5% or more of the Consolidated Total Assets of the Borrower or 5% or more of the Consolidated total revenues of the Borrower as so determined, the Borrower shall promptly, by written notice to the Agent, designate one or more of such Subsidiaries not to be Immaterial Subsidiaries so that the Immaterial Subsidiaries do not account for 5% or more of such Consolidated Total Assets or such Consolidated total revenues, and the subsidiaries so designated shall thereupon cease to be Immaterial Subsidiaries. "Indemnitee" or "Indemnitees" has the meaning set forth in Section 9.06. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Intercompany Creditor" means PhyCor of Nashville, Inc., a Tennessee corporation and wholly owned Subsidiary of the Borrower. "Intercompany Debt" means any and all indebtedness from time to time owed (i) to the Borrower by any of its Subsidiaries, (ii) to the Intercompany Creditor by any other Subsidiary of the Borrower, or (iii) to any Subsidiary of the Borrower by the Borrower, including any investments 15 21 by the Borrower in any of its Subsidiaries to the extent such investments are made in the form of loans or advances by the Borrower to such Subsidiary. All Intercompany Debt shall be payable on demand. "Intercompany Subordination Agreement" means the Intercompany Subordination Agreement dated as of July 1, 1997 among the Borrower and each of its Subsidiaries, other than, subject to Section 6.01(j), Immaterial Subsidiaries, as the same may be amended, supplemented or otherwise modified from time to time. "Interest Expense" of any Person means the aggregate amount of interest paid, accrued or scheduled to be paid or accrued in respect of any Debt (including the interest portion of rentals under Capital Leases, but excluding, in the case of the Borrower and its Subsidiaries, any interest paid, accrued or scheduled to be paid or accrued in respect of the Excluded Convertible Acquisition Debt to the extent, and only to the extent, that such interest is offset by a corresponding increase in fees payable to the Borrower or its Subsidiary pursuant to the Service Agreement relating to such acquisition) and all but the principal component of payments in respect of conditional sales, equipment trust or other title retention agreements paid, accrued or scheduled to be paid or accrued by such Person, in each case determined in accordance with generally accepted accounting principles. "Interest Period" means, for each Eurodollar Rate Advance or LIBOR Advance, as the case may be, comprising part of the same Borrowing, the period commencing on the date of such Advance or, in the case of a Eurodollar Rate Advance, the date of the Conversion of any Advance into such Type of Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, in the case of a Eurodollar Rate Advance, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months in the case of a Eurodollar Rate Advance or a LIBOR Advance; provided, however, that: (i) the Borrower may not select any Interest Period which ends after the Revolver Termination Date; (ii) Interest Periods commencing on the same date for Advances comprising part of the same Committed Rate Borrowing shall be of the same duration; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding 16 22 Business Day; provided, in the case of any Interest Period for a Eurodollar Rate Advance or LIBOR Advance, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iv) the Borrower may not have more than eight Eurodollar Rate Borrowings outstanding on any given date. "Investment Grade" means a rating of Debt of at least BBB by Standard & Poor's Ratings Group or Baa2 by Moody's Investors Service, Inc. "Issue" means, with respect to any Letter of Credit, either to issue, or to extend the expiry of, or to renew, or to increase the amount of, such Letter of Credit, and the term "Issued" or "Issuance" shall have corresponding meanings. "Issuing Bank" means (i) Citibank or any Affiliate of Citibank that may from time to time Issue Letters of Credit for the account of the Borrower and (ii) any other Bank that agrees in writing to act as an Issuing Bank hereunder with the written consent of the Borrower, the Majority Banks and the Agent. "Lease" means any lease, rental contract, occupancy agreement, license or other arrangement pursuant to which any Person occupies or has the right to occupy all or any part of the Real Property. "Lease Expense" of any Person means all payments made by such Person under Operating Leases. For the purpose of calculating the Fixed Charge Coverage Ratio of the Borrower and its Subsidiaries, Lease Expense shall refer to all payments made by (i) PhyCor Vero Beach pursuant to that certain Lease entered into by and between PhyCor Vero Beach and Healthcare Realty Trust, (ii) the Borrower and/or any of its Subsidiaries under the leases included in the $100,000,000 Synthetic Lease Facility and (iii) the Borrower or any of its Subsidiaries in connection with any other Lease entered into in the future by such Person which is not cancelable upon termination of the related Service Agreement or for which the payments thereunder are not fully reimbursable to the Borrower or such Subsidiary pursuant to the related Service Agreement. "Letter of Credit" means any standby letter of credit in form satisfactory to the Issuing Bank therefor, which is at any time Issued by such Issuing Bank pursuant to Article III, in each case as amended, supplemented or otherwise modified from time to time. 17 23 "Letter of Credit Liability" means, as of any date of determination, all then existing liabilities of the Borrower to the Issuing Banks in respect of the Letters of Credit Issued for its account, whether such liability is contingent or fixed, and shall, in each case, consist of the sum of (i) the aggregate maximum amount then available to be drawn under such Letters of Credit (the determination of such maximum amount to assume compliance with all conditions for drawing) and (ii) the aggregate amount which has then been paid by, and not been reimbursed to, the Issuing Banks under such Letters of Credit. "LIBOR Advance" means a Competitive Bid Advance which bears interest as provided in Section 2.06(b). "LIBOR Margin" has the meaning set forth in Section 2.02(c). "Lien" means any assignment, chattel mortgage, pledge or other security interest or any mortgage, deed of trust or other lien, or other charge or encumbrance, upon property or rights (including after-acquired property or rights), or any preferential arrangement with respect to property or rights (including after--acquired property or rights) which has the practical effect of constituting a security interest or lien. "Loan Documents" means this Agreement, the Notes, the Guaranty, the Subordination Agreements, the Intercompany Subordination Agreement and all other documents delivered by the Loan Parties in connection with this Agreement, in each case as amended, supplemented, restated or otherwise modified from time to time. "Loan Party" means, individually, the Borrower and each Guarantor; and "Loan Parties" means the Borrower and the Guarantors, collectively. "Majority Banks" means, at any time, Banks holding more than 50% of the then aggregate unpaid principal amount of the Committed Rate Advances owing to the Banks, or, if no such principal amount is then outstanding, having more than 50% of the Commitments. "Market Value" means, with respect to any publicly traded Security at any date of determination, the amount equal to the average closing price for such Security during the 15 trading days immediately preceding the date of determination. The closing price of a publicly traded security on each day shall be the closing price on such day as reported on any stock exchange, the National Market System of the National Association of Securities Dealers' Automated Quotation System, or an established securities quotation service, as the case may be. 18 24 "Merger Agreement" means any agreement between the Borrower or any of its Subsidiaries and any Person relating to the purchase by and merger into the Borrower or any of its Subsidiaries of any Facility (or the assets thereof) or any Related Business. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NAMM" means North American Medical Management, Inc., a Tennessee corporation. "Net Cash Proceeds" means, as to any sale, lease or other disposition of any Facility (or the assets thereof) or any Related Business, or of the assets of the Borrower and its Subsidiaries, by the Borrower or any Subsidiary of the Borrower to any Person other than the Borrower or any Subsidiary of the Borrower, or the sale or issuance of any Securities, any securities convertible into or exchangeable for Securities, or any warrants, rights or options to acquire Securities of the Borrower or any of its Subsidiaries to any Person other than the Borrower or any Subsidiary of the Borrower (other than such sale or issuance pursuant to the Borrower's employee stock purchase plans or employee and director stock option plans and other than the issuance of Securities as consideration for the acquisition of any Facility (or the assets thereof), any Existing Clinic Acquisition or the acquisition of any Related Business to the extent such acquisition satisfies the applicable requirements of Section 6.02(f)(i) or (ii)), or the issuance of any Subordinated Debt, whether convertible into or exchangeable for Securities (other than in the case of the Borrower and its Subsidiaries, the subordinated convertible notes issued by the Borrower or any of its Subsidiaries as consideration for the acquisition of Facilities (or the assets thereof), Existing Clinic Acquisitions or the acquisition of Related Businesses), an amount equal to (i) the cash and other consideration paid by such Person (but not including (i) any Debt of the Borrower or its Subsidiaries assumed by such Person in connection with such sale, lease or other disposition or (ii) any Debt of the Borrower or its 19 25 Subsidiaries owed to such Person which is offset against the Total Consideration of such Facility or Related Business), minus (ii) the sum of (A) in the case of a Facility, the unpaid principal balance on the date of such sale or other disposition of any Debt secured by a Lien on such Facility that may be accelerated as a result of such sale or secured by Liens not prohibited by the terms of this Agreement and affecting only such Facility, in each case which is required to be repaid, and is actually repaid, by the Borrower or any of its existing or future Subsidiaries on the date of such sale or other disposition, (B) any tax paid or payable by the Borrower or any of its existing or future Subsidiaries in connection with or as a consequence of such sale or other disposition (excluding any such tax for which the Borrower or any of its existing or future Subsidiaries seller is reimbursed by such Person to the extent not otherwise included in the determination of Net Cash Proceeds), (C) the amount of any reserve (other than in respect of inventory) required to be retained in connection with such sale or other disposition under generally accepted accounting principles (excluding any reserve in respect of any amounts not payable within 180 days), provided that the unused amount of such reserve at the termination of such reserve in accordance with generally accepted accounting principles shall be deemed Net Cash Proceeds in the amount of such unused amount, and (D) reasonable out-of-pocket costs of such sale or other disposition incurred by the Borrower or any of its existing or future Subsidiaries to third parties directly in connection therewith, including, without limitation, sales commissions, escrow fees, legal fees, title insurance premiums and similar expenses. "Net Income" of any Person, for any period, means the net income of such Person for such period, determined in accordance with generally accepted accounting principles, excluding: (i) the proceeds of any life insurance policy; (ii) any earnings (or losses), prior to the date of acquisition, of any other Person acquired in any manner; (iii) in the case of a successor to such Person by consolidation or merger or a transferee of its assets, any earnings (or losses) of the successor or transferee corporation prior to the consolidation, merger or transfer of assets; and (iv) any deferred credit (or debit) (or amortization of a deferred credit) arising from the acquisition of any Person. "Net Worth" of any Person, as of any date of determination, means the excess of such Person's Total Assets over Total Liabilities. 20 26 "Note" means a Committed Rate Note or a Competitive Bid Note, and "Notes" means such promissory notes collectively. "Notice of Borrowing" means a written notice, in substantially the form of Exhibit B-1 hereto, delivered in accordance with, and within the periods specified in, Section 2.01(c). "Notice of Swing Line Borrowing" has the meaning specified in Section 2.01(d). "OECD" means the Organization for Economic Cooperation and Development or any successor. "Operating Lease" means any lease of real, personal or mixed property which is not a Capital Lease. The leases included in the $100,000,000 Synthetic Lease Facility shall be deemed to be Operating Leases. "Other Taxes" has the meaning set forth in Section 2.13(b). "PBGC" means the Pension Benefit Guaranty Corporation or any successor. "Permitted Lien" means: (i) Any Liens (other than Liens securing Debt, taxes, assessments or governmental charges or levies, obligations under ERISA or the Environmental Laws, or other obligations) affecting any of the Real Property which do not materially adversely affect the use of such Real Property; (ii) Liens for taxes, assessments or governmental charges or levies to the extent not past due or to the extent contested, in good faith, by appropriate proceedings and for which adequate reserves have been established; (iii) Liens imposed by law, such as materialman's, mechanic's, carrier's, workman's, and repairman's Liens and other similar Liens arising in the ordinary course of business which relate to obligations which are not overdue for a period of more than 30 days or which are being contested in good faith, by appropriate proceedings and for which adequate reserves have been established; (iv) pledges or deposits in the ordinary course of business to secure nondelinquent obligations under workman's compensation or unemployment laws or similar legislation or to secure the performance 21 27 of leases or contracts entered into in the ordinary course of business or of public or nondelinquent statutory obligations, bids, or appeal bonds; (v) Liens upon or in any property acquired or held by the Borrower or any of its Subsidiaries (other than the Intercompany Creditor) to secure the purchase price or construction costs (and, to the extent financed, sales and excise taxes, delivery and installation costs and other related expenses) of such property or to secure indebtedness incurred solely for the purpose of financing or refinancing the acquisition or construction of any such property to be subject to such Liens, or Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that such Lien is established within thirty days of the acquisition of said property or expenditure of said construction costs, and provided further that no such Lien shall extend to or cover any property other than the property being acquired and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced, and provided further that the incurrence of any Debt secured by the Liens permitted by this clause (v) shall not exceed the amount then allowed under any of the covenants set forth in Section 6.02; (vi) zoning restrictions, easements, licenses, landlord's liens or restrictions on the use of real property owned or leased by the Borrower or any of its Subsidiaries, which do not materially impair the use of such property in the operation of the business of the Borrower or any of its Subsidiaries or the value of such property for the purpose of such business; (vii) Liens on the property or assets of any Subsidiary in favor of the Borrower or a Subsidiary, provided that the holder and grantor of such Lien have each entered into the Intercompany Subordination Agreement; (viii) Liens listed on Schedule V; and (ix) Liens not described in subclauses (i) through (viii) above that relate to liabilities which are not in excess of $25,000,000 in the aggregate. "Person" means a individual partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency or instrumentality thereof. 22 28 "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Process Agent" has the meaning set forth in Section 9.13(a). "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. ss. 6901 et seq.), and any regulations promulgated thereunder. "Real Property" means the real property of the Borrower and its Subsidiaries located in the United States described in Schedule I hereto, consisting of real property or any interest in real property, including a leasehold interest or an option to purchase, and all buildings, structures and improvements now or hereafter located on all or any portion of said real property, provided, that, notwithstanding the foregoing, only leasehold interests of the Borrower and its Subsidiaries which relate to the main clinic of any Facility or for which the Borrower or any of its Subsidiaries incurs Lease Expense equal to or in excess of $100,000 per year shall be described in Schedule I. "Register" has the meaning specified in Section 9.08(c). "Related Business" means (i) a business that principally operates (A) one or more independent practice associations (each an "IPA") providing general organizational structure and management to physician networks and related management companies providing information and operating systems, actuarial and financial analysis, medical management and provider contract services to the IPAs or (B) one or more management service organizations (each a "MSO") providing IPAs with practice management services, including billing, staffing and financial management services, or (ii) a business (other than a single-specialty clinic, or the assets thereof) related to the operation of a Facility, IPA or MSO, the acquisition or operation of which would not result in a material change in the nature of the Borrower's business as of the date hereof. A Related Business shall also include all real, personal and mixed property relating thereto. "Restricted Payment" of any Person, means any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of Securities of such Person, or any purchase, redemption or other acquisition for value of any shares of any class of Securities of such Person, or any warrants, rights or options to acquire any such Securities, or the entry by such Person or any of its Subsidiaries into hedge agreements in respect of any class of Securities of such Person now or hereafter outstanding; provided, however, that (i) any dividend payment or other distribution payable in common stock of such Person and (ii) any purchase, redemption or other acquisition of shares of such Person's Securities or warrants, rights or options to acquire any such Securities with 23 29 the proceeds received from the substantially concurrent issue of new shares of such Person's Securities shall not be considered a Restricted Payment. "Revolver Termination Date" means April 2, 2003, or the earlier date of termination in whole of the Commitments pursuant to Section 2.04 or 7.01. "Securities" means shares of capital stock of a corporation (or similar property right in the case of partnerships, limited liability companies and trusts). "Senior Debt" means all Debt outstanding pursuant to this Agreement and any other Debt of the Borrower and its Subsidiaries not expressly subordinated on terms satisfactory to the Majority Banks to the Debt outstanding under this Agreement. "Service Agreement" means any of (i) the Service Agreements listed on Schedule III and (ii) any similar agreement entered into by the Borrower or any existing or future Subsidiary of the Borrower or related professional association or corporation after the Closing Date, in each case as any of such agreements may from time to time be amended, restated, supplemented or otherwise modified. "Single-Employer Plan" means a single-employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" means, with respect to any Person, that as of any date of determination, (i) the then fair saleable value of the assets of such Person is (a) greater than the then total amount of liabilities (including contingent, subordinated, matured and unliquidated liabilities) of such Person and (b) greater than the amount that will be required to pay such Person's probable liability on such Person's then existing debts as they become absolute and matured, (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction, and (iii) such Person does not intend to incur, or believe or reasonably should believe that it will incur, debts beyond its ability to pay such debts as they become due. "Stock Purchase Agreement" means any agreement between the Borrower or any of its Subsidiaries and any Person that operates a Facility or a Related Business relating to the purchase by the Borrower or any of its Subsidiaries of all of the Securities of such Person. 24 30 "Subordinated Debt" means any Debt of the Borrower that is subordinated to the Debt of the Borrower under this Agreement and the Notes on, and that otherwise contains, terms and conditions satisfactory to the Majority Banks. "Subordination Agreement" means a duly executed subordination agreement in substantially the form of Exhibit D, as amended, supplemented or otherwise modified from time to time. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, trust or other Person of which more than 50% of the outstanding Securities having ordinary voting power to elect a majority of the board of directors of such corporation (or similar governing body or Person with respect to partnerships, limited liability companies and trusts) (irrespective of whether or not at the time Securities of any other class or classes of such Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, or one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Swing Line Advance" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(b) or (b) any Bank pursuant to Section 2.01(d). "Swing Line Bank" means Suntrust Bank, Nashville, N.A. "Swing Line Borrowing" means a Borrowing consisting of a Swing Line Advance made by the Swing Line Bank. "Swing Line Facility" has the meaning specified in Section 2.01(b). "Synthetic Lease Attributable Indebtedness" means, with respect to the obligations of any Person in respect of the $100,000,000 Synthetic Lease Facility as of any date, the aggregate amount of the obligations issued to note holders and certificate holders thereunder that are outstanding as of such date. "Tangible Net Assets" of any Person, as at any date of determination, means (without duplication) such Person's cash, net Accounts, inventory, equipment, fixtures, real property and the refundable portion of any prepaid expense which, in accordance with generally accepted accounting principles, are treated as tangible assets of such Person, in each case (to the extent applicable), less the sum of (i) Current Liabilities, (ii) cash held in a sinking or other analogous fund established for the purpose of redemption, retirement or prepayment of Securities or Debt, and (iii) any write-up in the book value of such asset resulting from a revaluation (but not a valuation of an asset in connection with an acquisition subject to purchase accounting 25 31 treatment under generally accepted accounting principles; provided that such valuation is accomplished in accordance with such principles). "Taxes" has the meaning set forth in Section 2.13(a). "Total Assets" of any Person, as of the date of determination, means all property, whether real, personal, tangible, intangible or otherwise, which, in accordance with generally accepted accounting principles, should be included in determining total assets as shown on the assets portion of a balance sheet of such Person. "Total Capitalization" of any Person, as of the date of determination, means the sum of such Person's Funded Debt plus Net Worth. "Total Consideration" means, with respect to the acquisition of any Facility (or the assets thereof) or Related Business, whether or not such acquisition is accomplished by Securities purchase or asset purchase or by merger, the sum of (i) all cash and non-cash consideration (including, without limitation, assumed liabilities and equity consideration) paid by the Borrower or any of its Subsidiaries at the closing of such transaction, and (ii) all Deferred Acquisition Consideration; provided that Total Consideration shall not include any contingent payments that may be made by the Borrower or any of its Subsidiaries after such closing. "Total Liabilities" of any Person, as of the date of determination, means all obligations, including, without limitation, all Debt of such Person, which, in accordance with generally accepted accounting principles, should be included in determining total liabilities as shown on the liabilities portion of a balance sheet of such Person, including all Subordinated Debt other than, in the case of the Borrower and its Subsidiaries, the Excluded Convertible Acquisition Debt. "UCP" has the meaning set forth in Section 3.08. "Unused Commitment" means, with respect to any Bank at any time, (a) such Bank's Commitment at such time (as such Commitment may be reduced pursuant to Section 2.04 or on account of an Assignment and Acceptance entered into by such Bank) minus (b) the aggregate principal amount of all Committed Rate Advances made by such Bank outstanding at such time. "Welfare Plan" means a welfare plan, as defined in Section 3(l) of ERISA, which section covers plans, funds and programs providing (among other things) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, together with 26 32 plans which provide workmen's compensation, unemployment compensation or disability insurance benefits. "Withdrawal Liability" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods. In this Agreement, in the computation of a period of time from a specified date to a later specified date, unless otherwise stated, the word "from" or "commencing" means "from and including" and the word "to" or "until" means "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with United States generally accepted accounting principles consistent with those applied in the preparation of the Borrower's December 31, 1996 Consolidated financial statements delivered to the Banks prior to the date hereof. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Committed Rate Advances. (a) Each Bank severally agrees, on the terms and conditions hereinafter set forth, to make Committed Rate Advances to the Borrower from time to time on any Business Day during the period from the Closing Date until the Revolver Termination Date, in an amount for each such Advance not to exceed such Bank's Unused Commitment on such Business Day less such Bank's Commitment Percentage on such Business Day of the sum of the Swing Line Advances then outstanding and the then existing Letter of Credit Liability; provided, however, that such Bank shall not be obligated to make such Committed Rate Advance if, after giving effect to such Committed Rate Advance and the other Committed Rate Advances to be made by the other Banks as part of the same Borrowing, the then outstanding aggregate principal amount of all Committed Rate Advances and Swing Line Advances plus the then existing Letter of Credit Liability shall exceed the aggregate Commitments of the Banks less the then outstanding aggregate principal amount of all Competitive Bid Advances; provided further that, for the purposes of this Section 2.01(a), such Bank's Unused Commitment shall be deemed to be reduced on such Business Day by an amount equal to the product of (i) the then outstanding principal amount of all Competitive Bid Advances and (ii) such Bank's Commitment Percentage (the "Competitive Bid Reduction"). Each Committed Rate Borrowing shall be in an aggregate amount of $3,000,000 or an integral multiple of $1,000,000 in excess thereof, and shall consist of Advances made on the same day by the Banks ratably according to their respective Commitments. Within the limits of each Bank's Unused Commitment (as deemed 27 33 reduced by the Competitive Bid Reduction) in effect from time to time, the Borrower may borrow under this Section 2.01(a), prepay pursuant to Section 2.09 and reborrow under this Section 2.01(a). (b) The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall make, on the terms and conditions hereinafter set forth, Swing Line Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Revolver Termination Date in an aggregate amount not to exceed at any time outstanding $10,000,000 (the "Swing Line Facility"). No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other Swing Line Advance. Each Swing Line Borrowing shall be in an amount as may be agreed by the Borrower and the Swing Line Bank and shall bear interest as may be agreed between the Borrower and the Swing Line Bank, provided that in no event shall any Swing Line Advance bear interest at a rate lower than the interest rate applicable to the Committed Rate Advances. Within the limits of the Swing Line Facility, the Borrower may borrow under this Section 2.01(b), repay pursuant to Section 2.05(c), prepay pursuant to Section 2.09(a) and reborrow under this Section 2.01(b). (c) Each Committed Rate Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) (i) on the third Business Day prior to the date of the proposed Borrowing, in the case of Eurodollar Rate Advances, and (ii) on the date of the proposed Borrowing, in the case of Base Rate Advances, by the Borrower to the Agent, which shall give each Bank prompt notice thereof by telecopier, telex or cable. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telecopler, telex or cable, confirmed immediately in writing, in substantially the form of Exhibit B-1 hereto, specifying therein (i) the requested date of such Borrowing, (ii) the requested Type of Advances comprising such Borrowing, (iii) the requested aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Advances, the requested initial Interest Period for each such Advance. Each Bank shall, before 12:00 noon (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 9.02, in same day funds, such Bank's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article IV, the Agent will make such funds available to the Borrower at the Agent's aforesaid address. Anything in this subsection (b) above to the contrary notwithstanding, (A) the Borrower may not select Eurodollar Rate Advances for any Committed Rate Borrowing if the obligation of the Banks to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.11 and (B) no more than ten Committed Rate Borrowings may be outstanding at any one time. (d) Each Swing Line Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the date of the proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Agent. Each such 28 34 notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by telephone, confirmed immediately in writing, or telex or telecopier, specifying therein the requested (i) date of such Borrowing and (ii) amount of such Borrowing. Each Swing Line Borrowing shall be due and payable on the earlier of the date of demand by the Swing Line Bank in respect of such Swing Line Borrowing and the Revolver Termination Date. Each such Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. Upon fulfillment of the applicable conditions set forth in Article IV, the Swing Line Bank will make the amount thereof available in accordance with the instructions of the Borrower, in same day funds. Upon written demand by the Swing Line Bank, with a copy of such demand to the Agent, each other Bank shall purchase from the Swing Line Bank and the Swing Line Bank shall sell and assign to each such other Bank, such other Bank's Commitment Percentage of such outstanding Swing Line Advance as of the date of such demand, by making available for the account of its Applicable Lending Office to the Agent for the account of the Swing Line Bank in same day funds, an amount equal to the portion of the outstanding principal amount of such Swing Line Advance to be purchased by such Bank. The Borrower hereby agrees to each such sale and assignment. Each Bank agrees to purchase its Commitment Percentage of an outstanding Swing Line Advance on (i) the Business Day on which demand therefor is made by the Swing Line Bank, provided that notice of such demand is given not later than 11:00 A.M. (New York City time) on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Swing Line Bank to any other Bank of a portion of a Swing Line Advance, the Swing Line Bank represents and warrants to such other Bank that the Swing Line Bank is the legal and beneficial owner of such interest being assigned by it and such assignment is free and clear of any claim or adverse interest of any kind, but makes no other representation or warranty and assumes no responsibility with respect to the Swing Line Advance, the Loan Documents or any Loan Party. If and to the extent that any Bank shall not have so made the amount of such Swing Line Advance available to the Agent, such Bank agrees to pay to the Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Swing Line Bank until the date such amount is paid to the Agent, at the Federal Funds Rate. If such Bank shall pay to the Agent such amount for the account of the Swing Line Bank on any Business Day, such amount so paid in respect of principal shall constitute a Swing Line Advance made by such Bank on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Swing Line Advance made by the Swing Line Bank shall be reduced by such amount on such Business Day. (e) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. In the case of any Committed Rate Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Bank against any loss (including loss of anticipated profits), cost or expense incurred by such Bank as 29 35 a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article IV, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund the Advance to be made by such Bank as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (f) Unless the Agent shall have received notice from a Bank prior to the date of any Committed Rate Borrowing that such Bank will not make available to the Agent such Bank's ratable portion of such Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (b) above and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such ratable portion available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Advance as part of such Borrowing for purposes of this Agreement. To the extent that any Bank makes a payment of principal or interest to the Agent pursuant to this subsection (d), the Borrower shall not be obligated to make such payment. (g) The failure of any Bank to make the Advance to be made by it as part of any Committed Rate Borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Advance to be made by such other Bank on the date of any Committed Rate Borrowing. SECTION 2.02. The Competitive Bid Advances. (a) Each Designated Bidder severally agrees, on the terms and conditions hereinafter set forth, that the Borrower may avail itself of Competitive Bid Advances from time to time on any Business Day during the period from the Closing Date until 30 days prior to the Revolver Termination Date, in the manner set forth in this Section 2.02; provided that the aggregate principal amount of Competitive Bid Advances made on any Business Day may not exceed the lesser of (i) the aggregate Unused Commitments of the Banks on such Business Day less the sum of the aggregate principal amount of Swing Line Advances then outstanding and the then existing Letter of Credit Liability and the then outstanding principal amount of any other Competitive Bid Advances and (ii) $250,000,000. 30 36 (b) The Borrower may request a Competitive Bid Borrowing by delivering to the Agent, by telecopler, telex or cable, confirmed immediately in writing, a request, in substantially the form of Exhibit B-2 (a "Competitive Bid Request"), specifying therein (i) whether Fixed Rate Advances or LIBOR Advances are being requested, (ii) the date (which shall be a Business Day) and aggregate amount of the proposed Competitive Bid Borrowing, (iii) the maturity date for repayment of the Competitive Bid Advances to be made as part of such Borrowing (which maturity date shall be a date occurring (A) not less than seven days after the date of such Borrowing in the case of a request for Fixed Rate Advances or 30 days after the date of such Borrowing in the case of a request for LIBOR Advances, and (B) not later than 180 days after the date of such Borrowing, and in any event, not later than the Revolver Termination Date), (iv) the interest payment date or dates relating thereto, in the case of a request for Fixed Rate Advances, and the applicable Interest Period, in the case of a request for LIBOR Advances, and (v) any other terms to be applicable to such Borrowing, not later than 11:00 A.M. (New York City time) at least (A) one Business Day, in the case of a request for Fixed Rate Advances, or (B) four Business Days, in the case of a request for LIBOR Advances, prior to the date of the proposed Competitive Bid Borrowing. The Agent shall in turn promptly notify each Designated Bidder of each request for such Competitive Bid Borrowing received by it by sending such Designated Bidder a copy of the related Competitive Bid Request. (c) Each Designated Bidder may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Designated Bidder in its sole discretion. Any such offer (a "Competitive Bid") may be made by notifying the Agent (i) before 10:00 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a request for Fixed Rate Advances, and (ii) before 10:00 A.M. (New York City time) on the third Business Day before the date of such proposed Competitive Bid Borrowing, in the case of a request for LIBOR Advances (the "Bid Due Date"), specifying the following: (A) the amount of each Competitive Bid Borrowing which such Designated Bidder would be willing to make as part of such proposed Competitive Bid Borrowing (which amount may, subject to the proviso to the first sentence of subsection (a) above, exceed a Bank's Commitment but may not exceed the principal amount of the Competitive Bid Advances of the Type and maturity requested by the Borrower); (B) in the case of a request for a LIBOR Advance, the margin above or below the applicable Eurodollar Rate (the "LIBOR Margin") offered for such Competitive Bid Advance, expressed as a percentage (rounded upwards, if necessary, to the nearest 1/16 of one percent) to be added to or subtracted from the applicable Eurodollar Rate; 31 37 (C) in the case of a request for a Fixed Rate Advance, the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/16 of one percent) (the "Fixed Rate") offered for such Competitive Bid Advance; and (D) the identity of the Designated Bidder submitting the Competitive Bid; provided that if the Agent in its capacity as a Designated Bidder shall, in its sole discretion, elect to make any such Competitive Bid, it shall notify the Borrower of such Competitive Bid before 9:30 A.M. (New York City time) on the Bid Due Date. If any Designated Bidder shall elect not to make such a Competitive Bid, such Designated Bidder shall so notify the Agent, before 10:00 A.M. (New York City time) on the Bid Due Date, and such Designated Bidder shall not be obligated to, and shall not, make any Advance as part of such Competitive Bid Borrowing; provided that the failure by any Designated Bidder to give such notice shall not cause such Designated Bidder to be obligated to make any Advance as part of such proposed Competitive Bid Borrowing. Unless otherwise agreed by the Borrower and the Agent, no Competitive Bid shall contain qualifying, conditional or similar language or propose terms other than or in addition to those set forth in the Competitive Bid Request and, in particular, no Competitive Bid may be conditioned upon acceptance by the Borrower of all (or some specified minimum) of the principal amount of the Competitive Bid Advances offered. (d) The Agent shall as promptly as practicable after the Competitive Bid is submitted (but in any event not later than 10:15 A.M. (New York City time) on the Bid Due Date), notify the Borrower of the terms (A) of any Competitive Bid submitted that is in accordance with subsection (c) above and (B) of any Competitive Bid that amends, modifies or is otherwise inconsistent with a previous Competitive Bid with respect to the same Competitive Bid Request. Any such subsequent Competitive Bid may be submitted solely to correct a manifest error in such former Competitive Bid. The Agent's notice to the Borrower shall specify (1) the aggregate principal amount of the Competitive Bid Borrowing for which Competitive Bids have been received and (2) the respective principal amounts and the Fixed Rates and LIBOR Margins, as the case may be, so offered by each Designated Bidder (identifying the Designated Bidder that made each Competitive Bid). (e) The Borrower shall, in turn, before 11:00 A.M. (New York City time) (i) on the day of the proposed Competitive Bid Borrowing, in the case of requests for Fixed Rate Advances, or (ii) on the third Business Day prior to the date of the proposed Competitive Bid Advances, in the case of a request for LIBOR Advances, (or, in any such case, such other time and date as the Borrower and the Agent, with the consent of the Majority Banks, may agree), either: 32 38 (i) cancel such Competitive Bid Borrowing by giving the Agent notice to that effect, or (ii) accept one or more of the Competitive Bids, in its sole discretion, by giving notice to the Agent of the amount of each Competitive Bid Advance to be made by each Designated Bidder as part of such Competitive Bid Borrowing, and reject any remaining Competitive Bids by giving the Agent notice to that effect; provided that (A) the Borrower may only accept Competitive Bids in the order of the lowest to the highest Fixed Rates or LIBOR Margins, as the case may be, offered, (B) the Borrower may not accept Competitive Bids in excess of the amount requested pursuant to subsection (b) above, or the amount offered pursuant to subsection (c) above, for any maturity date or Interest Period, and (C) if two or more Designated Bidders make Competitive Bids at the same Fixed Rates or LIBOR Margins, as the case may be, for the same maturity date or Interest Period, the Borrower may only accept such Competitive Bids in proportion (as nearly as possible) to the amounts which such Designated Bidders offered at such rate for such maturity or Interest Period (in amounts of not less than $1,000,000 or an integral multiple of $100,000 in excess thereof). (f) If the Borrower notifies the Agent that such Competitive Bid Borrowing is canceled pursuant to subsection (d)(i) above, the Agent shall give prompt notice thereof to the Designated Bidders, and such Competitive Bid Borrowing shall not be made. (g) If the Borrower accepts one or more of the Competitive Bids made by any Designated Bidder or Designated Bidders pursuant to subsection (d)(ii) above, the Agent shall in turn promptly notify (A) each Designated Bidder that has made a Competitive Bid as described in subsection (c) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any Competitive Bid or Bids made by such Designated Bidder pursuant to subsection (c) above have been accepted by the Borrower, (B) each Designated Bidder that is to make an Advance as part of such Competitive Bid Borrowing, of the amount of each Advance to be made by such Bank as part of such Borrowing, and (C) each Designated Bidder that is to make an Advance as part of such Competitive Bid Borrowing, as to whether such Competitive Bid Borrowing conforms of the requirements of Section 2.02. Each Designated Bidder that is to make an Advance as part of such Competitive Bid Borrowing shall, before 11:30 A.M. (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Agent pursuant to clause (A) of the preceding sentence (provided such Designated Bidder shall have received a Competitive Bid Note and a favorable notice from the Agent pursuant to clause (C) of the preceding sentence), make available to the Agent at its address referred to in Section 9.02, in same day funds, such Designated Bidder's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article IV and after receipt by the Agent of such funds, the Agent will make 33 39 such funds available to the Borrower at the Agent's aforesaid address. Promptly after each Competitive Bid Borrowing, the Agent shall notify each Bank of the amount of the Competitive Bid Borrowing, the consequent Competitive Bid Reduction and the dates upon which such Competitive Bid Reduction commenced and will terminate. (h) Each Competitive Bid Borrowing shall be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of such Competitive Bid Borrowing, the Borrower shall be in compliance with the limitations set forth in the proviso to the first sentence of subsection (a) above. (i) Each acceptance by Borrower pursuant to subsection (g) above shall be irrevocable and binding on the Borrower. In the case of any acceptance of a Competitive Bid for LIBOR Advances, the Borrower shall indemnify each Designated Bidder against any loss (including loss of anticipated profits), cost or expense incurred by such Designated Bidder as a result of any failure to fulfill on or before the date specified pursuant to subsection (g) above for such Competitive Bid Borrowing the applicable conditions set forth in Article IV, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Designated Bidder to fund the LIBOR Advance to be made by such Bank as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (j) The failure of any Designated Bidder to make the Advance to be made by it as part of any Competitive Bid Borrowing shall not relieve any other Designated Bidder of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Designated Bidder shall be responsible for the failure of any other Designated Bidder to make the Advance to be made by such other Designated Bidder on the date of any Competitive Bid Borrowing. (k) Within the limits and on the conditions set forth in this Section 2.02, the Borrower may from time to time borrow under this Section 2.02, repay pursuant to Section 2.05 and reborrow under this Section 2.02; provided that not more than ten Competitive Bid Borrowings may be outstanding at any time (for which purpose Competitive Bid Advances made on the same date, but having different maturities or representing Borrowings under different Commitments, shall be deemed to be separate Competitive Bid Borrowings). SECTION 2.03. Fees. (a) Facility Fees. The Borrower agrees to pay to the Agent, for the account of each of the Banks, a facility fee on the average daily Commitment of such Bank from the Closing Date until the Revolver Termination Date at the Applicable Facility Fee Rate from time to time in effect, payable quarterly in arrears on the 34 40 last day of each March, June, September and December, commencing June 30, 1998, and on the Revolver Termination Date. (b) Agency, Auction and Arrangement Fees. The Borrower agrees to pay to the Agent, for its own account, the agency fees and the auction fees and to an Affiliate of the Agent, the arrangement fee, in such amounts and on such dates as are specified in the letter agreement dated as of March 4, 1998, between the Borrower and the Agent. SECTION 2.04. Optional Reduction of the Commitments. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, permanently to terminate in whole or reduce ratably in part the Unused Commitments; provided that (a) each partial reduction shall be in the aggregate amount of $3,000,000 or an integral $1,000,000 multiple in excess thereof, (b) each reduction shall be made ratably among the Banks in accordance with their Unused Commitments and (c) no reduction may reduce the aggregate Commitments of the Banks below the aggregate amount of the then outstanding Letter of Credit Liability and the then outstanding principal amount of the Competitive Bid Advances. SECTION 2.05. Repayment. (a) The Borrower shall repay on the Revolver Termination Date the aggregate principal amount of the Committed Rate Advances of each Bank outstanding on the Revolver Termination Date, together with accrued interest thereon. (b) The Borrower shall repay the aggregate principal amount of the Competitive Bid Advances of each Designated Bidder, together with accrued interest thereon, in such amounts and on such dates as specified pursuant to Section 2.02(b). (c) The Borrower shall repay to the Agent for the account of the Swing Line Bank the outstanding principal amount of each Swing Line Advance made by the Swing Line Bank on the earlier of the date demanded by the Swing Line Bank in respect of such Swing Line Advance and the Revolver Termination Date. SECTION 2.06. Interest. (a) The Borrower shall pay interest on the unpaid principal amount of each Committed Rate Advance made by each Bank from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, payable monthly in arrears on the last day of each 35 41 calendar month during such periods and on the date such Base Rate Advance shall be Converted or paid in full. Notwithstanding the foregoing, during the continuance of an Event of Default, the principal amount of each Base Rate Advance shall bear interest, to the fullest extent permitted by law, from the date on which such amount is due until such amount is paid in full, payable on demand, at a fluctuating rate per annum equal at all times to 2% per annum above the Base Rate in effect from time to time. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period plus (B) the Applicable Eurodollar Rate Margin in effect on the first day of such Interest Period, payable on the last day of such Interest Period and, if such Interest Period has a duration of six months, on the day that occurs during such Interest Period three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full; provided, however, that in the event that the Applicable Eurodollar Rate Margin for any fiscal quarter of the Borrower has not yet been determined in accordance with the provisions of the definition of Applicable Eurodollar Rate Margin in Section 1.01 as of the time when interest on a Eurodollar Rate Advance becomes due, the Borrower shall pay such interest on the date when due based on the then existing Applicable Eurodollar Rate Margin and any necessary subsequent adjustments in the amount of interest payable hereunder (due to any subsequent change in the Applicable Eurodollar Rate Margin) shall be made on the first date on which any interest on any Committed Rate Advance is payable after the date of determination of the Applicable Eurodollar Rate Margin. Notwithstanding the foregoing, during the continuance of an Event of Default, the principal amount of each Eurodollar Rate Advance shall bear interest, to the fullest extent permitted by law, from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to 2% per annum above the Eurodollar Rate plus the Applicable Eurodollar Rate Margin until the end of the Interest Period applicable to such Eurodollar Rate Advance, at which time the rate per annum shall become 2% per annum above the Base Rate, in each case as in effect from time to time. (b) The Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Advance until such principal amount shall be paid in full, at the rate of interest for such Advance specified by the Designated Bidder making such Advance in its Competitive Bid with respect thereto delivered pursuant to Section 2.02(c), payable on the interest payment date or dates specified by the Borrower for such Advance in the related Competitive Bid Request delivered pursuant to Section 2.02(b) and on the maturity date of such Competitive Bid Advance. Notwithstanding the foregoing, during the continuance 36 42 of an Event of Default, the principal amount of each Competitive Bid Advance shall bear interest, to the fullest extent permitted by law, from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate equal to 2% per annum above the interest rate specified by the Designated Bidder that made such Advance in its Competitive Bid with respect thereto delivered pursuant to Section 2.02(c). SECTION 2.07. Interest Rate Determination and Protection. (a) The Agent shall give prompt notice to the Borrower and the Banks of the applicable interest rate under Section 2.06(a)(i) or (ii). (b) If, with respect to any Eurodollar Rate Advance, the Majority Banks notify the Agent that the Eurodollar Rate for any Interest Period for such Advance will not adequately reflect the cost to such Majority Banks of making, funding or maintaining their respective Eurodollar Rate Advance for such Interest Period, the Agent shall forthwith so notify the Borrower and the Banks, whereupon: (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (ii) the obligation of the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist. (c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advance in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Borrower and the Banks and such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances. SECTION 2.08. Voluntary and Automatic Conversion of Committed Rate Advances. (a) The Borrower may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the second Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07 and 2.11, Convert all Committed Rate Advances of one Type comprising the same Borrowing into Committed Rate Advances of another Type; provided, however, that any Conversion of any Eurodollar Rate Advances into Base Rate Advances shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances 37 43 to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such Advance. (b) On the date on which the unpaid aggregate principal amount of Eurodollar Rate Advances comprising any Committed Rate Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $3,000,000, the Eurodollar Rate Advances comprising such Borrowing shall automatically Convert into Base Rate Advances, and on and after such date the Borrower may not convert such Base Rate Advances to Eurodollar Rate Advances until such time as the aggregate principal amount of Base Rate Advances equals or exceeds $3,000,000. (c) Upon the occurrence and during the continuance of any Event of Default, (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.09. Prepayments. (a) Voluntary Prepayments. The Borrower may, upon at least (i) in the case of Eurodollar Rate Advances, two Business Days' and (ii) in the case of Base Rate Advances, the same Business Day's notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given, the Borrower shall, prepay the outstanding principal amounts of the Advances comprising part of the same Committed Rate Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid and, in the case of Eurodollar Rate Advances, any amounts payable under Section 9.04(b); provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $3,000,000 or any integral multiple of $1,000,000 in excess thereof. The Borrower may not prepay any Competitive Bid Advances. (b) Asset Sales Mandatory Prepayments. Subject to Section 2.09(d), upon the sale, lease or other disposition by the Borrower or any Subsidiary of the Borrower of assets of the Borrower and its Subsidiaries constituting more than 5% of the Consolidated Total Assets of the Borrower and its Subsidiaries at the time of sale, lease or other disposition, then (x) the Net Cash Proceeds of such sale, lease or other disposition shall be delivered as soon as practicable to the Agent and (y) any deferred cash proceeds of such sale, lease, or other disposition shall be delivered to the Agent as soon as practicable after their receipt (at which time the same shall become Net Cash Proceeds). Any such Net Cash Proceeds shall be applied in accordance with Section 2.09(c). (c) Application of Prepayments. Mandatory prepayments pursuant to Section 2.09(b) shall be: first, applied to the payment of any amount required to be paid under Article III hereof as a reimbursement obligation of the Borrower; second, 38 44 applied to the ratable payment of outstanding Swing Line Advances, together with accrued interest to the date of such payment on the principal amount repaid and any amounts payable pursuant to Section 9.04(b) in respect thereof; third, applied to the ratable payment of outstanding Committed Rate Advances, together with accrued interest to the date of such payment on the principal amount repaid and any amounts payable pursuant to Section 9.04(b) in respect thereof; and fourth, delivered to the Agent to be held as pledged collateral to be applied to the ratable payment when due of outstanding Competitive Bid Advances and any Letter of Credit Liability (other than the Letter of Credit Liabilities referred to in the first clause of this Section 2.09(c)), together with accrued interest to the date of such payment on the principal amount repaid, to the aggregate amount of such principal and interest. (d) Effect of Investment Grade Rating. Notwithstanding Section 2.09(b), no prepayment shall be required by any of such sections if at the time of the sale, lease or other disposition, issuance or sale referred to therein any of the then outstanding Debt of the Borrower shall then be rated Investment Grade. SECTION 2.10. Increased Costs. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurodollar Rate Advances or LIBOR Advances, included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to make or making, funding or maintaining Eurodollar Rate Advances or LIBOR Advances, then the Borrower shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Bank, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Bank determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital (or the rate of return on capital) required or expected to be maintained by such Bank or any corporation controlling such Bank and that the amount of such capital is increased (or such rate of return is reduced) by or based upon the existence of such Bank's commitment, or offer or agreement, to lend hereunder and other commitments, or offers or agreements, of this type, then, upon notice by such Bank (with a copy of such notice to the Agent), the Borrower shall immediately pay to the Agent for the account of such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank or such corporation in the 39 45 light of such circumstances, to the extent that such Bank reasonably determines such increase in capital (or reduction in rate of return) to be allocable to the existence of such Bank's commitment, or offer or agreement, to lend hereunder. Such notice as to such amounts submitted and delivered to the Borrower and the Agent by such Bank shall set forth in summary fashion the basis of such allocation and shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.11. Illegality. Notwithstanding any other provision of this Agreement, if any Bank shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful or any central bank or other governmental authority asserts that it is unlawful, for any Bank or its Eurodollar Lending Office to perform its obligations or agreements hereunder to make Eurodollar Rate Advances or LIBOR Advances or to fund or maintain Eurodollar Rate Advances or LIBOR Advances hereunder: (a) in the case of Eurodollar Rate Advances, (i) the obligation of the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Advances of all Banks then outstanding, together with interest accrued thereon and any costs payable pursuant to Section 9.04(b), unless the Borrower, within five Business Days of notice from the Agent, Converts all Eurodollar Rate Advances of all Banks then outstanding into Base Rate Advances in accordance with Section 2.08, and (b) in the case of LIBOR Advances, such Bank shall no longer be obligated to fund any LIBOR Advance it has agreed to fund thereafter. SECTION 2.12. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes not later than 11:00 A.M. (New York City time) on the day when due free and clear of any taxes, offset or other charge in United States dollars to the Agent at its address referred to in Section 9.02 in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or facility fees (i) ratably (other than amounts payable pursuant to Section 2.10, 2.13 or 9.04) to the Banks for the account of their respective Applicable Lending Offices, in the case of Committed Rate Advances, and to the applicable Designated Bidder (for the account of its Applicable Lending Office), in the case of Competitive Bid Advances, and like funds relating to the payment of any other amount payable to any Bank to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.08(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments hereunder in respect of the interest assigned thereby to the Bank assignee thereunder, and the parties to such Assignment and Acceptance 40 46 shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Bank, if and to the extent payment owed to such Bank is not made when due hereunder or under the Note held by such Bank, to charge from time to time against any or all of the Borrower's accounts with such Bank any amount so due. (c) All computations of interest (other than interest on Base Rate Advances) and of fees shall be made on the basis of a year of 360 days, and all computations of interest on Base Rate Advances shall be made on the basis of a year of 365 or 366 days (as the case may be), in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or facility fee, as the case may be; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBOR Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder in respect of Committed Rate Advances that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. (f) Notwithstanding any provision in this Agreement or any other Loan Document to the contrary, all payments received by the Agent under the other Loan Documents, the application of which are not provided for in such Loan Documents, may be then or at any time thereafter be applied in whole or in part by the Agent for the ratable benefit of the Banks (except in the case of Competitive Bid Advances), against all or part of the Advances or other obligations of the Borrower 41 47 hereunder or under the other Loan Documents, in such order and manner as the Agent shall elect. SECTION 2.13. Taxes. (a) Any and all payments by the Borrower hereunder or under the Notes shall be made, in accordance with Section 2.12, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.13) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Bank or the Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing payment thereof. 42 48 (e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.13 shall survive the payment in full of principal and interest hereunder and under the Notes. (f) Prior to the date of the first Borrowing under this Agreement in the case of each Bank party hereto on the date hereof, on the date of the effectiveness of the Assignment and Acceptance pursuant to which it became a Bank in the case of each other Bank, and within 30 days following the first day of each calendar year or if otherwise requested from time to time by the Borrower or the Agent, each Bank organized under the laws of a jurisdiction outside the United States shall provide the Agent and the Borrower with two counterparts of each of the forms prescribed by the Internal Revenue Service (Form 1001 or 4224, or successor form(s), as the case may be, or another appropriate form) of the United States certifying as to such Bank's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such Bank under any Loan Document. Unless the Borrower and the Agent have received such forms or other documents satisfactory to them indicating that payments under any Loan Document are not subject to United States withholding tax, the Borrower or the Agent (if not withheld by the Borrower) shall withhold taxes from such payments at the applicable statutory rate, without any obligation to "gross-up" or make such Bank or the Agent whole under Section 2.13(a); provided, however, that the Borrower shall have the obligation to make such Bank or the Agent whole and to "gross-up" under Section 2.13(a), if the failure to so deliver such forms or make such statements (other than the forms and statements required to be delivered on or made prior to the date of the initial Borrowing, on the date of the Assignment and Acceptance pursuant to which an Eligible Assignee became a Bank) is the result of the occurrence of an event (including, without limitation, any change in treaty, law or regulation) which (alone or in conjunction with other events) renders such forms inapplicable, that would prevent such Bank or the Agent from making the statements contemplated by such forms or which removes or reduces an exemption (whether partial or complete) from withholding tax previously available to such Bank or the Agent. Each Bank (and the Agent, if applicable) will promptly notify the Borrower of the occurrence (when known to it) of an event contemplated by the foregoing proviso. SECTION 2.14. Sharing of Payments, Etc. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Committed Rate Advances made by it (other than pursuant to Section 2.10, 2.13 or 9.04) in excess of its ratable share of payments on account of such Committed Rate Advances obtained by all the Banks, such Bank shall forthwith purchase from the other Banks such participations in such Committed Rate Advances made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered 43 49 from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. SECTION 2.15. Evidence of Debt/Register. (a) The Debt of the Borrower resulting from the Committed Rate Advances (including, without limitation, the Swing Line Advances) and Competitive Bid Advances shall be evidenced by the Committed Rate Notes and the Competitive Bid Notes, respectively, delivered to the Banks pursuant to Article IV, and the remaining principal amount thereof shall be recorded by the Banks, and, prior to any transfer, endorsed on the grids thereto in accordance with the terms of the Notes. The Agent shall also maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower under this Agreement and the amounts of principal and interest payable and paid to each Bank from time to time under this Agreement. (b) The Register maintained by the Agent pursuant to Section 9.08(c) shall include a control account, and a subsidiary account for each Bank, in which accounts (taken together) shall be recorded: (i) the date and amount of each Borrowing, the Commitment to which such Borrowing relates, the Type of Advance comprising such Borrowing and the Interest Period applicable thereto (if any) from time to time, (ii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank, and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Bank's share thereof. SECTION 2.16. Use of Proceeds. The proceeds of the Advances shall be used by the Borrower for Capital Investments (to the extent permitted under this Agreement), including, without limitation, acquisitions of Facilities and Related Businesses (to the extent permitted under this Agreement), and other general corporate purposes. SECTION 2.17. Outstanding Advances, Existing Collateral. (a) Conversion to Advances; Termination of Commitment under Existing Credit Agreement. On the Closing Date: (i) all outstanding Base Rate Advances (as 44 50 defined in the Existing Credit Agreement) shall automatically become Base Rate Advances under the Commitments as if borrowed on the Closing Date and shall thereafter bear interest as provided herein and payable at such times and otherwise on such terms as are provided herein for Base Rate Advances under the Commitments, (ii) there shall be no outstanding Eurodollar Rate Advances or Competitive Bid Advances (as such terms are defined in the Existing Credit Agreement) and (iii) the Commitments (as such term is defined in the Existing Credit Agreement) shall be permanently terminated in full. (b) Adjustment Assignments and Payments Among Banks. Notwithstanding the requirements set forth in Section 9.08 or any other provision to the contrary contained herein, on the Closing Date, through the Agent, the Banks shall enter into such assignments and make such payments (including any accrued interest or fees) in immediately available funds among themselves as shall be necessary for each Bank to have funded its ratable share, in accordance with its Commitment hereunder, of all existing Base Rate Advances as if such Advances were borrowed on the Closing Date hereunder and to participate, in accordance with its Commitment hereunder, in all Letters of Credit outstanding on the Closing Date. ARTICLE III AMOUNT AND TERMS OF LETTERS OF CREDIT AND PARTICIPATIONS THEREIN SECTION 3.01. Letters of Credit. Each Issuing Bank agrees, on the terms and conditions hereinafter set forth, to Issue for the account of the Borrower, one or more Letters of Credit (denominated in United States dollars) from time to time during the period from the Closing Date until the date which occurs 30 days before the Revolver Termination Date in an aggregate undrawn amount not to exceed at any time $25,000,000, each such Letter of Credit upon its Issuance to expire on or before the earlier of (x) the date which occurs one year from the date of its Issuance or (y) the Revolver Termination Date; provided, however, that any standby Letter of Credit may by its terms be automatically extendable for up to periods of one year; provided further that any letter of credit issued under the Existing Credit Agreement which continues to be undrawn in whole or in part on the Closing Date shall be deemed to be a Letter of Credit Issued hereunder from and after the Closing Date and shall be set forth on Schedule VII; provided further that each Letter of Credit shall be Issued on a sight basis only; provided further no Issuing Bank shall be obligated or permitted to Issue or renew any Letter of Credit if: (i) after giving effect to the Issuance or renewal of such Letter of Credit, the then outstanding aggregate amount of the Letter of Credit Liability and all Advances (including any Advances required to be made but 45 51 not funded) shall exceed the aggregate amount of the Commitments of the Banks; or (ii) the Agent or the Majority Banks shall have notified such Issuing Bank and the Borrower, that no further Letters of Credit are to be Issued or renewed by such Issuing Bank due to failure to meet any of the applicable conditions set forth in Article IV, and such notice has not expired or been withdrawn by the Majority Banks. Within the limits of the obligations of each Issuing Bank set forth above, the Borrower may request an Issuing Bank to Issue one or more Letters of Credit, reimburse such Issuing Bank for payments made thereunder pursuant to Section 3.03(a), and request any Issuing Bank to Issue one or more additional Letters of Credit under this Section 3.01. SECTION 3.02. Issuing the Letters of Credit. Each Letter of Credit shall be Issued on at least five Business Days' notice from the Borrower to the Issuing Bank specifying the date, amount, expiry, and beneficiary thereof, accompanied by such application and agreement for letter of credit and other documents as the Issuing Bank may specify to the Borrower, each in form and substance satisfactory to the Issuing Bank. On the date specified by the Borrower in such notice and upon fulfillment of the applicable conditions set forth in Section 3.01 and Article IV, the Issuing Bank shall Issue such Letter of Credit in the form specified in such notice and such application and agreement for letter of credit and shall promptly notify the Agent thereof. In the event and to the extent that any provision of an application and agreement for a Letter of Credit shall conflict with this Agreement, the provisions of this Agreement shall govern. SECTION 3.03. Reimbursement Obligations. (a) Notwithstanding any provisions to the contrary in any application and agreement for letter of credit applicable to any Letter of Credit, the Borrower shall: (i) pay to the Issuing Bank an amount equal to, and in reimbursement for, each amount which such Issuing Bank pays under any Letter of Credit on or before the earlier of (A) the time specified therefor in the application and agreement for letter of credit applicable to such Letter of Credit or (B) the date which occurs one Business Day after payment of such amount by such Issuing Bank under such Letter of Credit; and (ii) pay to the Issuing Bank interest on any amount remaining unpaid under clause (i) above from the date on which such Issuing Bank pays such amount under any Letter of Credit until such amount is reimbursed in full to such Issuing Bank pursuant to clause (i) above, payable on demand, at a fluctuating rate per annum equal to the sum of the Base Rate in effect from time to time, provided that any such amount which is not reimbursed to such 46 52 Issuing Bank within one Business Day after notice thereof by the Issuing Bank shall thereafter bear interest, until such amount is reimbursed in full to such Issuing Bank pursuant to clause (i) above, payable on demand, at the Base Rate in effect from time to time plus 2-1/2% per annum. (b) All amounts to be reimbursed to the Issuing Bank in accordance with subsection (a) above may, subject to the limitations set forth in Section 2.01 (exclusive of the minimum borrowing limitations), be paid from the proceeds of Committed Rate Advances. The Borrower hereby authorizes the Banks to make pursuant to Section 2.01 Committed Rate Advances which are in the amounts of the reimbursement obligations of the Borrower set forth in subsection (a) above, and further authorizes the Agent (i) to give the Banks, pursuant to Section 2.01(c), a Notice of Borrowing with respect to the Borrowing comprised of such Advances (which shall be Base Rate Advances) and (ii) to distribute the proceeds of such Advances to the Issuing Bank to pay such amounts. The Borrower agrees that all such Advances so made shall be deemed to have been requested by it, and directs that all proceeds thereof shall be used to pay such reimbursement obligations under subsection (a) above. SECTION 3.04. Participations Purchased by the Banks. (a) On the date of Issuance of each Letter of Credit, the Issuing Bank shall be deemed irrevocably and unconditionally to have sold and transferred to each Bank without recourse or warranty, and each Bank shall be deemed to have irrevocably and unconditionally purchased and received from such Issuing Bank, an undivided interest and participation, to the extent of such Bank's Commitment Percentage, in effect from time to time, in such Letter of Credit and all Letter of Credit Liability relating to such Letter of Credit and all Loan Documents securing, guaranteeing, supporting, or otherwise benefitting the payment of such Letter of Credit Liability. As to each Letter of Credit Issued or to be Issued by the Issuing Bank, the Agent will promptly (after it receives notification from the Issuing Bank pursuant to Section 3.02) notify each Bank of such Letter of Credit and its date of Issue, amount, expiry, and reference number. (b) In the event that any reimbursement obligation under Section 3.03(a) is not paid when due to the Issuing Bank with respect to any Letter of Credit, the Issuing Bank shall promptly notify the Agent to that effect, and the Agent shall promptly notify the Banks of the amount of such reimbursement obligation and each Bank shall immediately pay to the Issuing Bank, in lawful money of the United States and in same day funds, an amount equal to such Bank's Commitment Percentage then in effect of the amount of such unpaid reimbursement obligation with interest at the Federal Funds Rate for each day after such notification until such amount is paid to the Agent. 47 53 (c) Promptly after the Issuing Bank receives a payment on account of a reimbursement obligation with respect to any Letter of Credit, the Issuing Bank shall promptly pay to the Agent, and the Agent shall promptly pay to each Bank which funded its participation therein, in lawful money of the United States and in the kind of funds so received, an amount equal to such Bank's ratable share thereof. (d) Upon the request of any Bank, the Agent shall furnish to such Bank copies of any Letter of Credit and any application and agreement for letter of credit and other documents related thereto as may be reasonably requested by such Bank. (e) The obligation of each Bank to make payments under Section 3.04(b) above shall be unconditional and irrevocable and shall be made under all circumstances, including, without limitation, any of the circumstances referred to in Section 3.06(b). (f) If any payment received on account of any reimbursement obligation with respect to a Letter of Credit and distributed to a Bank as a participant under Section 3.04(c) is thereafter recovered from the Issuing Bank in connection with any bankruptcy or insolvency proceeding relating to the Borrower, each Bank which received such distribution shall upon demand by the Agent, repay to the Issuing Bank such Bank's ratable share of the amount so recovered together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such Bank's required repayment to (ii) the total amount so recovered) of any interest or other amount paid or payable by such Issuing Bank in respect of the total amount so recovered. SECTION 3.05. Letter of Credit Fees. (a) The Borrower hereby agrees to pay nonrefundable letter of credit fees with respect to each Letter of Credit on the maximum amount available to be drawn under such Letter of Credit from time to time after giving effect to scheduled reductions thereof (the determination of such maximum amount to assume compliance with all conditions for drawing) from the date of Issuance of such Letter of Credit until the expiry date of such Letter of Credit, (i) to each Bank (in accordance with its Commitment Percentage) at a rate equal to (A) the Applicable Eurodollar Rate Margin in effect on the date of Issuance thereof less (B) 1/8 of one percent per annum and (ii) to the Issuing Bank at a rate equal to 1/8 of one percent per annum, for the number of months or any fraction thereof that such Letter of Credit is outstanding, payable in arrears and on the last day of each March, June, September and December prior to the expiry date of such Letter of Credit for the number of months or fraction thereof and on the expiry date of such Letter of Credit. (b) The Borrower shall pay to the Issuing Bank, for its own account and on demand, sums equal to standard fees (other than its letter of credit fee), charges and expenses that such Issuing Bank may impose, pay or incur in connection with 48 54 the Issuance, amendment, administration, transfer or cancellation of any or all Letters of Credit or in connection with any payment by such Issuing Bank thereunder. SECTION 3.06. Indemnification: Nature of the Issuing Bank's Duties. (a) The Borrower agrees to indemnify and save harmless the Agent, each Issuing Bank and each Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which the Agent, such Issuing Bank or such Bank may incur or be subject to as a consequence, direct or indirect, of (i) the Issuance of any Letter of Credit or (ii) any action or proceeding relating to a court order, injunction, or other process or decree restraining or seeking to restrain such Issuing Bank from paying any amount under any Letter of Credit. (b) The obligations of the Borrower hereunder with respect to Letters of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms hereof under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit or Loan Document or any agreement or instrument relating thereto; (ii) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against the beneficiary, or any transferee, of any Letter of Credit, or any Issuing Bank, any Bank, or any other Person; (iii) any draft, certificate, or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) any lack of validity, effectiveness, or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part; (v) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (vi) the release or non-perfection of any collateral; (vii) any failure of the beneficiary of a Letter of Credit to strictly comply with the conditions required in order to draw upon any Letter of Credit; 49 55 (viii) any misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (ix) any other circumstances or happening whatsoever, whether or not similar to the foregoing; provided that, notwithstanding the foregoing, neither an Issuing Bank nor the Agent shall be relieved of any liability it may otherwise have as a result of its gross negligence or willful misconduct. SECTION 3.07. Increased Costs. (a) Change in Law. If any change in any law or regulation or in the interpretation thereof by any court or administrative governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit issued by an Issuing Bank or (ii) impose on such Issuing Bank or any Bank any other condition regarding letters of credit or, in the case of such Bank, its participation hereunder in Letters of Credit, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to such Issuing Bank of Issuing or maintaining or, in the case of such Bank, having a participation in Letters of Credit, then, upon demand by such Issuing Bank or such Bank (with a copy to the Agent), the Borrower shall immediately pay to such Issuing Bank or such Bank from time to time as specified by such or such Bank (with a copy to the Agent) additional amounts which shall be to compensate such Issuing Bank or such Bank for such increased cost. Each certificate as to such increased cost, and amount thereof, incurred by any Issuing Bank or any Bank as a result of any event mentioned in clause (i) or (ii) above, submitted by such Issuing Bank or such Bank to the Borrower and the Agent, shall set out in reasonable detail the calculation of such amounts and shall be conclusive and binding for all purposes, absent manifest error. (b) Capital. If any Issuing Bank or any Bank determines that compliance with any law or regulation or with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) has or would have the effect of reducing the rate of return on the capital of any Issuing Bank or such Bank or any corporation controlling such Issuing Bank or such Bank as a consequence of, or with reference to, such Issuing Bank's commitment to issue, issuance of, or, with respect to such Bank's commitment, to participate in, any Letter of Credit hereunder below the rate that such Issuing Bank, such Bank or such other corporation could have achieved but for compliance (taking into account the policies of such Issuing Bank, such Bank or corporation with capital), then the Borrower, shall from time to time, upon demand by such Issuing Bank or such Bank (with a copy of such demand to the Agent), immediately pay to such Issuing Bank or such Bank additional amounts sufficient to compensate such Issuing Bank or other 50 56 corporation for such reduction. A certificate as to such amounts, to the Borrower and the Agent by such Issuing Bank or such Bank, shall be conclusive and binding for all purposes, absent manifest error. Each Issuing Bank and each Bank agree promptly to notify the Borrower and the Agent of any circumstances that would Borrower to pay additional amounts pursuant to this subsection (b), provided that the failure to give such notice shall not affect the Borrower's obligation to pay such additional amounts hereunder. (c) Survival of Obligations. Without prejudice to the survival of any other obligation of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 3.07 shall survive the payment in full of the Advances (after the Revolver Termination Date). SECTION 3.08. Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as most recently published by the International Chamber of Commerce ("UCP") shall in all respects be deemed a part of this Article III as if incorporated herein and shall apply to the Letters of Credit. ARTICLE IV CONDITIONS OF LENDING SECTION 4.01. Conditions Precedent to Any Borrowing and Letter of Credit. The obligation of each Bank to make an Advance on the occasion of any Borrowing, the obligation of each Issuing Bank to Issue any Letter of Credit and the right of the Borrower to request a Swing Line Borrowing, shall be subject to the conditions precedent that on the date of such Borrowing or Issuance (a) the following statements shall be true and the Agent shall have received a certificate signed by a duly authorized officer of the Borrower, dated the date of such Borrowing or Issuance, stating that such statements are true (and each of the giving of the applicable Notice of Borrowing or the Notice of Swing Line Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance of such Letter of Credit shall constitute a representation and warranty by the Borrower and each Loan Party (as to each Loan Document to which it is a party) that on the date of such Borrowing or such Issuance such statements are true): (i) the representations and warranties contained in Section 5.01 of this Agreement, in Section 6 of the Guaranty, and in Section 11 of the Intercompany Subordination Agreement, are true and correct in all material respects on and as of the date of such Borrowing or Issuance, before and after giving effect to such Borrowing or Issuance and to the application of the proceeds therefrom, as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such Borrowing or such Issuance or from the application of the proceeds 51 57 therefrom, which constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both; (b) the Competitive Bid Note, duly executed by the Borrower, to the order of the appropriate Designated Bidder, shall have been received by the Agent and (c) the Agent shall have received such other approvals, opinions or documents as the Agent may reasonably request. SECTION 4.02. Conditions Precedent to Initial Advances. The obligations of each Bank to make its initial Advance and each Issuing Bank to Issue its initial Letter of Credit on or after the Closing Date are subject to the following conditions precedent: (i) The Agent shall have received evidence satisfactory to it that all fees and expenses payable by the Borrower under the Existing Loan Agreement shall have been paid in full. (ii) The Agent shall have received the following documents, each dated the Closing Date and in form and substance satisfactory to the Agent: (a) If requested by a Bank, a Committed Rate Note, each duly executed by the Borrower, to the order of such Bank. (b) A Consent with respect to the amendment and restatement of the Existing Credit Agreement, duly executed by each Guarantor and by each Loan Party party to the Intercompany Subordination Agreement in substantially the form of Exhibit G. (c) Certified copies of the (i) resolutions of the Board of Directors or other governing body of each Loan Party approving each Loan Document to which it is a party, and of all documents evidencing other necessary corporate, limited liability company or partnership action and governmental approvals, if any, with respect to each such Loan Document, (ii) all documents evidencing other corporate, limited liability company or partnership action or governmental approvals, if any, necessary or, in the reasonable opinion of the Agent, advisable in connection with the execution, delivery and performance of each Loan Document; (iii) the certificate or articles of incorporation, by-laws or other constituent instruments of the Borrower and of each of its Subsidiaries other than Immaterial Subsidiaries, as amended through the Closing Date or, with respect to any of the Borrower's Subsidiaries other than Immaterial Subsidiaries, a certification that such Subsidiary's certificate or articles of incorporation, bylaws or other constituent instruments delivered to Citibank in connection with the Existing Credit Agreement are true and correct copies of the certificate 52 58 or articles of incorporation, bylaws or other constituent instruments of such Subsidiary and that such certificate or articles of incorporation, bylaws or other constituent instruments have not been amended or otherwise modified since the date such copies were delivered to Citibank and (iv) good standing certificates with respect to the Borrower and each of its Subsidiaries other than Immaterial Subsidiaries from the Secretary of State (or similar official) of the state in which the Borrower or such Subsidiary is incorporated or organized. (d) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is a party and the other documents to be delivered hereunder. (e) A certificate of the Borrower, signed on behalf of the Borrower by its President or a Vice President, certifying as to the absence of any event occurring and continuing, or resulting from this Agreement, that constitutes an Event of Default or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. (f) Favorable opinions of N. Carolyn Forehand, general counsel of the Borrower, and Waller Lansden Dortch & Davis, special counsel for the Borrower and the other Loan Parties, substantially in the forms of Exhibit E. (g) A favorable opinion of Shearman & Sterling, counsel for the Agent, satisfactory to the Agent. (h) Such other agreements, certificates, consents and other documents that the Agent or any Bank may reasonably request. (iii) The Borrower shall have paid all fees payable hereunder on or before the Closing Date. (iv) Other than as set forth on Schedule VI, no judgment, order, decree, injunction or other restraint affecting any Loan Party shall have been rendered or imposed by any court, governmental agency or arbitrator, and there shall be no pending or threatened action or proceeding affecting any Loan Party before any court, governmental agency or arbitrator, which could reasonably be expected to have a material adverse effect on the business, prospects or condition (financial or otherwise) or operations of the Borrower and its Subsidiaries, taken as a whole, or which purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document. 53 59 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.01. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified as a foreign corporation and is in good standing in each jurisdiction as to which the location of its assets or the nature of its business makes qualification necessary, and has all power, corporate or otherwise, to conduct its business and to own, or hold under lease, its assets, and to execute and deliver, and to perform all of its obligations under, each of the Loan Documents to which it is or will be a party. Each of the Borrower's Subsidiaries other than Immaterial Subsidiaries is a corporation, limited liability company or partnership duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization, is duly qualified as a foreign corporation, limited liability company or partnership and is in good standing in each jurisdiction as to which the location of its assets or the nature of its business makes qualification necessary, and has all power (corporate, limited liability company, partnership or otherwise) to conduct its business and to own, or hold under lease, its assets, and to execute and deliver, and to perform all of its obligations under, each of the Loan Documents to which it is or will be a party. (b) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or will be a party are within such Loan Party's corporate, limited liability company or partnership powers, have been duly authorized by all necessary corporate, limited liability company or partnership action, and do not contravene (i) such Loan Party's certificate or articles of incorporation, by-laws or other constituent instruments, or (ii) any law, rule, regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award binding on or affecting such Loan Party or any of its properties, or (iii) any contractual restriction binding on or affecting such Loan Party or any of its properties, and do not result in or require the creation of any Lien upon or with respect to any of its properties; and no Loan Party is in default in any material respect under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, award or restriction. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by any Loan Party of any Loan Document to which it is or will be a party except for those which have been duly obtained or made and are in full force and effect. 54 60 (d) This Agreement is, and each other Loan Document to which each Loan Party will be a party when executed and delivered hereunder will be, the legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms. (e) The Consolidated balance sheets of the Borrower and its Subsidiaries as at December 31, 1996 and September 30, 1997 and the related Consolidated statements of operations, stockholders' equity and cash flow of the Borrower and its Subsidiaries for the fiscal year and nine months, respectively, then ended have been furnished to the Agent. Such financial statements, and all financial statements hereafter delivered pursuant to Sections 6.04(b) and (c), fairly present, or will fairly present, the financial condition of the Borrower and its Subsidiaries as at the dates thereof and the results of the operations of the Borrower and its Subsidiaries for the periods then ended or ending, all in accordance with generally accepted accounting principles consistently applied. Since December 31, 1996, there has been no material adverse change, in the business, prospects or condition (financial or otherwise) or in the results of operations of the Borrower and its Subsidiaries taken as a whole. (f) Each Loan Party has good title to all of its material property, free and clear of all Liens, except for Permitted Liens. Each Lease or other agreement relating to the Real Property described in Schedule I operated by each Loan Party is a valid and subsisting Lease or other agreement and is in full force and effect in accordance with the terms thereof, and the Borrower or its Subsidiary is in possession of all such leaseholds and no material default by the Borrower or any of its Subsidiaries exists under any such Lease or other agreement and, to the best of the Borrower's knowledge, no lessor has any accrued right to terminate any such Lease or other agreement on account of a default by the Borrower or its Subsidiaries. (g) Each Service Agreement is a valid and subsisting agreement and is in full force and effect in accordance with the terms thereof, and no material default by the Borrower or any of its Subsidiaries exists under any Service Agreement and, to the best of the Borrower's knowledge, no party to any of the Service Agreements has any accrued right to terminate any Service Agreement on account of a default by the Borrower or any of its Subsidiaries. (h) Other than as set forth on Schedule VI, no judgment, order, decree, injunction or other restraint affecting any Loan Party has been rendered or imposed by any court, governmental agency or arbitrator, and there is no pending or, to the best knowledge of the Borrower, threatened action or proceeding affecting any Loan Party before any court, governmental agency or arbitrator, which could reasonably be expected to have a material adverse effect on the business, prospects or condition (financial or otherwise) or operations of the Borrower and its Subsidiaries, taken as 55 61 a whole, or which purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document. (i) Set forth on Schedule II is a complete and accurate list of all of the Subsidiaries of the Borrower, other than Immaterial Subsidiaries, as of the date hereof, showing as of such date (as to each such Subsidiary) the nature of its organization, the jurisdiction of its organization, the number of shares or the amount of interests of each class of Securities outstanding on the date hereof, the direct owner of the outstanding shares or the amount of interests of each such class owned, and the jurisdictions in which such Subsidiary is qualified to do business as a foreign entity. There are no outstanding options, warrants, rights of conversion or purchase, and similar rights to acquire Securities of any of such Subsidiaries, except as set forth on Schedule II, and all of the outstanding Securities of all of such Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Borrower or, in the case of limited liability companies, the Intercompany Creditor, free and clear of (i) all Liens and (ii) any restrictions (other than laws, rules or regulations) on the ability to vote or alienate such Securities. (j) All information, exhibits and reports furnished in writing by or on behalf of the Borrower or any of its Subsidiaries other than Immaterial Subsidiaries and made available to the Agent or any Bank relating to the condition (financial or otherwise), operations, business or properties of the Borrower or such Subsidiary, are true, correct and complete and not misleading in all material respects. (k) With respect to all business plans and other forecasts and projections furnished by or on behalf of the Borrower or any of its Subsidiaries other than Immaterial Subsidiaries and made available to the Agent or any Bank relating to the financial condition, operations, business, properties or prospects of the Borrower or such Subsidiary, to the best of the Borrower's knowledge: (i) all facts stated as such therein are true and complete in all material respects, (ii) all facts upon which the forecasts or projections therein contained are based are true and complete in all material respects, and (iii) all estimates and assumptions were made in good faith and believed to be reasonable at the time made. (l) Schedule IV sets forth, as of the date hereof, all Debt of the Borrower and its Subsidiaries other than Debt representing miscellaneous liabilities not in excess of $5,000,000 in the aggregate. (m) Neither the business nor the properties of the Borrower or any of its Subsidiaries are affected by any strike, lockout, fire, explosion, earthquake, embargo, act of God or of the public enemy or other casualty which could reasonably be expected to have a material adverse effect on the business, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as a whole. 56 62 (n) No ERISA Event has occurred with respect to any Plan or is reasonably expected to occur with respect to any Plan. (o) Schedule B (Actuarial Information) to the most recently completed annual report (Form 5500 Series) for each Plan of the Borrower or its Subsidiaries, copies of which have been or will be filed with the Internal Revenue Service, is complete and accurate in all material respects and fairly presents the funding status of such Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (p) Neither the Borrower nor any ERISA Affiliate has incurred or is reasonably expected to incur any material Withdrawal Liability to any Multiemployer Plan. (q) Neither the Borrower nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (r) The Borrower and its Subsidiaries on a Consolidated basis are, and each Loan Party individually is, and after receipt and application of the Advances in accordance with the terms of this Agreement and execution of each Loan Document to which it is or is to be a party will be, Solvent. (s) Neither the Borrower nor any Subsidiary of the Borrower is, or is required to be, registered under the Investment Company Act of 1940, as amended. (t) Each of the Borrower and its Subsidiaries is in compliance in all material respects with the provisions of all Environmental Laws. Neither the Borrower nor any of its Subsidiaries nor, to the knowledge of the Borrower, any other Person, has engaged in any Environmental Activity, nor, to the knowledge of the Borrower, has any Environmental Activity otherwise occurred, in material violation of any provision of any applicable Environmental Laws. (u) Neither the Borrower nor any of its Subsidiaries has any liability, absolute or contingent, in connection with any Environmental Activity the satisfaction of which could reasonably be expected to have a material adverse effect on the business, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as a whole. (v) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). No proceeds of any Advance will be used to purchase or carry any margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve 57 63 System) or to extend credit to others for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System) in violation of applicable law, including, without limitation, Regulation U issued by the Board of Governors of the Federal Reserve System. (w) The Intercompany Creditor (i) is not liable in respect of any Debt other than Intercompany Debt, (ii) has no other liabilities or obligations other than contingent obligations that are not material in amount in respect of operating leases entered into prior to May 1, 1993, and (iii) has not engaged in any operations, and has not received any notice of a claim or threatened claim in respect of any operations or the sale thereof, since May 1, 1993. (x) All reprogramming required to permit the proper functioning, in and following the year 2000, of the Borrower's computer systems and the related equipment and the testing of all such systems and equipment, as so reprogrammed, will be materially completed in a timely fashion and will not result in a material adverse effect on the business, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries taken as whole. ARTICLE VI COVENANTS OF THE BORROWER SECTION 6.01. Affirmative Covenants. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, any amount shall remain due hereunder, or any Bank shall have any Commitment hereunder, the Borrower will, unless the Majority Banks shall otherwise consent in writing: (a) Payment of Taxes, Etc. Pay and discharge, and cause each Subsidiary to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property, and (ii) all lawful claims which, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any Subsidiary shall be required to pay or discharge any such tax, assessment, charge or claim which is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (b) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (i) in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates, and (ii) reasonably satisfactory to the Agent, and naming the Agent as an additional insured or as loss payee as the respective interests appear. 58 64 (c) Preservation of Corporate Existence, Etc. Except as is otherwise expressly permitted hereby, preserve and maintain, and cause each Subsidiary to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises. (d) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with the requirements of all applicable laws, rules, regulations and orders, including, without limitation, all Environmental Laws relating to the Real Property and the ownership, use, operation and occupancy thereof. (e) Visitation Rights. At any reasonable time and from time to time after notice, permit the Agent or any of the Banks or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and/or any of the Subsidiaries of the Borrower, and to discuss the affairs, finances and accounts of the Borrower and any such Subsidiary with any of their officers or directors and with their independent certified public accountants. (f) Keeping of Books. Keep, and cause each Subsidiary of the Borrower to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles consistently applied. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each Subsidiary of the Borrower to maintain and preserve, all of its properties which are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Compliance with Terms of All Leaseholds. Make all payments and otherwise perform, and cause each of its Subsidiaries to make all payments and otherwise perform, all of its material obligations in respect of all material Leases, and use its best efforts, and cause each of its Subsidiaries to use its best efforts, to keep, and to take all action to keep, such Leases in full force and effect and not allow any such Leases to lapse or be terminated or any rights to renew such Leases to be forfeited or canceled; provided, however, that any such Lease may lapse or be terminated or such renewal rights may be forfeited or canceled if in the reasonable business judgment of the Borrower or its Subsidiary, as the case may be, it is in its best economic interests to allow or cause such lapse, termination, forfeiture or cancellation. (i) Solvency. Continue, and cause each of its Subsidiaries to continue, to be Solvent. 59 65 (j) Further Assurances. (A) If and to the extent requested by the Agent from time to time, execute and deliver such documents and take such other action, and cause each of its Subsidiaries to execute and deliver such documents and take such other action, as may be necessary or reasonably requested by the Agent, in order to assure and confirm that all obligations under this Agreement (including reimbursement obligations in respect of outstanding Letters of Credit), the Notes or any of the other Loan Documents are at all times guaranteed on terms satisfactory to the Agent by Guaranties of each of its present and future Subsidiaries other than Immaterial Subsidiaries. (B) Promptly upon the acquisition by the Borrower or one of its Subsidiaries of the Securities of any Subsidiary that is not an Immaterial Subsidiary or, in the event any Subsidiary of the Borrower ceases to be an Immaterial Subsidiary, within 30 days after such Subsidiary ceases to be an Immaterial Subsidiary, the Borrower will cause such Subsidiary to enter into a Guaranty. (C) Promptly upon the acquisition of the Securities of any Subsidiary of the Borrower or one of its Subsidiaries that is not an Immaterial Subsidiary or, in the event any Subsidiary of the Borrower ceases to be an Immaterial Subsidiary or is owed by the Borrower more than $100,000 in Intercompany Debt, within 30 days after such Subsidiary ceases to be an Immaterial Subsidiary or first is owed such amount of Intercompany Debt, the Borrower will cause such Subsidiary to enter into the Intercompany Subordination Agreement. (D) Use its best efforts, from and after the Closing Date, to obtain supplements to the Subordination Agreements outstanding on the Closing Date confirming the continued subordination of the Debt referred to therein, in form and substance reasonably satisfactory to the Agent. (k) Employment of Technology; Disposal of Hazardous Materials, Etc. (i) Employ, and cause each of its Subsidiaries to employ, in connection with its use, if any, of the Real Property, appropriate technology and compliance procedures to maintain compliance with any applicable Environmental Laws, (ii) obtain and maintain and cause each of its Subsidiaries to obtain and maintain, any and all material permits required by applicable Environmental Laws in connection with its or its Subsidiaries' operations and (iii) dispose of, and cause each of its Subsidiaries to dispose of, any and all Hazardous Substances only at facilities and with carriers reasonably believed to possess valid permits under RCRA, if applicable, and any applicable state and local Environmental Laws. The Borrower shall use its best efforts, and cause each of its Subsidiaries to use its best efforts, to obtain all certificates required by law to be obtained by the Borrower and its Subsidiaries 60 66 from all contractors employed by the Borrower or any of its Subsidiaries in connection with the transport or disposal of any Hazardous Substances. (l) Environmental Matters. If the Borrower or any of its Subsidiaries shall: (i) receive written notice that any material violation of any Environmental Laws may have been committed or is about to be committed by the Borrower or any of its Subsidiaries; (ii) receive written notice that any administrative or judicial complaint or order has been filed or is about to be filed against the Borrower or any of its Subsidiaries alleging any material violation of any Environmental Laws or requiring the Borrower or any of its Subsidiaries to take any action in connection with the release or threatened release of Hazardous Substances or solid waste into the environment; or (iii) receive written notice from a federal, state, foreign or local governmental agency or private party alleging that the Borrower or any of its Subsidiaries is liable or responsible for costs associated with the response to cleanup, stabilization or neutralization of any Environmental Activity; then it shall provide the Agent with a copy of such notice within five Business Days of the Borrower's or such Subsidiary's receipt thereof. Within ten days of the date the Borrower or such Subsidiary shall have learned of the enactment or promulgation of any Environmental Laws which may have a material adverse effect on the business, property, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, the Borrower shall provide the Agent with notice thereof The Borrower shall monitor compliance with Environmental Laws by any and all owners or operators of the Real Property. (m) Violation of Law, Etc. Prior to the Borrower or any Subsidiary of the Borrower commencing any acquisition of any margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), including, without limitation, commencing a merger or tender offer for shares of another Person, the Borrower will deliver to the Agent an opinion of the general counsel of the Borrower satisfactory to the Agent that such activity (taking into account Section 6.02(a) and the use or proposed use of the proceeds of any Advances in connection with such activity) does not violate any law, rule or regulation (including without limitation Regulation U issued by the Board of Governors of the Federal Reserve System). SECTION 6.02. Negative Covenants. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, any amount shall remain due hereunder, or any Bank shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Banks: 61 67 (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien upon or with respect to any of its properties of any character (including, without limitation, Accounts), whether now owned or hereafter acquired, or assign any right to receive income, or sign or file, or permit any of its Subsidiaries to sign or file, under the Uniform Commercial Code a financing statement that names the Borrower or any of its Subsidiaries as debtor or the equivalent or sign, or permit any of its Subsidiaries to sign, any security agreement authorizing any secured party thereunder to file any such financing statement or other document, or assign, or permit any of its Subsidiaries to assign, any Accounts, excluding, however, from the operation of the foregoing restrictions the Liens created by or pursuant to the Loan Documents and Permitted Liens and leases of and other agreements relating to interests in property financed under the $100,000,000 Synthetic Lease Facility arising under the $100,000,000 Synthetic Lease Facility. (b) Restrictive Covenants. Enter into, or permit any of its Subsidiaries to enter into, any agreement or instrument (other than the Loan Documents and the $100,000,000 Synthetic Lease Facility) (i) which restricts the ability of the Borrower or any of its Subsidiaries to create or suffer to exist any Lien upon or with respect to its Securities, whether now or hereafter issued, or upon or with respect to any of its properties, whether now owned or leased or hereafter acquired or leased, except in connection with transactions contemplated by clause (v) of the definition "Permitted Lien" in which case any such agreement shall be limited to the property acquired in connection with such transactions and any Lien granted is limited as provided in said clause (v) and except for investments of no more than $10,000,000 in any individual case (or series of individual cases), but in no event more than $20,000,000 in the aggregate at any time, by the Borrower and its Subsidiaries in any Person which is not a Subsidiary, in which the Borrower or its Subsidiaries hold less than 50% of the equity interest and as to which the Borrower or its Subsidiaries are prohibited by law to grant a Lien on any such equity interest, or (ii) which restricts the ability of any Subsidiary of the Borrower to (A) pay dividends or make other distributions on its Securities or to the Borrower or any other Subsidiary of the Borrower, (B) make any loan or advance to the Borrower or any of its Subsidiaries, or (C) create, incur, assume or suffer to exist, or pay or prepay, any Intercompany Debt, provided that any such agreement or instrument mandated by any federal law, rule or regulation or order governing the business of the Borrower and its Subsidiaries shall not be a violation of this Section 6.02(b)(ii). (c) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other than: (i) Debt hereunder; (ii) Debt under the Loan Documents; 62 68 (iii) Debt secured by Liens permitted by clause (v) of the definition of "Permitted Lien"; (iv) the Debt listed on Schedule IV, provided that such Debt may be renewed, extended or otherwise modified on terms no less favorable to the Borrower or its Subsidiaries or the Banks than the existing terms of such Debt; (v) Debt not otherwise permitted by this Section 6.02(c) incurred by the Borrower and/or its Subsidiaries (other than the Intercompany Creditor) in connection with the acquisition of any Facility (or the assets thereof), any Existing Clinic Acquisition or the acquisition of any Related Business, so long as such acquisition satisfies all the conditions precedent set forth in Section 6.02(f)(i) or (ii), as the case may be; (vi) convertible Subordinated Debt incurred by the Borrower or any Subsidiary of the Borrower (other than the Intercompany Creditor) in connection with the acquisition of a Facility (or the assets thereof), any Existing Clinic Acquisition or the acquisition of any Related Business, provided that the holder of any such Debt shall have executed and delivered a Subordination Agreement to the Agent; (vii) Subordinated Debt, whether convertible or not, in an aggregate principal amount not in excess of $350,000,000; provided that the Agent and the Majority Banks shall have approved in writing prior to the issuance thereof the terms and conditions relating to the issuance of such Subordinated Debt, including the terms of any indenture executed in connection therewith; (viii) any Intercompany Debt or Debt permitted under the terms of Section 6.02(i) or 6.02(o); (ix) Contingent Obligations permitted under Section 6.02(d); (x) Debt under any interest rate, currency or other protection, hedge, cap, collar, swap or similar agreement entered into by the Borrower with any of the Banks or their respective Affiliates from time to time; (xi) unsecured Senior Debt in an aggregate principal amount not in excess of $50,000,000 incurred by the Borrower or any of its Subsidiaries (other than the Intercompany Creditor) to fund any Existing Clinic Acquisition or the acquisition of any Facility (or the assets thereof) or any Related Business; provided, however, that such unsecured Senior Debt contains terms and conditions, including, without limitation, interest rates, covenants and defaults, no greater or more restrictive, as the case may be, than those contained herein; provided further that there can be no principal 63 69 repayments of such unsecured Senior Debt until one year after the Revolver Termination Date; and (xii) obligations under the $100,000,000 Synthetic Lease Facility. (d) Contingent Obligations. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Contingent Obligations except (i) by reason of endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) Contingent Obligations created pursuant to the Loan Documents, (iii) guaranties by the Borrower of Capital Leases, Operating Leases (and any other obligations under the $100,000,000 Synthetic Lease Facility) or Service Agreements of any Subsidiary of the Borrower (including consents by the Borrower to the assignment of such guaranties), provided that such Capital Leases or Operating Leases are otherwise permitted hereunder, (iv) Contingent Obligations of the type specified in clauses (ii) and (iii) of the definition of "Contingent Obligation" created in the ordinary course of business, (v) miscellaneous Contingent Obligations not to exceed at any time outstanding $25,000,000, (vi) guaranties by the Subsidiaries of the Borrower of the Borrower's obligations under a Capital Lease or an Operating Lease provided that such Capital Lease or Operating Lease is otherwise permitted hereunder and only to the extent of the portion of such Capital Lease or Operating Lease that directly benefits such Subsidiary, (vii) Contingent Obligations not otherwise permitted by this Section 6.02(d) incurred by the Borrower and/or its Subsidiaries (other than the Intercompany Creditor) in connection with the acquisition of any Facility (or the assets thereof), any Existing Clinic Acquisition or the acquisition of any Related Business, so long as such acquisition satisfies all the conditions precedent set forth in Section 6.02(f)(i) or (ii), as the case may be, (viii) Contingent Obligations permitted pursuant to Section 6.02(c) and Contingent Obligations listed on Schedule IV and (ix) Contingent Obligations to make recruitment subsidy advances pursuant to any Service Agreement. (e) Restricted Payments. Make, or permit any of its Subsidiaries to make, any Restricted Payment if at the time such Restricted Payment is made none of the then outstanding Debt of the Borrower shall be rated Investment Grade, except that: (i) the Borrower may pay dividends on its Common Stock, or purchase or otherwise acquire for value any shares of its Common Stock, or enter into any hedge agreement in respect of its Common Stock (each a "Common Stock Payment"), provided that (A) no Event of Default or event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both shall have occurred and be continuing or would result from such Common Stock Payment, (B) the aggregate amount of dividends paid on its Common Stock during the period from January 1, 1998 through the date of such Common Stock Payment shall not exceed an amount 64 70 equal to ten percent of the Consolidated Net Income of the Borrower and its Subsidiaries for the period from January 1, 1998 through the last day of the fiscal quarter most recently ended prior to the date of such Common Stock Payment (treated for such purposes as a single accounting period), (C) the sum of (1) the notional value of any hedge agreement entered into in respect of its Common stock plus (2) the aggregate amount of Common Stock Payments made to purchase or otherwise acquire for value shares of Common Stock shall not exceed $35,000,000 in the aggregate for all such hedge agreements, purchases or other acquisitions, and (D) the Borrower shall have provided the Agent with a certificate of the treasurer or chief financial officer of the Borrower setting forth computations in reasonable detail demonstrating satisfaction of the foregoing conditions; and (ii) the Borrower and its Subsidiaries may make Restricted Payments to terminated employees in an amount not to exceed $100,000 in any year. (f) Capital Investments. Make, or permit any of its Subsidiaries to make, any Capital Investments, provided that: (i) the Borrower and the Subsidiaries of the Borrower (other than the Intercompany Creditor) can make Capital Investments consisting of an acquisition of a Facility (or the assets thereof) or Related Businesses or Existing Clinic Acquisitions (whether through the acquisition of assets or Securities) that satisfy all of the following: (A) the Total Consideration for each such acquisition shall be less than $75,000,000; (B) the aggregate Total Consideration for all such acquisitions in any twelve-month period shall not exceed $500,000,000; (C) the aggregate number of such acquisitions (other than Existing Clinic Acquisitions) in any twelve-month period shall not exceed fifteen; (D) except in the case of Existing Clinic Acquisitions, the Agent and the Banks shall have received at least one day before the scheduled closing for such acquisition the following financial and other information: (1) the Total Consideration to be paid for such acquisition; (2) summary financial information relating to the Facility or Related Business to be acquired, including operating 65 71 forecasts and information as to the numbers of physicians and physician assistants involved and any other information reasonably requested by the Agent; and (3) a schedule, duly certified by the chief financial officer of the Borrower, demonstrating compliance on a pro forma basis with the financial covenants contained in Section 6.03 after such acquisition; provided, however, that in preparing such pro forma schedule, the Borrower shall include all Debt to be incurred in connection with such acquisition and the EBITDA of the Facility or Related Business to be acquired (which shall be based on audited, if available, historical numbers, adjusted as contemplated by Section 6.03); (E) the Agent and the Banks shall have received at least one day before the scheduled closing of such acquisition all other information, financial or otherwise, regarding such acquisition as the Agent or the Banks may reasonably request; (F) except in the case of Existing Clinic Acquisitions, the Agent shall have received, on or before the date of such acquisition, each of the following documents; (1) a Guaranty (dated on or before the date of such acquisition), duly executed by the Subsidiary of the Borrower formed to acquire or resulting from the acquisition of such Facility (or the assets thereof) or Related Business, unless immediately after giving effect to such acquisition such Subsidiary will be an Immaterial Subsidiary; (2) an amendment (dated on or before the date of such acquisition) to the Intercompany Subordination Agreement, which amendment shall make the Subsidiary of the Borrower formed to acquire or resulting from the acquisition of such Facility (or the assets thereof) or Related Business a "Subordinated Creditor" under such Intercompany Subordination Agreement, unless immediately after giving effect to the acquisition such Subsidiary will be an Immaterial Subsidiary; (3) certified copies of resolutions of the Board of Directors or other governing body of such Subsidiary authorizing the execution and delivery of such Loan Documents, together with certificates of incumbency with respect to the individuals executing such Loan Documents; 66 72 (4) a supplement to Schedule I hereto to the extent such supplement is necessary to make the representation and warranty contained in Section 5.01(f) correct on and as of the date of such acquisition; and (5) such other documents (including a favorable legal opinion of the general counsel of the Borrower) as the Agent may reasonably request; (ii) the Borrower and the Subsidiaries of the Borrower (other than the Intercompany Creditor) can make Capital Investments consisting of an acquisition of a Facility (or the assets thereof) or Related Businesses for which the Total Consideration (whether through the acquisition of assets or Securities) equals or exceeds $75,000,000 only with the prior approval in writing of the terms and conditions of such acquisition by the Majority Banks in substantially the form of Exhibit F (it being understood that the Banks shall use reasonable efforts to notify the Borrower within ten Business Days after receipt of all of the information regarding a proposed acquisition described in clause (A) below of their decision to approve or disapprove the proposed acquisition), and (A) the Banks and the Agent shall have received complete information, financial and otherwise, regarding the proposed acquisition as may be necessary or desirable, in the reasonable judgment of the Banks, to enable the Banks to evaluate the proposed acquisition for the purpose of approving such acquisition under this Section 6.02(f)(ii), including, without limitation, information regarding the Total Consideration to be paid, a schedule, duly certified by the chief financial officer of the Borrower, demonstrating compliance on a pro forma basis with the financial covenants contained in Section 6.03 after such acquisition, and any other information as the Banks may reasonably request; provided, however, that in preparing such pro forma schedule, the Borrower shall include all Debt to be incurred in connection with such acquisition and the EBITDA of the Facility or Related Business to be acquired (which shall be based on audited, if available, historical numbers, adjusted as contemplated by Section 6.03); and (B) the Agent shall have received on or before the day of such acquisition, in form and substance satisfactory to the Agent, each of the documents described in subsection 6.02(f)(i)(F); (iii) the Borrower and its Subsidiaries may make Capital Expenditures that are not acquisitions of, or other investments in, Facilities, Related Businesses or other Persons (or all or substantially all of the assets 67 73 thereof) in the ordinary course of business, provided that no Event of Default or event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both shall have occurred and be continuing or would result therefrom; (iv) the Borrower and its Subsidiaries may make capital investments in, and loans and advances to, Subsidiary joint ventures, general or limited partnerships, limited liability companies or other types of Persons that are not wholly-owned by the Borrower and its Subsidiaries in an aggregate amount of not more than $25,000,000 during any fiscal year, and in no event in an aggregate amount exceeding $50,000,000 at any time outstanding; (v) the Borrower and its Subsidiaries may make capital investments in, and loans and advances to, joint ventures, general or limited partnerships, limited liability companies or other types of Persons that are not Subsidiaries in an aggregate amount not exceeding $15,000,000 at any time outstanding; (vi) without limiting amounts that may be invested in, or loaned or advanced to other Persons pursuant to Section 6.02(f)(v), the Borrower's Subsidiary PhyCor of Hawaii, Inc. ("PhyCor-Hawaii") may make secured loans to Straub Clinic & Hospital, Inc. ("Straub") to the extent required by, and in compliance with, Sections 5.8.1, 5.8.2 and 5.8.3 of its Service Agreement with Straub (the "Straub Service Agreement"); provided that: (A) at the time of each such loan and after giving effect thereto, no Event of Default or event which would constitute an Event of Default but for the requirement that notice be given or time elapse or both shall occur and be continuing; (B) loans pursuant to Section 5.8.1 of the Straub Service Agreement ("Straub Capital Loans") shall be secured by a first priority security interest in all of the assets directly or indirectly acquired by Straub from the proceeds of any such loans, free and clear of any other Liens; and the aggregate principal amount of all Straub Capital Loans may not exceed $50,000,000 at any time outstanding; (C) loans pursuant to Section 5.8.2 of the Straub Service Agreement ("Straub Working Capital Loans"; collectively, with the Straub Capital Loans, the "Straub Loans") shall be made pursuant to a single credit facility providing loan availability for no more than one year from the commencement of the term thereof (which may be renewed on an annual basis, but not provide availability later than the stated Revolver Termination Date) and shall be secured by a first priority security interest in all of the accounts receivable, inventory, 68 74 supplies and other current assets of Straub (the "Straub Loan Base"), free and clear of any other Liens; and the aggregate principal amount of all Straub Working Capital Loans may not exceed at any time outstanding the lesser of (1) $40,000,000 or (2) the aggregate book value (less any reserves applicable thereto) of (x) the Straub Loan Base as of such time and (y) any current assets acquired by the Borrower in the merger with Straub Clinic & Hospital, Incorporated and held by the Borrower at such time, all as determined in accordance with generally accepted accounting principles; and (D) each Straub Loan shall be evidenced by a promissory note (1) that shall have a final maturity not later than the stated Revolver Termination Date and provide for the repayment of principal prior to final maturity at the annual rate of one-sixth of the principal outstanding at the time loan availability under the applicable credit facility for Straub ceases and (2) that shall be subject to the repurchase right of Straub provided in the Straub Service Agreement; and (vii) the Borrower and its Subsidiaries may make Capital Investments in the properties subject to and financed under the $100,000,000 Synthetic Lease Facility as provided in the $100,000,000 Synthetic Lease Facility. (g) Mergers, Etc. Merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets (other than the acquisition of assets of any Facility or Related Business or an Existing Clinic Acquisition, whether or not such acquisition is accomplished by merger or by Securities or asset purchase, so long as such acquisition satisfies all the conditions precedent set forth in Section 6.02(f)(i) or (ii) and, if any merger involves the Borrower, the Borrower is the surviving corporation) of, any Person, or permit any of its Subsidiaries to do so, except that: (i) any Subsidiary may consolidate with or merge into the Borrower (only if the Borrower shall be the continuing or surviving corporation) or (except for the Intercompany Creditor) with or into one or more other Subsidiaries that are Guarantors, provided that (A) immediately before and after giving effect to such consolidation or merger, the parties thereto and the survivor thereof all are Solvent, (B) all Guaranties shall continue in full force and effect, and (C) the Agent shall have been furnished with a favorable opinion of counsel reasonably satisfactory to the Agent covering such matters as the Agent may reasonably request; and 69 75 (ii) the Borrower may consolidate or merge with any other Person, provided that (A) immediately before and after giving effect to such consolidation or merger, the parties thereto and the survivor thereof all are Solvent, (B) the Borrower shall be the continuing or surviving corporation, (C) no Change of Control shall occur and (D) all Guaranties shall continue in full force and effect; provided, however, that immediately before and after any consolidation or merger under this Section 6.02(g), no Event of Default, or event which, with the giving of notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. (h) Limitation on Sales of Assets. Except for the sale of inventory in the ordinary course of business, the sale of worn-out or obsolete assets and intercompany transfers permitted under Section 6.02(g), sell, lease, transfer or otherwise dispose of its assets, or permit any Subsidiary to sell, lease, transfer or otherwise dispose of its assets (including any interest in a Subsidiary), unless (i) the book value of such assets sold constitutes less than 5% of the value of the Borrowers Consolidated Tangible Net Assets at the time of sale or other disposition, provided that the aggregate book value of all such assets sold in any twelve-month period shall not exceed 15% of the value of the Borrower's average Consolidated Tangible Net Assets for the twelve-month period ending with the quarter immediately preceding the date of determination, as evidenced by a certificate duly executed by the chief financial officer of the selling entity on the date of such sale or disposition and provided further that such assets do not constitute Securities of the Intercompany Creditor or Intercompany Debt, or (ii) such sale is required in connection with the termination of a Service Agreement or a change in control under the Amended Securities Purchase Agreement, dated as of January 1, 1995, with respect to NAMM, and, in each case, the Net Cash Proceeds of such sale are delivered directly to the Agent to be applied in accordance with Section 2.09(e). (i) Transactions with Affiliates. Lend or advance money to, contract with or engage in any other transactions with, or permit any Subsidiary of the Borrower to lend or advance money to, contract with or engage in any other transactions with, Subsidiaries or Affiliates of the Borrower, except for (i) any such transaction between or among Loan Parties and (ii) any such transaction occurring in the ordinary course of their business with third parties and in each case on terms and for consideration which is no less favorable to the Borrower and its Subsidiaries than the terms and consideration which the Borrower or such Subsidiaries would be obligated to pay in an arms' length transaction, subject, however, to the limitation that the Borrower and its Subsidiaries shall not loan more than $100,000 times the number of Facilities operated by the Borrower and its Subsidiaries to employees at any one time outstanding; provided, however, that nothing in this Section 6.02(i) shall prohibit the Borrower and its Subsidiaries from engaging in transactions with 70 76 joint ventures in which the Borrower or any of its Subsidiaries is a joint venture partner to the extent permitted by Section 6.02(f)(iv) or (v). (j) Prepayments of Debt. Prepay, redeem, defease (whether actually or in substance) or purchase in any manner (or deposit or set aside funds or securities for the purpose of the foregoing), or make any payment (other than for scheduled payments of principal and interest due on the date of payment thereof, if such payment is permitted to be made pursuant to the terms of the documents evidencing or governing the applicable Debt) in respect of, or establish any sinking fund, reserve or like set-aside of funds or other property for the redemption, retirement or repayment of, any Debt, or transfer any property in payment of or as security for the payment of, or violate the subordination terms of, any Debt, or amend, modify or change in any manner less favorable to Borrower or any of its Subsidiaries or the Banks the terms of any Debt or any instrument, indenture or other document evidencing, governing or affecting the terms of any Debt, or cause or permit any of its Subsidiaries to do any of the foregoing; provided, however, that nothing in this Section 6.02(j) shall prohibit (i) any payments of the Debt under this Agreement in accordance with the terms hereof, (ii) the conversion of convertible Subordinated Debt of the Borrower into Securities of the Borrower, (iii) the prepayment in any fiscal year of the Borrower of up to $30,000,000 in principal amount of Senior Debt of the Borrower or any of its Subsidiaries if the effective yield payable in respect of such Senior Debt is greater than the interest payable hereunder in respect of Base Rate Advances or Eurodollar Rate Advances, whichever is lower, (iv) the prepayment of the existing operating capital notes payable to the various physicians listed on Schedule IV in the aggregate principal amount specified therein, (v) setoff of any convertible Subordinated Debt against the purchase price to be paid by the holder of such Debt in connection with the repurchase by such holder of any Facility pursuant to the Asset Purchase Agreement relating to such Facility, or (vi) payment of any Deferred Acquisition Consideration in connection with any acquisition of Facilities (or the assets thereof), any Existing Clinic Acquisition or any acquisition of a Related Business to the extent such acquisition satisfies the requirements of Section 6.02(f)(i) or (ii), as the case may be. (k) Accounting Changes. Change its fiscal year, or make, or permit any of its Subsidiaries to make, any other significant change in Consolidated accounting treatment and reporting practices except as required or permitted by generally accepted accounting principles or the rules and regulations of the Securities and Exchange Commission. (l) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as conducted as of the date hereof. 71 77 (m) Securities. Except as is provided in Section 6.02(g), permit any of its Subsidiaries to issue or sell any of its Securities or any rights, warrants or options to acquire any of its Securities, or permit any of its Subsidiaries to sell or otherwise dispose of any Securities of any of its Subsidiaries, or permit any of its Subsidiaries to amend its charter, bylaws or other constituent instruments so as to affect the conversion rights, payments, privileges or other terms in respect of such Securities or in any respect that affects any of the foregoing interests of its respective securityholders. (n) Welfare Plan Liabilities. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any liability with respect to Welfare Plans if, immediately after giving effect to such liability, the aggregate annualized cost (including, without limitation, the cost of insurance premiums) with respect to Welfare Plans and other benefit plans and insurance of the type described in the definition of "Welfare Plans" contained in Section 1.01 for which the Borrower and its Subsidiaries are or may become liable in any fiscal year of the Borrower could have a material adverse effect on the business, property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole. (o) Intercompany Creditor. Permit the Intercompany Creditor to engage in any business or operations except the receipt and advancing of Intercompany Debt and the holding of Intercompany Debt or Securities of other Subsidiaries of the Borrower. SECTION 6.03. Financial Covenants. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, any amount shall remain due hereunder, or any Banks shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Banks: (a) Consolidated Net Worth. Permit at any date of determination the Consolidated Net Worth of the Borrower and its Subsidiaries to be less than $683,000,000, plus (i) 80% of the net proceeds received from the issuance, sale or disposition of the Borrower's Securities (common, preferred or special), securities converted into or exchanged for Securities, and any rights, options, warrants and similar instruments from December 31, 1997 to such date of determination and (ii) 50% of positive Consolidated Net Income (if any) earned from December 31, 1997 through such date of determination (without regard for net losses). (b) Fixed Charge Coverage Ratio. Permit, for the four consecutive fiscal quarters ending March 31, 1998 and for each four consecutive fiscal quarters ending thereafter, the Consolidated Fixed Charge Coverage Ratio of the Borrower and its Subsidiaries, calculated at the end of each fiscal quarter of the Borrower, to be less than for each such period, 4.75 to 1.00. 72 78 (c) Consolidated Debt/EBITDA Ratio. Permit, for each period of four consecutive fiscal quarters ending March 31, 1998, and for each period of four consecutive fiscal quarters ending thereafter, the Consolidated Debt/EBITDA Ratio of the Borrower and its Subsidiaries to be greater than (x) for each such period ending on or prior to December 31, 1998, 4.25 to 1.00 and (y) for each period thereafter, 3.75 to 1.00. For the purposes of subsection (b) above, a determination of EBITDAL, Lease Expense or any other component of the ratio referred to in such subsections (the "Ratio Components") is required to be made as to any period prior to the date of such determination (a "Determination Period"), such determination shall be made so as to give effect to the following: (i) if any Person, Facility or Related Business (an "Acquired Business") shall have been acquired in compliance with this Agreement since the beginning of such Determination Period and must be Consolidated with the Borrower and its Subsidiaries in accordance with GAAP, the Ratio Components of such Acquired Business from the beginning of the Determination Period to the date of acquisition shall be included on a pro forma basis with the same effect as if such Acquired Business had been a Consolidated Subsidiary of the Borrower for such portion of the Determination Period, subject to the following: (A) for any date of determination occurring on or before the completion of one full fiscal quarter after the date of acquisition of such Acquired Business, pro forma adjustments may be made to reflect (1) specifically identified changes in physician compensation, complements of physicians, malpractice insurance costs and other group purchase arrangements, all of which shall be consistent with the terms and conditions of any Service Agreement entered into in connection with such acquisition and (2) other planned cost savings which will be realized by such Acquired Business as a consequence of such acquisition to the extent demonstrated by the Borrower to the satisfaction of the Majority Banks; and (B) For any date of determination occurring after the completion of one full fiscal quarter after the date of such acquisition, the actual Ratio Components for the period through the end of the then most recently ended fiscal quarter shall be annualized for the Determination Period; and (ii) if any Person, Facility or Related Business (a "Disposed Business") which shall have been Consolidated with the Borrower and its Subsidiaries shall have been discontinued, lost, sold or otherwise disposed of 73 79 as of the date of determination, the Ratio Components of such Disposed Business shall be excluded for the Determination Period. SECTION 6.04. Reporting Requirements. So long as any Note shall remain unpaid, any Letter of Credit shall remain outstanding, or amount shall remain due hereunder or any Bank shall have any Commitment hereunder, the Borrower will furnish to the Agent, for distribution to the Banks, in sufficient copies for each Bank, the following: (a) as soon as available and in any event within 45 days after the end of each fiscal quarter, Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal quarter and Consolidated statements of operations and cash flow of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such fiscal quarter, certified by the chief financial officer of the Borrower, together with (in the case of each of the first three quarters of each year) (i) a certificate of said officer stating that no Event of Default has occurred and is continuing or, if an Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken or proposes to take with respect thereto, (ii) a schedule in form satisfactory to the Agent of the computations used by the Borrower in determining compliance with the covenants contained in Section 6.03 and in sufficient detail for determining the Applicable Facility Fee Rates and the Applicable Eurodollar Rate Margins in accordance with the definitions of such terms set forth in Section 1.01, and (iii) a certificate of said officer or of the general counsel of the Borrower regarding additions to and deletions from Schedule I reflecting changes occurring during such fiscal quarter; (b) as soon as available and in any event within 95 days after the end of each fiscal year, a copy of the annual audit report for such year for the Borrower, including therein an audited Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and audited Consolidated statements of operations, stockholders' equity and cash flow of the Borrower and its Subsidiaries for such fiscal year (i) certified by a nationally recognized public accounting firm, together with a certificate of such accounting firm stating that in the course of the regular audit of the business of the Borrower, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that an Event of Default has occurred and is continuing, or, if in the opinion of such accounting firm, an Event of Default has occurred and is continuing, a statement as to the nature thereof, and (ii) accompanied by a copy of the management letter from such accounting firm accompanying such financial statements; (c) as soon as possible and in any event within two days after the occurrence of an Event of Default of which the Borrower or any Subsidiary has knowledge, a statement of the chief financial officer of the Borrower setting forth 74 80 details of such Event of Default and the action which the Borrower has taken and proposes to take with respect thereto; (d) promptly after any change in accounting policies or reporting practices that could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), operations, business, assets or prospects of the Borrower or of any of its Subsidiaries or on the rights of the Banks under any of the Loan Documents, notice and a description in reasonable detail of such change; (e) promptly and in any event within ten days after the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred, a statement of the chief financial officer of the Borrower describing such ERISA Event and the action, if any, that the Borrower or such ERISA Affiliate has taken or proposes to take with respect thereto; (f) promptly and in any event within two Business Days after receipt thereof by the Borrower or any ERISA Affiliate (i) copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan and (ii) copies of each material notice received from the United States Department of Labor in connection with any ERISA requirements; (g) promptly and in any event within five Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (i) the imposition of Withdrawal Liability by a Multiemployer Plan, (ii) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (iii) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA or (iv) the amount of liability incurred, or expected to be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (i), (ii) or (iii) above; (h) promptly and in any event within ten days after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower or any of its Subsidiaries, of the type described in Section 5.01(h); (i) promptly and in any event within ten days after the sending or filing in final form thereof, copies of all proxy statements and financial statements that the Borrower or any of its Subsidiaries sends to its securityholders generally, and copies of all registration statements (other than those relating to employee stock plans), without exhibits, all periodic reports on Forms 10-K and 10-Q and reports on Form 8-K that the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may substituted therefor, or any national securities exchange or with the National Association of Securities Dealers; 75 81 (j) promptly after the occurrence thereof, notice of (A) any event of which Borrower or any Subsidiary is aware which makes any of the representations obtained in Section 5.01 inaccurate in any respect or (B) the receipt by the Borrower or any Subsidiary of any notice, order, directive or other communication from a governmental authority alleging violations of or noncompliance with any Environmental Law; and (k) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Bank through the Agent may from time to time reasonably request. Notwithstanding the foregoing, upon the occurrence and during the continuance of an Event of or a Default, the Borrower will, and will cause its Subsidiaries to, provide to the Agent for each Bank additional information and any and all of the above information more frequently to the extent reasonably requested by the Agent or any Bank. ARTICLE VII EVENTS OF DEFAULT SECTION 7.01. Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing: (a) the Borrower shall fail to pay any principal of any Advance or Note or any reimbursement obligation under any Letter of Credit, in each case when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance, Note or reimbursement obligation under any Letter of Credit, or any fees or other amounts payable under any Loan Document, in each case within five days after the same becomes due and payable; or (b) any representation or warranty made or deemed by any Loan Party (or any of its officers) in any Loan Document or certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (c) (i) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 6.01, Section 6.02 or Section 6.03; or (ii) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or in any other Loan Document on its part to be performed or observed if such failure shall remain unremedied for ten days after written notice thereof shall have been given to such Loan Party by the Agent or any Bank; or 76 82 (d) any Loan Party or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $10,000,000 in the aggregate (but excluding Debt evidenced by the Notes or under Letters of Credit) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment, redeemed, purchased or defeased, or any offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or (f) any proceeding shall be instituted against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property, and either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief 77 83 against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; or (g) any judgment or order for the payment of money in excess of $10,000,000 which is not covered by insurance shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that is materially adverse to the business, property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries, taken as a whole, and either (i) enforcement proceedings shall have been commenced by any Person upon such judgment or order or (ii) there shall be any period of ten consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any Loan Document after delivery thereof pursuant to Article IV hereof or otherwise shall, for any reason cease to be valid and binding on the respective Loan Party or Loan Parties thereto; or a Loan Party shall so state in writing or shall contest the validity or enforceability of any material term or provision of any Loan Document; or (j) any one or more Service Agreements shall be terminated during any period of four consecutive fiscal quarters that represent, in the aggregate, 5% of the Consolidated EBITDA of the Borrower and its Subsidiaries for such period, measured as of the end of any fiscal quarter ending after the date of any such termination, provided that it shall not be an Event of Default hereunder if the Service Agreement for the Facility owned by PhyCor of Ruston, Inc. is terminated without cause; or (k) any ERISA Event with respect to a Plan shall have occurred and, 30 days after notice thereof shall have been given to the Borrower by the Agent, (i) such ERISA Event shall still exist and (ii) the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which an ERISA Event shall have occurred and then exist (or in the case of a Plan with respect to which an ERISA Event described in clauses (iii) through (vi) of the definition of ERISA Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $5,000,000 for any fiscal year; or (l) the Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such 78 84 Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $5,000,000 for any fiscal year; or (m) the Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Tide IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan year of each such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $5,000,000; or (n) there shall occur any Change of Control; or (o) any three of Messrs. Joseph C. Hutts, Thompson S. Dent, Derril W. Reeves or Richard D. Wright shall, within any six-month period, cease to be employed full time as officers of the Borrower other than by reason of the death or incapacity of any such person; or (p) since December 31, 1996 there has been, in the reasonable judgment of the Agent or the Majority Banks, any material adverse change in the Consolidated condition, financial or otherwise, operations, properties or prospects of the Borrower and its Subsidiaries taken as a whole; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Majority Banks, by notice to the Borrower, declare the obligation of each Bank to make Advances (other than Swing Line Advances by a Bank pursuant to Section 2.01(d)) and the obligations of the Issuing Bank to Issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, (ii) shall at the request, or may with the consent, of the Majority Banks, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, (iii) shall at the request, or may with the consent, of the Majority Banks demand that the Borrower, and if such demand is made the Borrower shall, pay to the Agent for the benefit of the Issuing Banks, an amount in immediately available funds equal to the then outstanding Letter of Credit Liability which shall be held by the Agent (or the Issuing Banks) as cash collateral in a cash collateral account under the exclusive control and dominion of the Agent (or Issuing Banks) and applied to the reduction of such Letter of Credit Liability as drawings are made on outstanding Letters of Credit and (iv) shall at 79 85 the request, or may with the consent, of the Majority Banks exercise any other remedies provided hereunder or by law; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower or any of its Subsidiaries under the Federal Bankruptcy Code, (A) the obligation of each Bank to make Advances (other than Swing Line Advances by a Bank pursuant to Section 2.01(d)) and of the Issuing Banks to Issue Letters of Credit shall automatically be terminated and (B) the Notes, all such interest and all such amounts (including the amounts referred to in clause (iii) above) shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VIII THE AGENT SECTION 8.01. Authorization and Action. Each Bank, each Issuing Bank and the Swing Line Bank (if applicable) hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks and all holders of Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to any Loan Document or applicable law. The Agent agrees to give to each Bank prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. SECTION 8.02. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of any Note as the holder thereof, and treat the Bank that purchased or funded a participation with respect to a Letter of Credit as the holder or owner of the Debt resulting therefrom, until the Agent receives written notice of the assignment or transfer thereof signed by such payee and including the agreement of the assignee or transferee to be bound hereby as it would have been if it had been an original Bank party hereto, in form satisfactory to the Agent; (ii) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to 80 86 be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations (whether written or oral) made in or in connection with any Loan Document; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of the Borrower or any Subsidiary of the Borrower or to inspect the property (including the books and records) of the Borrower or any such Subsidiary; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable facsimile or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. Citibank and Affiliates. With respect to its Commitment, the Advances made by it, the Notes issued to it and the participations in Letters of Credit purchased by it, Citibank shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Citibank were not the Agent and without any duty to account therefor to the Banks. SECTION 8.04. Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent, the Issuing Bank or any other Bank and based on the financial statements referred to in Section 5.01(e) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, any Issuing Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. SECTION 8.05. Indemnification. The Banks agree to indemnify the Agent and each Issuing Bank (in each case, to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Committed Rate Advances then held by each of them (or if no Committed Rate Advances are at the time outstanding ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, 81 87 damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent or any Issuing Bank, as the case may be, in any way relating to or arising out of this Agreement or any other Loan Document or any Letter of Credit or any action taken or omitted by the Agent or such Issuing Bank, as the case may be, under this Agreement or any other Loan Document or any Letter of Credit, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's or any Issuing Bank's, as the case may be, gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent and each Issuing Bank promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent or such Issuing Bank, as the case may be, in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any Letter of Credit, to the extent that the Agent or such Issuing Bank, as the case may be, is not reimbursed for such expenses by the Borrower. SECTION 8.06. Successor Agent/Issuing Bank. The Agent may resign at any time by giving written notice thereof to the Banks and the Borrower and the Agent and/or any Issuing Bank may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, in the case of the Agent, or removal, in the case of any Issuing Bank, the Majority Banks shall have the right, subject to the approval of the Borrower (which shall not be unreasonably withheld), to appoint a successor Agent or a successor Issuing Bank, as the case may be. If no successor Agent or successor Issuing Bank, as the case may be, shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent or the retiring Issuing Bank, then the retiring Agent or the retiring Issuing Bank, as the case may be, may, on behalf of the Banks, appoint a successor Agent or a successor Issuing Bank, as the case may be, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent or as an Issuing Bank hereunder by a successor Agent or a successor Issuing Bank, respectively, such successor Agent or Issuing Bank shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent or the retiring Issuing Bank, as the case may be, and the retiring Agent or the retiring Issuing Bank, as the case may be, shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Agent's resignation or removal hereunder as Agent, or any retiring Issuing Bank's removal hereunder as an Issuing Bank, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent or an Issuing Bank, as the case may be, 82 88 under this Agreement and the other Loan Documents. Notwithstanding the foregoing, no Issuing Bank may be removed unless prior to or contemporaneously with such removal it shall have received an amount, in immediately available funds, equal to all outstanding Letter of Credit Liability then outstanding and then owing to such Issuing Bank and shall have been indemnified by the Borrower, the Banks and such successor Issuing Bank, to the Issuing Bank's satisfaction, against all such Letter of Credit Liability. The fees referred to in Section 3.05(b) shall continue to inure to such Issuing Bank's benefit, with respect to each Letter of Credit Issued by it, until such time as all Letter of Credit Liability in respect of such Letter of Credit has been discharged in full. SECTION 8.07. Documentation Agent. The Documentation Agent, as such, shall have no duties or obligations whatsoever with respect to this Agreement, the Notes or any of the other Loan Documents. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or the Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks (or consented to in writing in the case of the Loan Documents), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Banks, do any of following: (a) waive any of the conditions specified in Article IV, (b) increase the Commitments of the Banks or subject the Banks to any additional monetary obligations, (c) reduce the principal of, or interest on, the Committed Rate Advances or the Committed Rate Notes or any fees or other amounts payable hereunder, (d) postpone the date fixed for the scheduled payment of principal of, or interest on, the Committed Rate Advances or the Committed Rate Notes or any fees or other amounts payable hereunder or waive any such payment when due, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Committed Rate Advances or the Committed Rate Notes, or the number or percentage of Banks, which shall be required for the Banks or any of them to take any action hereunder or (f) amend this Section 9.01; provided further that no amendment, waiver or consent shall, in writing and signed by the Agent in addition to the Banks required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Bank or the Issuing Bank, as the case may be, in addition to the Banks required above to take such action, affect the rights or duties of the Swing Line Bank or the Issuing Bank under this Agreement; and provided also that no 83 89 amendment, waiver or consent, unless in writing and signed by the Designated Bidder holding such Note, affect the rights of the holder of a Competitive Bid Note under such Note. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed (by certified mail, return receipt requested), telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at 30 Burton Hills Blvd., Suite 400, Nashville, TN 37215, Attention: Mr. John K. Crawford, telecopier no. (615) 665-7840; if to any Bank, at its Domestic Lending Office as specified in its Administrative Details Reply Form; if to the Agent, at its address at 1 Court Square, 7th Floor, Zone 1, Long Island City, New York, New York 11120, Attention: Mr. Dennis Agnew, telecopier no. (718) 248-4844; and if to any Issuing Bank, as specified in its Administrative Details Reply Form; with a copy, in the cases of notices to the Agent or the Issuing Bank, to Ms. Margaret A. Brown, 399 Park Avenue, 8th Floor, Zone 11, New York 10043; or, as to each Person, at such other address or telecopier number as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed (by certified mail, return receipt requested), telecopied, telegraphed, telexed, cabled, or faxed be effective when deposited in the mails, telecopied, delivered to the telegraph company, confirmed by telex answerback, delivered to the cable company or confirmed received in the case of a telecopy or facsimile, respectively, except that notices and communications to the Agent pursuant to Article II or VIII or to any Issuing Bank pursuant to Article III or VIII shall not be effective until received by the Agent or such Issuing Bank, as the case may be. SECTION 9.03. No Waiver: Remedies. No failure on the part of any Bank, any Issuing Bank or the Agent to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs, Expenses and Taxes. (a) The Borrower agrees to pay the Agent and each Issuing Bank on demand all reasonable costs and expenses of the Agent and such Issuing Bank in connection with the preparation, negotiation, approval, execution, delivery, filing, recording, administration, modification and amendment of the Loan Documents and the other documents to be delivered under the Loan Documents, including, without limitation, the reasonable fees and out-of-pocket expenses of special and local counsel for the Agent and such Issuing Bank with respect thereto and with respect to advising the Agent and such Issuing Bank as to its rights and responsibilities under the Loan Documents and the other documents to be delivered hereunder and 84 90 thereunder. The Borrower further agrees to pay on demand (i) all costs and expenses, if any, of the Agent, each Issuing Bank or any Bank in connection with the enforcement (whether through negotiations or legal proceedings, in bankruptcy, reorganization or other insolvency proceedings or otherwise) of the Loan Documents and the other documents to be delivered under the Loan Documents, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 9.04(a), and (ii) all costs and expenses in connection with appraisals, valuations, audits and search reports, all insurance and title costs, and all filing and recording fees required hereby or associated with any enforcement of rights or remedies specified in clause (i). (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBOR Advance is made other than on the last day of an Interest Period relating to such Advance, as a result of a payment (including, without limitation, any payment pursuant to Section 2.09) or Conversion pursuant to Section 2.08 or 2.11 or acceleration of the maturity of the Notes pursuant to Section 7.01 or for any other reason, the Borrower shall, upon demand by any Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank any amounts required to compensate such Bank for any additional losses (including loss of anticipated profits), costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such Advance. SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 7.01 to authorize the Agent to declare the Notes due and payable pursuant to the provisions of Section 7.01 or to demand payment of (or cash collateralization of) all then outstanding Letter of Credit Liability, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document to such Bank (including, to the fullest extent permitted by law, obligations indirectly owed to such Bank by virtue of its purchase of a participation of the Letter of Credit Liability pursuant to Section 3.04), whether or not such Bank shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Bank under this Section 9.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have. 85 91 SECTION 9.06. Indemnification. The Borrower agrees to defend, protect, indemnify and hold harmless the Agent, each Bank and each Issuing Bank and their respective Affiliates and the directors, officers, employees, attorneys and agents of the Agent, each Bank, each Issuing Bank and such Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing being collectively the "Indemnitees") from and against any and all claims, actions, damages, liabilities, costs and expenses (including, without limitation, all fees and disbursements of counsel and environmental consultants which may be incurred in the investigation or defense of any matter) imposed upon, incurred by or asserted against any Indemnitee by any third party, whether direct, indirect or consequential and whether based on any federal, state or foreign laws or other statutes or regulations (including, without limitation, securities laws, commercial laws and Environmental Laws and regulations), under common law or on equitable cause, or on contract, tort or otherwise, including, without limitation, those arising: (a) by reason of, relating to or in connection with the execution, delivery, performance or enforcement of any Loan Document, any commitments relating thereto, or any transaction contemplated by any Loan Document; or (b) in connection with any investigation, litigation, proceeding or other action relating to any Loan Document (whether or not any Indemnitee is a party thereto); or (c) by reason of, relating to or in connection with any credit extended or used under the Loan Documents or any act done or omitted by any Person, or any event occurring, in connection therewith, or the exercise of any rights or remedies thereunder, including, without limitation, any Environmental Activity or Environmental Law; or (d) arising out of, related to or in connection with any acquisition or proposed, acquisition (including, without limitation, by tender offer, merger or other method) by the Borrower or any of its Subsidiaries or Affiliates of any Facility (or the assets thereof) or any Related Businesses or any Existing Clinic Acquisition, whether or not an Indemnitee is a party thereto; provided, however, that, notwithstanding the foregoing, the Borrower shall not be liable to any Indemnitee for any portion of such claims, damages, liabilities and expenses resulting from such Indemnitee's or such Indemnitee's Affiliate's, director's, officer's, employee's, attorney's or agent's gross negligence or willful misconduct. In the event this indemnity is unenforceable as a matter of law as to a particular matter or consequence referred to herein, it shall be enforceable to the full extent permitted by law. This indemnification applies, without limitation, to any act, omission, event or circumstance existing or occurring on or prior to the date of payment in full of the Advances, including any Environmental Activity or Environmental Law, regardless 86 92 of whether the act, omission, event or circumstance constituted a violation of any Environmental Law at the time of its existence or occurrence. The indemnification provisions set forth above shall be in addition to any liability the Borrower may otherwise have. Without prejudice to the survival of any other obligation of the Borrower hereunder, the indemnities and obligations of the Borrower contained in this Section 9.06 shall survive the payment in full of the Advances. SECTION 9.07. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower, the Agent and each Issuing Bank and when the Agent shall have been notified by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent, each Issuing Bank and each Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Banks. SECTION 9.08. Assignments and Participations. (a) Each Bank may assign, with the prior consent of the Borrower and the Agent (which, in either case, shall not be unreasonably withheld), to one or more banks, financial institutions or other entities all or a portion of its rights and obligations as a Bank under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Notes held by it in respect of the Committed Rate Advances and its participation in reimbursement obligations of the Borrower in respect of Letters of Credit); provided, however, that (i) each such assignment shall be of the same percentage of all of the assigning Bank's rights and obligations under the Loan Documents, (ii) the amount of the Commitments, if any, of the assigning Bank being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, and shall be an integral multiple of $1,000,000 in excess thereof, or the remaining amount of such Bank's Commitments, (iii) each such assignment shall be to an Eligible Assignee, and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Notes subject to such assignment and a processing and recordation fee of $3,000; provided further that each Bank may, without the consent of the Borrower or the Agent, assign, as collateral or otherwise, any of its rights under this Agreement and the other Loan Documents (including, without limitation, the right to payment of principal and interest under the Notes) to any Federal Reserve Bank, and such assignment of rights to the Federal Reserve Bank shall not be subject to the conditions and restrictions set forth in items (i) through (iv) of the immediately foregoing proviso; and provided further that each Bank may, without the consent of (but with prior written notice to) the Borrower or the Agent, assign, in whole or in part, any of its rights and obligations under this Agreement and the other Loan Documents to any of its Affiliates, and such assignment to Affiliates shall not be subject to the 87 93 conditions and restrictions set forth in items (i) through (iv) of the proviso above. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and thereunder and (y) the Bank assignor thereunder shall, to the extent that rights and obligations under the Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Bank's rights and obligations under the Loan Documents, such Bank shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of each of the Loan Documents, together with copies of the financial statements referred to in Section 5.01(e) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, any Issuing Bank, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement or any other Loan Document; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Bank. (c) The Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the 88 94 Commitment and principal amount of the Advances owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee representing that it is an Eligible Assignee, together with any Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Committed Rate Notes, new Committed Rate Notes to the order of such Eligible Assignee in an aggregate principal amount equal to the principal amount of Committed Rate Advances owed to it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained any principal amount of Committed Rate Advances hereunder, new Committed Rate Notes to the order of the assigning Bank in an aggregate principal amount equal to such principal amount. Such new Committed Rate Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Committed Rate Notes, shall be dated the effective date of such Assignment and Acceptance, shall consist of Committed Rate Notes payable to the order of such Eligible Assignee and, if the assigning Bank has retained ownership of any Committed Rate Advances hereunder, the assigning Bank in the appropriate principal amounts, and shall otherwise be in substantially the forms required by this Agreement. (e) Each Bank may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitments, the Notes held by it and reimbursement obligations of the Borrower in respect of Letters of Credit); provided, however, that (i) such Bank's obligations under the Loan Documents (including, without limitation, its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of any such Notes for all purposes of the Loan Documents, and (iv) the Borrower, the Agent, each Issuing Bank and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under the Loan Documents; provided further that, to the extent of any such participation (unless otherwise stated therein and subject to the preceding proviso), the assignee or purchaser of such participation shall, to the fullest extent permitted by law, have the same rights and benefits hereunder as it 89 95 would have if it were a Bank hereunder; and provided further that each such participation shall be granted pursuant to an agreement providing that the purchaser thereof shall not have the right to consent or object to any action by the selling Bank (who shall retain such right) other than an action which would (i) reduce principal of or interest on any Advance or fees in which such purchaser has an interest or (ii) postpone any date fixed for payment of principal of or interest on any such Advance or such fees. (f) The Borrower agrees that any Bank purchasing a participation from another Bank pursuant to Section 2.14 or 9.08(e) may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. (g) Notwithstanding any other provision of this Section 9.08, each Designated Bidder may assign to one or more Eligible Assignees any Competitive Bid Note. SECTION 9.09. Headings. Article and Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 9.10. Confidentiality. Neither the Agent nor any Bank shall disclose to any third party any Confidential Information disclosed to the Agent or such Bank pursuant to the Loan Documents, except that (i) the Agent or any Bank may disclose Confidential Information to a third party to the extent compelled by law, subpoena, civil investigative demand, interrogatory or similar legal process or by any rule, regulation or request of any regulatory authority having jurisdiction over the Agent or such Bank, as the case may be, (ii) the Agent or any Bank may disclose Confidential Information to a potential transferee who is an Eligible Assignee, provided that such potential transferee agrees to be bound by the same confidentiality obligations as the Banks under this Section and (iii) the Agent or any Bank may disclose Confidential Information to its affiliates or its legal counsel or other agents; provided that prior to any such disclosure the Agent or such Bank, as the case may be, informs such affiliates, counsel or agent of the confidential nature of such Confidential Information. For purposes hereof, "Confidential Information" is written information disclosed by the Borrower or any of its Subsidiaries to the Agent or any Bank pursuant hereto that is not information which (x) has become generally available to the public, other than as a result of disclosure by the Agent or such Bank, (y) was available on a non-confidential basis prior to its disclosure to the Agent or such Bank by the Borrower or any of its Subsidiaries, or (z) becomes available to the Agent or such Bank on a non-confidential basis from a source other than the Borrower or any of its Subsidiaries. The Agent and the Banks acknowledge that the Confidential Information may from 90 96 time to time include material non-public information relating to the Borrower or its Subsidiaries. SECTION 9.11. Severability of Provisions. Each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited or unenforceable in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 9.12. Independence of Provisions. All agreements and covenants hereunder and under the Loan Documents shall be given independent effect such that if a particular action or condition is prohibited by the terms of any such agreement or covenant, the fact that such action or condition would be permitted within the limitations of another agreement or covenant shall not be construed as allowing such action to be taken or condition to exist. SECTION 9.13. Consent to Jurisdiction. (a) The Borrower hereby irrevocably submits to the jurisdiction of any New York State or Federal court sitting in New York City in any action or proceeding arising out of or relating to this Agreement or any Loan Document, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York State or Federal court. The Borrower hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower hereby irrevocably appoints CT Corporation System (the "Process Agent"), with an office on the date hereof at 1633 Broadway, New York, New York 10019, United States, as its agent to receive on behalf of the Borrower and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Borrower in care of the Process Agent at the Process Agent's above address, and the Borrower hereby irrevocably authorizes and directs the Process Agent to accept such service on his behalf. As an alternative method of service, the Borrower also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to the Borrower at its address specified in Section 9.02. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (b) Nothing in this section shall affect the right of any Bank, any Issuing Bank or the Agent to serve legal process in any other manner permitted by law or affect the right of any Bank, any Issuing Bank or the Agent to bring any action or 91 97 proceeding against the Borrower or its property in the courts of any other jurisdictions. SECTION 9.14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 9.15. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT, THE ISSUING BANK AND THE BANKS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. SECTION 9.16. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWER PHYCOR, INC. By /s/ John K. Crawford ------------------------------------ Name: John K. Crawford Title: Vice President THE AGENT CITIBANK, N.A. as Agent By /s/ Margaret Au Brown ------------------------------------ Name: Margaret Au Brown Title: Managing Director THE ISSUING BANK CITIBANK, N.A. as Issuing Bank By /s/ Margaret Au Brown ------------------------------------ Name: Margaret Au Brown Title: Managing Director 98 THE SWING LINE BANK SUNTRUST BANK, NASHVILLE, N.A. as Swing Line Bank By /s/ Karen Cole Ahern ------------------------------------ Name: Karen Cole Ahern Title: GVP 99 THE DOCUMENTATION AGENT NATIONSBANK, N.A., as Documentation Agent By /s/ Kevin Wagley ------------------------------------ Name: Kevin Wagley Title: Vice President 100 Commitments: THE BANKS - ------------ --------- Commitment: $50,000,000.00 CITIBANK, N.A. By: /s/ Margaret Au Brown ------------------------------- Name: Margaret Au Brown Title: Attorney-in-Fact 101 Commitment: $25,000,000.00 AMSOUTH BANK By: /s/ Cathy M. Wind -------------------------------- Name: Cathy M. Wind Title: Vice President 102 Commitment: $30,000,000.00 BANK OF AMERICA, NT & SA By: /s/ J. Gregory Seibly -------------------------------- Name: J. Gregory Seibly Title: Vice President 103 Commitment: $40,000,000.00 BANKERS TRUST COMPANY By: /s/ David J. Bell -------------------------------- Name: David J. Bell Title: Vice President 104 Commitment: $25,000,000.00 THE BANK OF NOVA SCOTIA By: /s/ W.J. Brown -------------------------------- Name: W.J. Brown Title: Vice President 105 Commitment: $20,000,000.00 CORESTATES BANK, N.A. By: /s/ Elizabeth D. Morris -------------------------------- Name: Elizabeth D. Morris Title: Vice President 106 Commitment: $25,000,000.00 CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Farboud Tavangar -------------------------------- Name: Farboud Tavangar Title: First Vice President 107 Commitment: $25,000,000.00 FIRST AMERICAN NATIONAL BANK By: /s/ Allison Jones -------------------------------- Name: Allison Jones Title: Senior Vice President 108 Commitment: $25,000,000.00 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Erik Back -------------------------------- Name: Erik Back Title: Corporate Banking Officer 109 Commitment: $20,000,000.00 FIRST UNION NATIONAL BANK By: /s/ Ann M. Dodd -------------------------------- Name: Ann M. Dodd Title: Senior Vice President 110 Commitment: $20,000,000.00 FLEET NATIONAL BANK By: /s/ Carol Paige -------------------------------- Name: Carol Paige Title: Senior Vice President 111 Commitment: $25,000,000.00 MELLON BANK, N.A. By: /s/ Scott Hennessee -------------------------------- Name: Scott Hennessee Title: Vice President 112 Commitment: $45,000,000.00 NATIONSBANK, N.A. By: /s/ Kevin Wagley -------------------------------- Name: Kevin Wagley Title: Vice President 113 Commitment: $20,000,000.00 COOPERATIEVE CENTRALE RAIFFEISEN BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: /s/ Terrell Boyle -------------------------------- Name: Terrell Boyle Title: Vice President By: /s/ Robert B. Benoit -------------------------------- Name: Robert B. Benoit Title: Senior Vice President 114 Commitment: $20,000,000.00 THE SUMITOMO BANK, LIMITED By: /s/ Gary Franke -------------------------------- Name: Gary Franke Title: Vice President and Manager 115 Commitment: $40,000,000.00 SUNTRUST BANK, NASHVILLE, N.A. By: /s/ Mark D. Mattson -------------------------------- Name: Mark D. Mattson Title: Vice President 116 Commitment: $15,000,000.00 TORONTO DOMINION (TEXAS), INC. By: /s/ Debbie A. Greene -------------------------------- Name: Debbie A. Greene Title: Vice President 117 Commitment: $30,000,000.00 WACHOVIA BANK By: /s/ Stephen A. Racine -------------------------------- Name: Stephen A. Racine Title: Banking Officer 118 Total Commitments: $500,000,000 - ------------------ ------------ EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 63,336 0 436,759 0 20,692 593,718 388,590 117,019 1,892,346 358,552 554,539 0 0 774,222 73,015 1,892,346 0 699,007 0 663,418 0 0 15,311 20,278 5,738 7,815 0 0 0 7,815 .12 .11
EX-27.2 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 38,677 0 349,543 0 16,447 453,825 273,249 73,589 1,423,600 213,210 298,250 0 0 636,232 88,004 1,423,600 0 518,006 0 459,999 4,176 0 11,425 42,406 16,393 26,013 0 0 0 26,013 .43 .39 Earnings per share for the six months ended June 30, 1997 has been restated to conform with the provisions of FAS No. 128, Earnings per share, adopted by the Company in 1997.
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