Prepared by R.R. Donnelley Financial -- Form 10-Q period ended 03/31/2002

-----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, Q2oGt3gqIObQLLyuAgw3Nb3+ZJX81mzrmf78Yh3uGghKa5gev0ukaRstNheAl7xt /TdWMbWrl9PSC+TMJxnLGA== 0000898430-02-001955.txt : 20020514 0000898430-02-001955.hdr.sgml : 20020514 ACCESSION NUMBER: 0000898430-02-001955 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAVITA INC CENTRAL INDEX KEY: 0000927066 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 510354549 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04034 FILM NUMBER: 02647336 BUSINESS ADDRESS: STREET 1: 21250 HAWTHORNE BLVD STREET 2: STE 800 CITY: TORRANCE STATE: CA ZIP: 90503-5517 BUSINESS PHONE: 3107922600 MAIL ADDRESS: STREET 1: 21250 HAWTHORNE BLVD SUITE 800 CITY: TORRANCE STATE: CA ZIP: 90503-5517 FORMER COMPANY: FORMER CONFORMED NAME: TOTAL RENAL CARE INC DATE OF NAME CHANGE: 19940719 FORMER COMPANY: FORMER CONFORMED NAME: TOTAL RENAL CARE HOLDINGS INC DATE OF NAME CHANGE: 19950524 10-Q 1 d10q.htm FORM 10-Q PERIOD ENDED 03/31/2002 Prepared by R.R. Donnelley Financial -- Form 10-Q period ended 03/31/2002

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarter Ended March 31, 2002

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-4034

DAVITA INC.

21250 Hawthorne Blvd., Suite 800

Torrance, California 90503-5517

Telephone # (310) 792-2600

Delaware		51-0354549
(State of incorporation)		(I.R.S. employer identification no.)

The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.

As of May 1, 2002, there were 84,058,786 shares of the Registrant’s common stock (par value $0.001) outstanding.

DAVITA INC.

INDEX

		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:

	Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	1

	Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2002 and March 31, 2001	2

	Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and March 31, 2001	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Risk Factors		15

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	19

Item 4.	Submission of Matters to a Vote of Security Holders	19

Item 6.	Exhibits and Reports on Form 8-K	20

Signature		21

Note: Items 2, 3, and 5 of Part II are omitted because they are not applicable.

DAVITA INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands, except per share data)

	March 31, 2002			December 31, 2001
ASSETS
Cash and cash equivalents	$	31,697		$	36,711
Accounts receivable, less allowance of $51,807 and $52,475		344,238			333,546
Inventories		28,179			34,901
Other current assets		12,192			9,364
Deferred income taxes		58,987			60,142

Total current assets		475,293			474,664
Property and equipment, net		256,046			252,778
Amortizable intangibles, net		70,189			73,108
Investments in third-party dialysis businesses		4,145			4,346
Other long-term assets		2,027			2,027
Goodwill		857,132			855,760

	$	1,664,832		$	1,662,683


LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	83,559		$	74,630
Other liabilities		126,153			111,164
Accrued compensation and benefits		86,213			88,826
Current portion of long-term debt		1,597			9,034
Income taxes payable		15,288			15,027

Total current liabilities		312,810			298,681
Long-term debt		798,707			811,190
Other long-term liabilities		4,725			5,012
Deferred income taxes		30,147			23,441
Minority interests		21,423			20,722
Shareholders’ equity:
Preferred stock ($0.001 par value; 5,000,000 shares authorized; none issued or outstanding)
Common stock ($0.001 par value, 195,000,000 shares authorized; 87,017,029 and 85,409,037 shares issued)		87			85
Additional paid-in capital		493,184			467,904
Retained earnings		91,986			56,008
Treasury stock, at cost (3,834,400 and 888,700 shares)		(88,237	)		(20,360	)

Total shareholders’ equity		497,020			503,637

	$	1,664,832		$	1,662,683

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands, except per share data)

	Three months ended March 31,
	2002			2001
Net operating revenues	$	427,665		$	386,217
Operating expenses:
Dialysis centers and labs		291,634			260,974
General and administrative		36,053			31,813
Depreciation and amortization		15,805			26,148
Provision for uncollectible accounts		5,255			(8,185	)

Total operating expenses		348,747			310,750

Operating income		78,918			75,467
Other income, net		565			1,348
Debt expense		15,072			19,724
Minority interests in income of consolidated subsidiaries		(2,433	)		(2,457	)

Income before income taxes		61,978			54,634
Income tax expense		26,000			23,700

Net income	$	35,978		$	30,934


Comprehensive income	$	35,978		$	30,934


Basic earnings per common share	$	0.43		$	0.37


Diluted earnings per common share	$	0.40		$	0.35

See notes to condensed consolidated financial statements.

DAVITA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

	Three months ended March 31,
	2002			2001
Cash flows from operating activities:
Net income	$	35,978		$	30,934
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		15,805			26,148
Gain on divestures		(458	)
Deferred income taxes		7,861			2,900
Non-cash debt expense		634			500
Stock options, principally tax benefits		8,931			3,287
Equity investment (income)		(298	)		(694	)
Minority interests in income of consolidated subsidiaries		2,433			2,457
Changes in operating assets and liabilities, excluding acquisitions and divestitures:
Accounts receivable		(11,163	)		(2,846	)
Inventories		6,726			(24,418	)
Other current assets		(2,840	)		(3,540	)
Other long-term assets					49
Accounts payable		8,969			2,160
Accrued compensation and benefits		(2,617	)		(1,539	)
Other current liabilities		15,050			4,200
Income taxes		261			18,333
Other long-term liabilities		(287	)		(100	)

Net cash provided by operating activities		84,985			57,831

Cash flows from investing activities:
Additions of property and equipment, net		(16,115	)		(6,755	)
Acquisitions and divestitures, net		(1,379	)		(50,667	)
Investments in affiliates, net		499			19,593

Net cash used in investing activities		(16,995	)		(37,829	)

Cash flows from financing activities:
Borrowings		335,883			814,813
Payments on long-term debt		(355,803	)		(851,667	)
Deferred financing costs		(57	)		(50	)
Purchase of treasury stock		(67,877	)
Proceeds from issuance of common stock		16,351			4,630
Distributions to minority interests		(1,501	)		(1,492	)

Net cash used in financing activities		(73,004	)		(33,766	)

Net decrease in cash		(5,014	)		(13,764	)
Cash and cash equivalents at beginning of period		36,711			31,207

Cash and cash equivalents at end of period	$	31,697		$	17,443

See notes to condensed consolidated financial statements.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(dollars in thousands, except per share data)

Unless otherwise indicated in this Form 10-Q “the Company”, “we”, “us”, “our” and similar terms refer to DaVita Inc. and its subsidiaries.

1. Condensed consolidated interim financial statements

The condensed consolidated interim financial statements included in this report are prepared by the Company without audit. In the opinion of management, all adjustments consisting only of normal recurring items necessary for a fair presentation of the results of operations are reflected in these consolidated interim financial statements. All significant intercompany accounts and transactions have been eliminated. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve revenues and bad debt provisions, and correspondingly accounts receivable. The results of operations for the three month period ended March 31, 2002 are not necessarily indicative of the operating results for the full year. The consolidated interim financial statements should be read in conjunction with the Management’s Discussion and Analysis and consolidated financial statements and notes thereto included in the Company’s 2001 Form 10-K. Certain reclassifications have been made for consistent presentation.

2. Significant new accounting standards

The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No. 142, goodwill is not amortized effective January 1, 2002. SFAS No. 142 also requires that the goodwill balance be regularly assessed for possible valuation impairment and that there be an impairment charge against current earnings if the recorded goodwill balance exceeds fair value. If this standard had been implemented as of January 1, 2001, amortization expense would have been reduced by approximately $6,300 net of tax, for the three months ended March 31, 2001 and net income and diluted earnings per share would have been approximately $37,300 and $0.41 per share.

SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Other than expanding discontinued operations treatment, previously applied only to operating segments, SFAS No. 144 does not fundamentally alter the provisions of SFAS No. 121. Adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

3. Shareholders’ equity

In November 2001, the Board of Directors approved a stock repurchase program authorizing management to repurchase up to $200,000 of the Company’s common stock on the open market. As of March 31, 2002, a total of 3,708,400 shares at a cost of approximately $85,743 were repurchased under this program. This program was discontinued in connection with the recapitalization plan described in note 4.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands except per share data)

Earnings per share

The reconciliation of the numerators and denominators used to calculate basic and diluted earnings per share is as follows:

	Three months ended March 31,
	2002		2001
	(in thousands except per share)
Basic:
Net income	$	35,978	$	30,934


Weighted average shares outstanding		82,925		82,537
Vested deferred stock units		42

Shares for basic earnings per share		82,967		82,537

Basic earnings per share	$	0.43	$	0.37

Diluted:
Net income	$	35,978	$	30,934
Debt expense savings, net of tax, resulting from assumed conversion of convertible debt		4,915		4,662

Net income for diluted earnings per share	$	40,893	$	35,596

Weighted average shares outstanding		82,925		82,537
Vested deferred stock units		42
Assumed incremental shares from stock option plans		3,885		4,270
Assumed incremental shares from convertible debt		15,394		15,394

Shares for diluted earnings per share		102,246		102,201

Diluted earnings per share	$	0.40	$	0.35

Options to purchase 643,573 shares at $23.61 to $33.00 per share and 2,207,367 shares at $16.77 to $33.50 per share were excluded from the diluted earnings per share calculations for the three months ended March 31, 2002 and 2001, respectively, because they were anti-dilutive. The calculation of diluted earnings per share assumes conversion of both the 5⁵/8% convertible subordinated notes and the 7% convertible subordinated notes for the periods ended March 31, 2002 and 2001.

4. Subsequent event

In March 2002, the Company initiated a recapitalization plan that includes the repurchase of up to 20 million shares of its common stock in a modified dutch auction tender offer at prices ranging from $22 to $26 per share at a total potential cost of up to $520,000 plus fees, and the repurchase of all of its $225,000 outstanding 9¼% Senior Subordinated Notes due 2011 at a total cost of approximately $265,000. On April 26, 2002, the Company completed the repurchase of its outstanding 9¼% Senior Subordinated Notes due 2011. The tender offer for the Company’s common stock has been extended until May 17, 2002. The Company has secured a new senior credit facility arrangement for up to $1,115,000 to finance these repurchases and to pay down all outstanding amounts under the previous existing senior credit facilities. The Company’s common stock has recently been trading below the tender offer range. As of the filing of this report, the Company is considering all

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands except per share data)

options available regarding the stock tender, including completing the tender on the existing terms, lowering the price range and terminating the tender offer.

The new senior credit facility consists of a Term Loan A for up to $150,000 and a Term Loan B for up to $850,000 and a $115,000 undrawn revolving credit facility. The Term Loan A and the revolving credit facility bear interest at a rate equal to LIBOR plus a margin ranging from 1.50% to 2.75% based on the Company’s leverage ratio. The Term Loan B bears interest at LIBOR plus 3.00%. As of the filing of this report, $380,000 of the Term Loan B has been drawn. The Company has no obligation to draw the remaining amounts of the Term Loan A or the Term Loan B. If the entire $1,000,000 term credit facility is drawn, the aggregate annual amortization of principal will range from $15,000 to $51,000 in years one through five, $404,000 in years six and seven, and the balance will be due not later than 2009. The entire credit facility will be secured by all personal property of the Company and that of all wholly-owned subsidiaries, along with the stock of the Company’s subsidiaries.

5. Contingencies

Health care provider revenues may be subject to adjustment as a result of (1) examination by government agencies or contractors, for which the resolution of any matters raised may take extended periods of time to finalize; (2) differing interpretations of government regulations by different fiscal intermediaries; (3) differing opinions regarding a patient’s medical diagnosis or the medical necessity of services provided; and (4) retroactive applications or interpretations of governmental requirements.

The Company’s Florida-based laboratory subsidiary is the subject of a third-party carrier review of its Medicare reimbursement claims. The carrier has issued formal overpayment determinations in the amount of $5,600 for the review period from January 1995 to April 1996 and $15,000 for the review period from May 1996 to March 1998. The carrier also has determined that $16,100 of the suspended claims for the review period from April 1998 to August 1999 and $11,600 of the suspended claims for the review period from August 1999 to May 2000 were not properly supported by the prescribing physicians’ medical justification. The carrier has alleged that approximately 99% of the tests the laboratory performed during the review period from January 1995 to April 1996, 96% of the tests performed in the period from May 1996 to March 1998, 70% of the tests performed in the period from April 1998 to August 1999, and 72% of the tests performed in the period from August 1999 to May 2000 were not properly supported by the prescribing physicians’ medical justification. In March 2002, the carrier requested selected patient records for two additional review periods, June 2000 to December 2000 and December 2000 to May 2001.

The Company is disputing the overpayment determinations and has provided supporting documentation of its claims. The Company has initiated the process of a formal review of each of the carrier’s determinations. The first step in this formal review process is a hearing before a hearing officer at the carrier. The hearing regarding the initial review period from January 1995 to April 1996 was held in July 1999. In January 2000, the hearing officer issued a decision upholding the overpayment determination of $5,600. The hearing regarding the second review period from May 1996 to March 1998 was held in April 2000. In July 2000, the hearing officer issued a decision upholding $14,200, or substantially all of the overpayment determination. The Company filed a consolidated appeal of both decisions to a federal administrative law judge. The appeal was divided into two separate hearings. The first took place in January 2002 and addressed the validity of the two statistical samples the carrier used to support its determinations. The Company is awaiting the judge’s decision. The second hearing will address the carrier’s determinations on the individual claims in the two samples. The administrative law judge previously informed the Company that it could expect the second hearing to occur in the second quarter of 2002.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands except per share data)

In addition to the formal appeal process with the carrier and the federal administrative law judge, beginning in the third quarter of 1999 the Company sought a meeting with the Department of Justice, or DOJ, to begin a process to resolve this matter. The carrier had previously informed the local office of the DOJ and the Department of Health and Human Services, or HHS, of this matter and the Company had provided requested information to the DOJ. The Company met with the DOJ in February 2001, at which time the DOJ requested additional information, which we have provided. The discussions with the DOJ are ongoing.

The carrier had also previously suspended all payments of Medicare claims from the laboratory, beginning in May 1998. In May 2002 the carrier informed the Company that the carrier will begin paying approved current Medicare claims. However, the laboratory’s Medicare claims will continue to be subject to the carrier’s existing payment screens, under which the carrier has been denying a substantial majority of claims. The Company currently intends to continue to appeal selected payment denials by the carrier, but no prediction can be made as to the outcome of any such appeals. The carrier’s action will not result in the release of any suspended payments for periods prior to May 2, 2002 and does not affect the status of the Company’s pending challenges to the carrier’s denials of previously submitted claims.

The timing of the final resolution of this matter is highly uncertain and beyond the Company’s control or influence. Based on the carrier’s overpayment findings noted above, the Company estimates that the potential cash exposure as of March 31, 2002 was not more than $10,000. If this matter is resolved in a manner adverse to the Company, the government could impose additional fines and penalties, which could be substantial. During 2000, the Company stopped accruing Medicare revenue from this laboratory because of the uncertainties regarding both the timing of resolution and the ultimate revenue valuations. Pending resolution of the revenue valuation uncertainties associated with current billings, the Company will recognize revenue only to the extent that the carrier makes payments to the laboratory.

The Medicare carrier for our Minnesota laboratory is conducting a post-payment review of Medicare reimbursement claims for the period January 1996 through December 1999. The scope of the review is similar to the review being conducted at our Florida laboratory. At this time, the Company is unable to determine how long it will take the carrier to complete this review. There is currently no overpayment determination or payment suspension with respect to the Minnesota laboratory. The DOJ has also requested information with respect to this laboratory, which the Company has provided. Medicare revenues at the Minnesota laboratory, which is much smaller than the Florida laboratory, were approximately $15,000 for the period under review. In November 2001, the Company closed the Minnesota laboratory and combined the operations of this laboratory with its Florida laboratory.

In February 2001, the Civil Division of the United States Attorney’s Office for the Eastern District of Pennsylvania in Philadelphia contacted the Company and requested its cooperation in a review of some of the Company’s historical practices, including billing and other operating procedures and its financial relationships with physicians. The Company cooperated in this review and provided the requested records to the United States Attorney’s office. In May 2002, the Company received a subpoena from the Philadelphia office of the Office of Inspector General for HHS, or OIG. The subpoena requires an update to the information the Company provided in its response to the February 2001 request, and also seeks a wide range of documents relating to pharmaceutical and other ancillary services provided to patients, including laboratory and other diagnostic testing services, as

well as documents relating to the Company’s financial relationships with physicians and pharmaceutical companies. The subpoena covers the period from May 1, 1996 to the present. We will be working with the United States Attorney’s Office and the OIG to provide the documents requested. The inquiry remains at an early stage. As it proceeds, the government could expand its areas of concern. If a court determines there has been wrongdoing, the penalties under applicable statutes could be substantial.

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands except per share data)

In addition to the foregoing, DaVita is subject to claims and suits in the ordinary course of business. Management believes that the ultimate resolution of these additional pending proceedings, whether the underlying claims are covered by insurance or not, will not have a material adverse effect on the Company's financial condition, results of operations or cash flows.

6. Condensed consolidating financial statements

The following information is presented as required under the Securities and Exchange Commission Financial Reporting Release No. 55 in connection with the Company’s publicly traded debt. The operating and investing activities of the separate legal entities included in the consolidated financial statements are fully interdependent and integrated. Revenues and operating expenses of the separate legal entities include intercompany charges for management and other services.

The $125,000 5⁵/8% Convertible Subordinated Notes Due 2006, issued by the wholly-owned subsidiary Renal Treatment Centers, Inc., or RTC, are guaranteed by DaVita Inc. Non-wholly-owned subsidiaries, joint ventures and partnerships are not guarantors of this obligation.

Condensed Consolidating Balance Sheets

	DaVita Inc.		RTC		Non-guarantor subsidiaries		Consolidating adjustments			Consolidated total
As of March 31, 2002
Cash and cash equivalents	$	31,692	$	5						$	31,697
Accounts receivable, net		204,990		111,507	$	27,741					344,238
Other current assets		77,702		19,506		2,150					99,358

Total current assets		314,384		131,018		29,891					475,293
Property and equipment, net		168,368		64,191		23,487					256,046
Investments in subsidiaries		342,151					$	(342,151	)
Receivables from subsidiaries		153,700						(153,700	)
Amortizable intangible assets, net		47,217		15,850		7,122					70,189
Other assets		5,433		695		44					6,172
Goodwill		469,200		281,507		106,425					857,132

Total assets	$	1,500,453	$	493,261	$	166,969	$	(495,851	)	$	1,664,832

Current liabilities	$	300,132	$	8,364	$	4,314				$	312,810
Payables to subsidiaries/parent				137,515		16,185	$	(153,700	)
Long-term liabilities		703,301		125,442		4,836					833,579
Minority interests								21,423			21,423
Shareholders’ equity		497,020		221,940		141,634		(363,574	)		497,020

Total liabilities and shareholders’ equity	$	1,500,453	$	493,261	$	166,969	$	(495,851	)	$	1,664,832

As of December 31, 2001
Cash and cash equivalents	$	34,949	$	1,762						$	36,711
Accounts receivable, net		195,074		111,413	$	27,059					333,546
Other current assets		81,021		21,142		2,244					104,407

Total current assets		311,044		134,317		29,303					474,664
Property and equipment, net		169,675		59,717		23,386					252,778
Investments in subsidiaries		326,751					$	(326,751	)
Receivables from subsidiaries		160,150						(160,150	)
Amortizable intangible assets, net		49,479		16,294		7,335					73,108
Other assets		5,649		680		44					6,373
Goodwill		470,150		279,185		106,425					855,760

Total assets	$	1,492,898	$	490,193	$	166,493	$	(486,901	)	$	1,662,683

Current liabilities	$	283,387	$	10,728	$	4,566				$	298,681
Payables to subsidiaries/parent				140,548		19,602	$	(160,150	)
Long-term liabilities		705,874		128,976		4,793					839,643
Minority interests								20,722			20,722
Shareholders’ equity		503,637		209,941		137,532		(347,473	)		503,637

Total liabilities and shareholders’ equity	$	1,492,898	$	490,193	$	166,493	$	(486,901	)	$	1,662,683

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands except per share data)

Condensed Consolidating Statements of Income

	DaVita Inc.		RTC		Non-guarantor subsidiaries		Consolidating adjustments			Consolidated total
For the three months ended March 31, 2002
Net operating revenues	$	272,862	$	137,960	$	46,690	$	(29,847	)	$	427,665
Operating expenses		227,669		115,500		35,425		(29,847	)		348,747

Operating income		45,193		22,460		11,265		—			78,918
Other income		565									565
Debt expense		12,170		1,767		1,135					15,072
Minority interests								(2,433	)		(2,433	)
Income taxes		17,300		8,694		6					26,000
Equity earnings in consolidated subsidiaries		19,690						(19,690	)

Net income	$	35,978	$	11,999	$	10,124	$	(22,123	)	$	35,978

For the three months ended March 31, 2001
Net operating revenues	$	256,150	$	117,789	$	44,147	$	(31,869	)	$	386,217
Operating expenses		211,182		98,563		32,874		(31,869	)		310,750

Operating income		44,968		19,226		11,273					75,467
Other income		1,290		58							1,348
Debt expense		16,650		1,743		1,331					19,724
Minority interests								(2,457	)		(2,457	)
Income taxes		16,237		7,463							23,700
Equity earnings in consolidated subsidiaries		17,563						(17,563	)

Net income	$	30,934	$	10,078	$	9,942	$	(20,020	)	$	30,934

DAVITA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(continued)

(unaudited)

(dollars in thousands except per share data)

Condensed Consolidating Statements of Cash Flows

	DaVita Inc.			RTC			Non-guarantor subsidiaries			Consolidating adjustments			Consolidated total
For the three months ended March 31, 2002
Cash flows from operating activities
Net income	$	35,978		$	11,999		$	10,124		$	(22,123	)	$	35,978
Changes in operating and intercompany assets and liabilities and non cash items included in net income		40,514			(4,746	)		(8,884	)		22,123			49,007

Net cash provided by (used in) operating activities		76,492			7,253			1,240			—			84,985

Cash flows from investing activities
Purchases of property and equipment, net		(6,870	)		(7,955	)		(1,290	)					(16,115	)
Acquisitions and divestitures, net					(1,379	)								(1,379	)
Other items		499												499

Net cash used in investing activities		(6,371	)		(9,334	)		(1,290	)					(16,995	)

Cash flows from financing activities
Long-term debt		(20,294	)		324			50						(19,920	)
Other items		(53,084	)											(53,084	)

Net cash provided (used in) financing activities		(73,378	)		324			50						(73,004	)

Net decrease in cash		(3,257	)		(1,757	)		—						(5,014	)
Cash at the beginning of the period		34,949			1,762									36,711

Cash at the end of the period	$	31,692		$	5		$	—		$	—		$	31,697

For the three months ended March 31, 2001
Cash flows from operating activities
Net income	$	30,934		$	10,078		$	9,942		$	(20,020	)	$	30,934
Changes in operating and intercompany assets and liabilities and non cash items included in net income		24,041			(10,903	)		(6,261	)		20,020			26,897

Net cash provided by (used in) operating activities		54,975			(825	)		3,681			—			57,831

Cash flows from investing activities
Purchases of property and equipment, net		(2,888	)		(1,039	)		(2,828	)					(6,755	)
Acquisitions and divestitures, net		(50,667	)											(50,667	)
Other items		19,568						25						19,593

Net cash used in investing activities		(33,987	)		(1,039	)		(2,803	)					(37,829	)

Cash flows from financing activities:
Long-term debt		(37,468	)					614						(36,854	)
Other items		4,580						(1,492	)					3,088

Net cash provided (used in) financing activities		(32,888	)					(878	)					(33,766	)

Net decrease in cash		(11,900	)		(1,864	)		—						(13,764	)
Cash at the beginning of the period		29,336			1,871									31,207

Cash at the end of the period	$	17,436		$	7		$	—		$	—		$	17,443

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements

This Form 10-Q contains statements that are forward-looking statements within the meaning of the federal securities laws, including statements about our expectations, beliefs, intentions or strategies for the future. These statements involve known and unknown risks and uncertainties, including risks resulting from the regulatory environment in which we operate, economic and market conditions, competitive activities, other business conditions, accounting estimates, and the risk factors set forth in this Form 10-Q. These risks, among others, include those relating to possible reductions in private and government reimbursement rates, the concentration of profits generated from PPO and private and indemnity patients and from ancillary services including the administration of pharmaceuticals, the ongoing review of the Company’s Florida laboratory subsidiary by its Medicare carrier and the Department of Justice, the ongoing review by the US Attorney’s Office and the HHS Office of Inspector General in Philadelphia and the Company’s ability to maintain contracts with physician medical directors. Our actual results may differ materially from results anticipated in our forward-looking statements. We base our forward-looking statements on information currently available to us, and we have no current intention to update these statements, whether as a result of changes in underlying factors, new information, future events or other developments.

Results of operations

Continental U.S. and non-continental U.S. operating revenues and operating expenses were as follows (dollars in millions):

	Quarter ended
	March 31, 2002				December 31, 2001				March 31, 2001
Revenues:
Continental U.S.	$	424	99	%	$	426	99	%	$	382	99	%
Non-continental U.S.		4	1	%		4	1	%		4	1	%

		428	100	%		430	100	%		386	100	%

Operating expenses:
Continental U.S.		345	99	%		350	99	%		306	98	%
Non-continental U.S.		4	1	%		5	1	%		5	2	%

		349	100	%		355	100	%		311	100	%

Consolidated operating income	$	79			$	75			$	75

The Company’s divestiture of its dialysis operations outside the continental United States was substantially completed during 2000, reducing the number of dialysis centers that we operate outside the continental United States from 84 to two by the end of 2000. Because all operations outside the continental United States have been divested with the exception of the pending completion of the sale of two centers in Puerto Rico, the non-continental U.S. operating results are excluded from the revenue and cost trends discussed below.

Continental U.S. operations

(dollars in millions)

	Quarter ended
	March 31, 2002				December 31, 2001					March 31, 2001
Revenues	$	424	100	%	$	426		100	%	$	382	100	%

Operating expenses:
Dialysis centers and labs		288	68	%		288		68	%		256	67	%
General and administrative		36	8	%		34		8	%		32	8	%
Depreciation and amortization		16	4	%		26		6	%		26	7	%
Provision for uncollectible accounts (excluding recoveries of $2, $5 and $16 associated with amounts reserved in 1999)		7	2	%		8		2	%		8	2	%
Impairment gains						(1	)

		347	82	%		355		83	%		322	84	%

Operating income (excluding recoveries and impairment gains)	$	77	18	%	$	71		17	%	$	60	16	%

Dialysis treatments (000’s)		1,434				1,482					1,366
Average dialysis treatments per treatment day		18,767				18,618					17,677
Average dialysis revenue per dialysis treatment	$	290			$	283				$	274

Net operating revenues for the continental U.S. operations were $424 million for the first quarter of 2002, an increase of 11% from the first quarter of 2001. Approximately 6% of the increase in revenue was due to higher average revenue per treatment and approximately 5% was due to the increase in the number of treatments. The average dialysis revenue per treatment (excluding lab and clinical research revenues and management fee income) was $290 for the first quarter of 2002, compared to $274 for the same period of 2001. The increase in average revenue per treatment was principally due to increases in our standard fee schedules (impacting non-contract commercial revenue), changes in mix and intensity of physician prescribed pharmaceuticals, and continued improvements in revenue capture, billing and collecting operations, and payor contracting. The increase in the number of treatments was principally attributable to same center growth, which was 4.2% in the first quarter of 2002 compared to 4.0% in the first quarter of 2001. Other operating revenues were approximately $7 million in the first quarter of 2002, a decrease of approximately $1 million from the first quarter of 2001.

First quarter 2002 net operating revenues were approximately the same as in the fourth quarter of 2001. The number of treatments decreased by approximately 3% in the first quarter, principally due to fewer treatment days in the first quarter. Net dialysis revenue per treatment in the first quarter of 2002 increased approximately $7 from the fourth quarter of 2001, which offset most of the decrease in revenue due to fewer treatment days. The increase was due to improvements in revenue realization as noted above.

Center operating expenses were approximately 68% of net operating revenues for continental U.S. operations in the first quarter of 2002 and the fourth quarter of 2001, and 67% in the first quarter of 2001. On a per-treatment basis, center operating expenses for the first quarter of 2002 were approximately $7 higher than the fourth quarter of 2001 and approximately $13 higher than in the first quarter of 2001. The higher average cost per treatment was primarily attributable to higher labor and drug costs.

General and administrative expense was approximately 8% of net operating revenues for continental U.S. operations for the first quarter of 2002, approximately the same as in 2001. In absolute dollar amounts, general and administrative expenses were approximately 6% higher in the first quarter of 2002 as compared to the fourth quarter of 2001. The increase in the dollar amount of general and administrative expenses was primarily attributable to increases in labor costs and continued investments in infrastructure.

The provisions for uncollectible accounts receivable before considering cash recoveries were approximately 1.8% in the first quarter of 2002, compared to 2% in both the fourth quarter of 2001 and the first quarter of 2001. The decrease in the provision resulted from continued improvements in billing and collecting processes. During the first quarter of 2002, we realized cash recoveries of approximately $2 million, compared to $5 million in the fourth quarter of 2001 and $16 million in the first quarter of 2001. The recoveries are the result of improved collection processes and are associated with aged accounts receivables reserved in 1999.

Debt expense of $15 million for the first quarter of 2002 was approximately $5 million lower than the the first quarter of 2001 due to lower effective interest rates and reduced debt balances.

Projections for 2002 and 2003

Based on the current conditions and recent experience, our current projections for 2002 remain unchanged, that is, normal operating earnings before depreciation and amortization, debt expense and taxes, or EBITDA, in the range of $350 million to $380 million. In the near term we expect recent expense trends to continue, and as a result EBITDA may be several million dollars lower in the second quarter of 2002 than in the first quarter. Our current projections for 2003 are for EBITDA to be in the same range as in 2002, that is, $350 million to $380 million.

These projections assume minimal acquisitions, an internal growth rate of the number of dialysis treatments of approximately 3%-4%, no increase in the Medicare composite rate, minimal incremental revenue from our laboratory beginning in May 2002 due to the change in payment status, some reduction in the levels of revenues from physician prescribed pharmaceuticals due to changes in reimbursement policies, incremental legal and other expenses of approximately $6 million to $12 million per year related to the OIG subpoena and the associated government investigation, and underlying cost growth trends consistent with recent years, with additional substantial investments in infrastructure, process improvement initiatives and training planned for 2002 and 2003. These and other underlying assumptions involve significant risks and uncertainties, and actual results may vary significantly from these current projections. Additionally, the renegotiation or restructuring of unfavorable managed care contracts, medical director agreements or other arrangements may result in future impairments or other charges. We undertake no duty to update these projections, whether due to changes in current or expected trends, underlying market conditions, decisions of the United States Attorney’s Office, the Department of Justice or the Office of Inspector General of the Department of Health and Human Services in any pending or future review of our business, or otherwise.

Significant new accounting standards

We have adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No. 142, goodwill is not amortized effective January 1, 2002. SFAS No. 142 also requires that the goodwill balance be regularly assessed for possible valuation impairment and that there be an impairment charge against current earnings if the recorded goodwill balance exceeds fair value. If this standard had been implemented as of January 1, 2001, amortization expense would have been reduced by approximately $6.3 million net of tax, for the first quarter of 2001 and net income and diluted earnings per share would have been approximately $37.3 million and $0.41 per share.

Liquidity and capital resources

Cash flow from operations during the first quarter of 2002 amounted to $85 million. The non-operating cash outflows included paying down long-term debt by $20 million, repurchasing approximately 2.9 million shares of common stock at a total cost of $68 million and investing $16 million in capital assets.

In March 2002, we initiated a recapitalization plan that includes the repurchase of up to 20 million shares of our common stock in a modified dutch auction tender offer at prices ranging from $22 to $26 per share at a total potential cost of up to $520 million plus fees and the repurchase of all of our $225 million outstanding 9¹/4% Senior Subordinated Notes due 2011 at a total cost of approximately $265 million. On April 26, 2002, we completed our repurchase of the outstanding 9¹/4% Senior Subordinated Notes due 2011. Our tender offer for our common stock has been extended until May 17, 2002. We have secured a new senior credit facility arrangement for up to $1.15 billion to finance these repurchases and to pay down all outstanding amounts under our previous existing senior credit facilities. Our common stock has recently been trading below the tender offer range. As of the filing of this report, we are considering all options available regarding the stock tender, including completing the tender on the existing terms, lowering the price range and terminating the tender offer.

The new senior credit facility consists of a Term Loan A for up to $150 million and a Term Loan B for up to $850 million and a $115 million revolving credit facility. The Term Loan A and the revolving credit facility bear interest at a rate equal to LIBOR plus a margin ranging from 1.50% to 2.75% based on our leverage ratio. The Term Loan B bears interest at LIBOR plus 3.00%. As of the filing of this report, $380 million of the Term Loan B has been drawn. We have no obligation to draw the remaining amounts of the Term Loan A or the Term Loan B. If the entire $1 billion term credit facility is drawn, the aggregate annual amortization of principal will range from $15 million to $51 million in years one through five, $404 million in years six and seven, and the balance will be due not later than 2009. The entire credit facility is secured by all of our personal property and that of all of our wholly-owned subsidiaries, along with all of the stock of our subsidiaries.

Continental U.S. accounts receivable at March 31, 2002 amounted to $337 million, an increase of approximately $13 million during the quarter. The first quarter continental U.S. accounts receivable balance represented approximately 73 days of revenue, an increase of approximately 1 day for the quarter.

Our current plans continue to call for a significant increase in capital expenditures this year, including significant investment expenditures for information technology projects and for new dialysis centers, relocations and expansions.

We believe that we will have sufficient liquidity and operating cash flows to fund our scheduled debt service and other obligations over the next twelve months.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2002, there have been no material changes in our market risk exposure from that reported in our Form 10-K for the fiscal year ended December 31, 2001.

RISK FACTORS

This Form 10-Q contains statements that are forward-looking statements within the meaning of the federal securities laws, including statements about our expectations, beliefs, intentions or strategies for the future. These forward-looking statements include statements regarding our expectations for treatment growth rates, revenue per treatment, expense growth, levels of the provision for uncollectible accounts receivable, earnings before depreciation and amortization, debt expense and taxes, and capital expenditures. We base our forward-looking statements on information currently available to us, and we do not intend to update these statements, whether as a result of changes in underlying factors, new information, future events or other developments.

These statements involve known and unknown risks and uncertainties, including risks resulting from economic and market conditions, the regulatory environment in which we operate, competitive activities and other business conditions. Our actual results may differ materially from results anticipated in these forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include those set forth below. The risks discussed below are not the only ones facing our business.

If the percentage of our patients paying at or near our list prices declines, then our revenues, cash flows and earnings would be substantially reduced.

Approximately 42% to 44% of our continental U.S. dialysis revenues are generated from patients who have private payors as the primary payor. A minority of these patients have insurance policies that reimburse us at or near our list prices, which are significantly higher than Medicare rates. The majority of these patients have insurance policies that reimburse us at rates that are below our list prices but, in most cases, higher than Medicare rates. We believe that pressure from private payors to decrease the rates they pay us may increase. If the percentage of patients who have insurance that pays us at or near our list prices decreases significantly, it would have a material adverse effect on our revenues, cash flows and earnings.

If we are unable to renegotiate material contracts with managed care plans on acceptable terms, we may experience a decline in same center growth.

We have contracts with some large managed care plans that include unfavorable terms. Although we are attempting to renegotiate the terms of these contracts, we cannot predict whether we will reach agreement on new terms or whether we will renew these contracts. As a result, we may lose numerous patients of these managed care plans and experience a decline in our same center growth, which would negatively impact our revenues.

Changes in clinical practices and reimbursement rates or rules for EPO and other drugs could substantially reduce our revenue and earnings.

The administration of EPO and other drugs accounts for approximately 35% to 40% of our net operating revenue. Changes in physician practice patterns and accepted clinical practices, changes in private and governmental reimbursement rates and rules, the introduction of new drugs and the conversion to alternate types of administration, for example from intravenous administration to subcutaneous or oral administration, that may also result in lower or less frequent dosages, could reduce our revenues and earnings from the administration of EPO and other drugs. For example, some of the Medicare intermediaries throughout the U.S. are seeking to implement local medical review policies for EPO and vitamin D analogs that would, effectively, limit utilization of and reimbursement for these drugs.

Future declines, or the lack of further increases, in Medicare reimbursement rates would reduce our net income and cash flows.

Approximately 51% to 53% of our continental U.S. dialysis revenues were generated from patients who had Medicare as their primary payor.

The Medicare ESRD program reimburses us for dialysis and ancillary services at fixed rates. Unlike many other Medicare programs, the Medicare ESRD program does not provide for periodic inflation increases in reimbursement rates. These rates have declined over 70% in real dollars since 1972. Increases of 1.2% in 2000 and 2.4% in 2001 were the first increases in the composite rate since 1991, and were significantly less than the cumulative rate of inflation since 1991. There was no increase to the composite rate for 2002. Increases in operating costs that are subject to inflation, such as labor and supply costs, have occurred and are expected to continue to occur without a compensating increase in reimbursement rates. We cannot predict the nature or extent of future rate changes, if any. To the extent these rates are not adjusted to keep pace with inflation, our net income and cash flows would be adversely affected.

Future changes in the structure of, and reimbursement rates under, the Medicare ESRD program could substantially reduce our operating earnings and cash flows.

In legislation enacted in December 2000, Congress mandated government studies on whether:

•

The Medicare composite rate for dialysis should be modified to include an annual inflation increase—study due July 2002;

•

The Medicare composite rate for dialysis should be modified to include additional services, such as laboratory and other diagnostic tests and the administration of EPO and other pharmaceuticals, in the composite rate—study due July 2002; and

•

Reimbursement for many outpatient prescription drugs that we administer to dialysis patients should be reduced from the current rate of 95% of the average wholesale price. This study was completed; the resulting recommendations exclude most drugs administered during dialysis, but Congress has yet to act on these recommendations.

If Medicare began to include in its composite reimbursement rate any ancillary services that it currently reimburses separately, our revenue would decrease to the extent there was not a corresponding increase in that composite rate. In particular, Medicare revenue from EPO and other pharmaceuticals is approximately 40% to 42% of our total Medicare revenue. If these pharmaceuticals were included in the composite rate, and if the composite rate were not increased sufficiently, our operating earnings and cash flows could decrease substantially. Reductions in current reimbursement rates for EPO or other pharmaceuticals would also reduce our net earnings and cash flows.

If a significant number of physicians were to cease referring patients to our dialysis centers, whether due to regulatory or other reasons, our revenue and earnings would decline.

If a significant number of physicians stop referring patients to our centers, it could have a material adverse effect on our revenue and earnings. Many physicians prefer to have their patients treated at centers where they or other members of their practice supervise the overall care provided as medical directors of the centers. As a result, the primary referral source for our centers is often the physician or physician group providing medical director services to the center. If a medical director agreement terminates, whether before or at the end of its term, it may negatively impact the former medical director’s decision to treat his or her patients at our centers.

Our medical director contracts are for fixed periods, generally five to ten years. Medical directors have no obligation to extend their agreements with us. As of March 31, 2002, the agreements with medical directors at 52 centers required renewal on or before March 31, 2003. This includes agreements with terms expiring on or before March 31, 2003 and those with automatic renewal terms that will expire on or before March 31, 2003 if we or the medical director elect not to renew the agreement. In the twelve months ended March 31, 2002, we renewed agreements with medical directors at 14 centers, and were unable to renew one medical director agreement covering six centers. We have engaged replacement medical directors at these six centers, and the former medical director group is competing with us in a joint venture with another dialysis provider.

We also may take actions to restructure existing relationships or take positions in negotiating extensions of relationships in order to assure compliance with anti-kickback and similar laws. These actions could negatively impact physicians’ decisions to extend their medical director agreements with us. For example, we have recalled stock options and we require monthly statements from our medical directors certifying that they have performed their contractual obligations. To our knowledge, we are the only major dialysis provider to have done this. In addition, if the terms of an existing agreement were found to violate applicable laws, we may not be successful in restructuring the relationship, which could lead to the early termination of the agreement.

If the current shortage of skilled clinical personnel or our high level of personnel turnover continues, we may experience disruptions in our business operations and increases in operating expenses.

We are experiencing increased labor costs and difficulties in hiring nurses due to a nationwide shortage of skilled clinical personnel. This shortage limits our ability to expand our operations. We also have a high personnel turnover rate in our dialysis centers. Turnover has been the highest among our technicians, nurses and unit secretaries. Recent efforts to reduce this turnover may not succeed. If we are not successful, or if we are unable to hire skilled clinical personnel when needed, our operations and our same center growth will be negatively impacted.

Adverse developments with respect to EPO could materially reduce our net income and cash flows and affect our ability to care for our patients.

Amgen is the sole supplier of EPO and may unilaterally decide to increase its price for EPO at any time. For example, Amgen unilaterally increased its base price for EPO by 3.9% in each of 2002, 2001 and 2000. Also, we cannot predict whether we will continue to receive the same discount structure for EPO that we currently receive, or whether we will continue to achieve the same levels of discounts within that structure as we have historically achieved. In addition, Amgen has developed a new product, NESP, that may replace EPO or reduce its use with dialysis patients. We cannot predict if or when NESP will be introduced to the U.S. dialysis market, nor what its cost and reimbursement structure will be. Increases in the cost of EPO and the introduction of NESP could have a material adverse effect on our net income and cash flows.

If we fail to adhere to all of the complex government regulations that apply to our business, we could suffer severe consequences that would substantially reduce our revenues and earnings.

Our dialysis operations are subject to extensive federal, state and local government regulations, including Medicare and Medicaid reimbursement rules and regulations and federal and state anti-kickback laws. The regulatory scrutiny of healthcare providers, including dialysis providers, has increased significantly in recent years. For the fiscal year ended September 30, 2001, the DOJ announced total recoveries of more than $1.2 billion from healthcare civil fraud cases. In the prior fiscal year, one of our competitors entered into a $486 million settlement as a result of an Office of Inspector General of the Department of Health and Human Services, or OIG, and DOJ investigation into some of its business practices. In addition, the frequency and intensity of Medicare certification surveys and inspections of dialysis centers has increased markedly since 2000, consistent with recommendations of the OIG.

We endeavor to comply with all of the requirements for receiving Medicare and Medicaid reimbursement and to structure all of our relationships with referring physicians to comply with the anti-kickback laws; however, the laws and regulations in this area are complex and subject to varying interpretations. In addition, our historic dependence on manual processes that vary widely across our network of dialysis centers exposes us to greater risk of errors in billing and other business processes.

If any of our operations are found to violate these or other government regulations, we could suffer severe consequences, including:

•

Mandated practice changes that significantly increase operating expenses;

•

Suspension of payments from government reimbursement programs;

•

Refunds of amounts received in violation of law or applicable reimbursement program requirements;

•

Loss of required government certifications or exclusion from government reimbursement programs, such as the Medicare ESRD program and Medicaid programs;

•

Loss of licenses required to operate healthcare facilities in some of the states in which we operate; and

•

Fines or monetary penalties for anti-kickback law violations, submission of false claims or other failures to meet reimbursement program requirements.

The pending federal review of some of our practices and third-party carrier review of our laboratory subsidiary could result in substantial penalties against us.

We are voluntarily cooperating with the United States Attorney’s Office and HHS Office of Inspector General in Philadelphia in a review of some of our practices, including billing and other operating procedures, financial relationships with physicians and pharmaceutical companies, and the provision of pharmaceutical and other ancillary services. In addition, our Florida-based laboratory subsidiary is the subject of a third-party carrier review of claims it has submitted for Medicare reimbursement. The DOJ has also requested and received information regarding the laboratory. We are unable to determine when these matters will be resolved, whether any additional areas of inquiry will be opened or any outcome of these matters, financial or otherwise. Any negative findings could result in substantial financial penalties against us and exclusion from future participation in the Medicare and Medicaid programs.

Our rollout of new information technology systems may significantly disrupt our billing and collection activity, may not work as planned and could have a negative impact on our results of operations and financial condition.

We are rolling out new information technology systems and new processes in each of our dialysis centers over the next few years. It is likely that this rollout will disrupt our billing and collection activity and may cause other disruptions to our business operations, which may negatively impact our cash flows. Also, the new information systems may not work as planned or improve our billing and collection processes. If they do not, we may have to spend substantial amounts to enhance or replace these systems.

Provisions in our charter documents and compensation programs we have adopted may deter a change of control that our stockholders would otherwise determine to be in their best interests.

Our charter documents include provisions which may deter hostile takeovers, delay or prevent changes of control or changes in our management, or limit the ability of our stockholders to approve transactions that they may otherwise determine to be in their best interests. These include provisions prohibiting our stockholders from acting by written consent, requiring 60 days advance notice of stockholder proposals or nominations to our Board of Directors and granting our Board of Directors the authority to issue up to five million shares of preferred stock and to determine the rights and preferences of the preferred stock without the need for further stockholder approval.

In addition, most of our outstanding employee stock options include a provision accelerating the vesting of the options in the event of a change of control. We have also adopted a change of control protection program for our employees who do not have a significant number of stock options, which provides for cash bonuses to the employees in the event of a change of control. Based on the shares of our common stock outstanding and the market price of our stock on March 31, 2002, these cash bonuses would total approximately $78 million. These compensation programs may affect the price an acquirer would be willing to pay.

We may, in the future, adopt other measures that may have the effect of delaying, deferring or preventing an unsolicited takeover, even if such a change of control were at a premium price or favored by a majority of unaffiliated stockholders. Furthermore, we may adopt some of these measures without any further vote or action by our stockholders.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The information in Note 5 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report is incorporated by this reference in response to this item.

Items 2 and 3 are not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Our annual meeting of stockholders was held on April 11, 2002.

Proposal 1 submitted to our stockholders at the meeting was the election of directors. The following directors were elected at the meeting with the number of votes cast for each director or withheld from each director set forth after the director’s respective name.

Name	Votes for Director	Authority Withheld
Nancy-Ann DeParle	74,921,086	1,517,868
Richard B. Fontaine	75,372,944	1,066,010
Peter T. Grauer	75,372,483	1,066,471
C. Raymond Larkin, Jr.	74,976,272	1,462,682
John M. Nehra	74,976,872	1,462,082
William L. Roper	75,371,783	1,067,171
Kent J. Thiry	64,607,023	11,831,931

Proposal 2 submitted to our stockholders at the meeting was the approval of our proposed 2002 Equity Compensation Plan. The votes were cast as follows:

For		Against		Abstain
59,999,276		16,345,516		94,162

Item 5 is not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number		Description

10.1		Credit Agreement, dated as of April 26, 2002, by and among DaVita Inc., the lenders party thereto, Credit Suisse First Boston Corporation as Administrative Agent and Joint Book Manager, Banc of America Securities LLC as Joint Book Manager and Bank of America, N.A., as Syndication Agent (the “Credit Agreement”). ü**

10.2		Amendment No. 1, dated as of May 9, 2002 to the Credit Agreement by and among DaVita, Inc., the lenders party thereto, Credit Suisse First Boston Corporation as Administrative Agent and Joint Book Manager, Banc of America Securities LLC as Joint Book Manager and Bank of America, N.A., as Syndication Agent. ü

10.3		Security Agreement, dated as of April 26, 2002, made by DaVita Inc. and the subsidiaries of DaVita Inc. named therein to Credit Suisse First Boston, Cayman Islands Branch, as the Collateral Agent for the lenders party to the Credit Agreement. ü

10.4		Subsidiary Guarantee, dated as of April 26, 2002, made by the subsidiaries of DaVita Inc. named therein in favor of the lenders party to the Credit Agreement. ü

10.5		2002 Equity Compensation Plan (1)*

10.6		Employment Agreement, dated as of April 1, 2001, by and between DaVita Inc. and Richard K. Whitney.ü*

12.1		Ratio of earnings to fixed charges.ü

Filed herewith.

Management contract or executive compensation plan or arrangement.

Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the SEC.

(1)

Filed on March 14, 2002 as an exhibit to the Definitive Proxy Statement for our 2002 Annual Meeting of Stockholders.

(b) Reports on Form 8-K

None.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DAVITA INC.

By:		/s/ GARY W. BEIL
		Gary W. Beil Vice President and Controller*

Date: May 14, 2002

Mr. Beil has signed both on behalf of the registrant as a duly authorized officer and as the Registrant’s chief accounting officer.

INDEX TO EXHIBITS

Exhibit Number		Description

10.1		Credit Agreement, dated as of April 26, 2002, by and among DaVita Inc., the lenders party thereto, Credit Suisse First Boston Corporation as Administrative Agent and Joint Book Manager, Banc of America Securities LLC as Joint Book Manager and Bank of America, N.A., as Syndication Agent (the “Credit Agreement”). ü**

10.2		Amendment No. 1, dated as of May 9, 2002 to the Credit Agreement by and among DaVita Inc., the lenders party thereto, Credit Suisse First Boston Corporation as Administrative Agent and Joint Book Manager, Banc of America Securities LLC as Joint Book Manager and Bank of America, N.A., as Syndication Agent. ü

10.3		Security Agreement, dated as of April 26, 2002, made by DaVita Inc. and the subsidiaries of DaVita Inc. named therein to Credit Suisse First Boston, Cayman Islands Branch, as the Collateral Agent for the lenders party to the Credit Agreement. ü

10.4		Subsidiary Guarantee, dated as of April 26, 2002, made by the subsidiaries of DaVita Inc. named therein in favor of the lenders party to the Credit Agreement. ü

10.5		2002 Equity Compensation Plan (1)*

10.6		Employment Agreement, dated as of April 1, 2001, by and between DaVita Inc. and Richard K. Whitney.ü*

12.1		Ratio of earnings to fixed charges.ü

Filed herewith.

Management contract or executive compensation plan or arrangement.

Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the SEC.

(1)

Filed on March 14, 2002 as an exhibit to the Definitive Proxy Statement for our 2002 Annual Meeting of Stockholders.

EX-10.1 3 dex101.txt CREDIT AGREEMENT DATED APRIL 26,2002 Exhibit 10.1 $1,115,000,000 CREDIT AGREEMENT Dated as of April 26, 2002 Among DAVITA INC. as Borrower ----------- CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH as Administrative Agent ----------------------- CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH and BANC OF AMERICA SECURITIES LLC, as Joint Lead Arrangers and Joint Book Managers ----------------------------------------------- BANK OF AMERICA, N.A., as Syndication Agent -------------------- THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA, WACHOVIA BANK, NATIONAL ASSOCIATION as Documentation Agents ----------------------- and THE INITIAL LENDERS, INITIAL ISSUING BANK AND SWING LINE BANK party hereto TABLE OF CONTENTS Section Page - ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms ................................................................. 1 SECTION 1.02. Computation of Time Periods; Other Definitional Provisions ............................ 28 SECTION 1.03. Accounting Terms ...................................................................... 29 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Advances and the Letters of Credit. ............................................... 29 SECTION 2.02. Making the Advances. .................................................................. 31 SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. ................... 34 SECTION 2.04. Repayment of Advances. ................................................................ 36 SECTION 2.05. Termination or Reduction of the Commitments. .......................................... 38 SECTION 2.06. Prepayments. .......................................................................... 39 SECTION 2.07. Interest .............................................................................. 41 SECTION 2.08. Fees. ................................................................................. 42 SECTION 2.09. Conversion of Advances. ............................................................... 44 SECTION 2.10. Increased Costs, Etc. ................................................................. 45 SECTION 2.11. Evidence of Debt. ..................................................................... 47 SECTION 2.12. Payments and Computations. ............................................................ 47 SECTION 2.13. Taxes. ................................................................................ 50 SECTION 2.14. Sharing of Payments, Etc .............................................................. 53 SECTION 2.15. Use of Proceeds ....................................................................... 53 SECTION 2.16. Defaulting Lenders. ................................................................... 54 ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit ................................... 56 SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance and Renewal ....................... 59 SECTION 3.03. Determinations Under Section 3.01 ..................................................... 60 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower ........................................ 60 ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants ................................................................. 65 SECTION 5.02. Negative Covenants .................................................................... 69 SECTION 5.03. Reporting Requirements ................................................................ 79 SECTION 5.04. Financial Covenants ................................................................... 82

ii ARTICLE VI EVENTS OF DEFAULT Section Page - ------- ---- SECTION 6.01. Events of Default ..................................................................... 85 SECTION 6.02. Actions in Respect of the Letters of Credit upon Default .............................. 88 ARTICLE VII THE AGENTS SECTION 7.01. Appointment, Powers and Immunity. ..................................................... 89 SECTION 7.02. Reliance by Agent ..................................................................... 90 SECTION 7.03. Defaults .............................................................................. 90 SECTION 7.04. CSFB and Affiliates ................................................................... 90 SECTION 7.05. Indemnification. ...................................................................... 91 SECTION 7.06. Non-Reliance on Agent and Other Lender Parties ........................................ 92 SECTION 7.07. Resignation of Administrative Agent ................................................... 92 SECTION 7.08. Release of Collateral ................................................................. 93 SECTION 7.09. Release of Guarantor .................................................................. 93 SECTION 7.10. Actions in Respect of Intercreditor Agreement ......................................... 93 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc ....................................................................... 93 SECTION 8.02. Notices, Etc. ......................................................................... 95 SECTION 8.03. No Waiver; Remedies ................................................................... 95 SECTION 8.04. Costs and Expenses. ................................................................... 95 SECTION 8.05. Right of Set-off ...................................................................... 97 SECTION 8.06. Successors and Assigns ................................................................ 97 SECTION 8.07. Assignments and Participations. ....................................................... 98 SECTION 8.08. Execution in Counterparts ............................................................. 102 SECTION 8.09. No Liability of the Issuing Bank ...................................................... 102 SECTION 8.10. Confidentiality ....................................................................... 102 SECTION 8.11. Execution in Counterparts ............................................................. 103 SECTION 8.12. Governing Law, Jurisdiction, Etc. ..................................................... 103 SECTION 8.13. Designation as Designated Senior Debt ................................................. 103 SECTION 8.14. WAIVER OF JURY TRIAL .................................................................. 104
SCHEDULES - --------- Schedule I - Commitments and Applicable Lending Offices Schedule II - Existing Letters of Credit Schedule 4.01(b) - Subsidiaries Schedule 4.01(d) - Authorizations Schedule 4.01(f) - Litigation Schedule 4.01(o) - Environmental Laws Schedule 4.01(p) - Open Years Schedule 4.01(q) - Liens Schedule 4.01(r) - Investments iii Schedule 4.01(s) - Facilities Schedule 5.02(b) - Debt EXHIBITS - -------- Exhibit A-1 - Form of Term A Note Exhibit A-2 - Form of Term B Note Exhibit A-3 - Form of Revolving Credit Note Exhibit B-1 - Form of Notice of Borrowing Exhibit B-2 - Form of Notice of Swing Line Borrowing Exhibit B-3 - Form of Notice of Conversion Exhibit C - Form of Assignment and Assumption Exhibit D - Form of Security Agreement Exhibit E - Form of Subsidiary Guarantee Exhibit F - Form of Opinion of Borrower's General Counsel Exhibit G - Form of Opinion of Riordan & McKinzie Exhibit H - Entities that are not Subsidiaries Exhibit I - Form of Notice of Covenant Reduction CREDIT AGREEMENT CREDIT AGREEMENT dated as of April 26, 2002 among DAVITA INC., a Delaware corporation (the "Borrower"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof under the caption "Initial Lenders" (the "Initial Lenders"), the banks party hereto as Issuing Banks (as hereinafter defined), CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH ("CSFB"), as the provider of the Swing Line Facility (as hereinafter defined) (the "Swing Line Bank"), CSFB and BANC OF AMERICA SECURITIES LLC, as the joint book running managers and joint lead arrangers (the "Book Managers") for the Facilities (as hereinafter defined), CSFB as the administrative agent (together with any successor thereto appointed pursuant to Article VII, the "Administrative Agent") for the Lender Parties (as hereinafter defined), THE BANK OF NEW YORK, THE BANK OF NOVA SCOTIA and WACHOVIA BANK, NATIONAL ASSOCIATION, as documentation agents (the "Documentation Agents") and BANK OF AMERICA, N.A. ("BofA"), as syndication agent (the "Syndication Agent"). PRELIMINARY STATEMENTS: The Borrower has requested that the Lender Parties provide credit facilities in an aggregate amount of $1,115,000,000 as provided herein, and the Lender Parties have agreed to provide such credit facilities on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto hereby 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 the plural forms of the terms defined): "Accepting Lender" has the meaning specified in Section 2.06(d). "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent at The Bank of New York, ABA No. 021000018, Account Name: "CSFB Agency Cayman Account," Account No. 8900492627, Reference: DaVita Inc., or such other account maintained by the Administrative Agent and designated by the Administrative Agent from time to time as such in a written notice to the Borrower and each of the Lender Parties. "Administrative Questionnaire" means a questionnaire, in form and substance satisfactory to the Administrative Agent, delivered by an Eligible Assignee pursuant to Section 8.07(a)(iv) which provides the administrative information relating to such Eligible Assignee. "Advance" means a Term A Advance, a Term B Advance, a Revolving Credit Advance, a Swing Line Advance or a Letter of Credit Advance, as the context may require. "Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Interests in such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agents" means, collectively, the Administrative Agent, the Book Managers, the Syndication Agent, the Documentation Agents and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 7.01(b). "Agreement" means this Credit Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Agreement Value" means, for each Hedge Agreement, on any date of determination, an amount reasonably determined by the Administrative Agent equal to: (a) in the case of a Hedge Agreement documented pursuant to the Master Agreement (Multicurrency-Cross Border) published by the International Swap and Derivatives Association, Inc. (the "Master Agreement"), the amount, if any, that would be payable by any Loan Party to its counterparty in respect of such Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on such date of determination, (ii) such Loan Party was the sole "Affected Party", and (iii) the Administrative Agent was the sole party determining such payment amount (with the Administrative Agent making such determination pursuant to the provisions of that specific form of Master Agreement); or (b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized gain or loss on such Hedge Agreement to the Loan Party to such Hedge Agreement reasonably determined by the Administrative Agent based on the settlement price of such Hedge Agreement on such date of determination, or (c) in all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized gain or loss on such Hedge Agreement to the Loan Party to such Hedge Agreement reasonably determined by the Administrative Agent as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party exceeds (ii) the present value of the future cash flows to be received by such Loan Party pursuant to such Hedge Agreement; capitalized terms used and not otherwise defined in this definition shall have the respective meanings set forth in the above described Master Agreement. "Applicable Lending Office" means (a) with respect to each of the Lenders, the Base Rate Lending Office of such Lender in the case of a Base Rate Advance and the Eurodollar Lending Office of such Lender in the case of a Eurodollar Rate Advance and (b) with respect to the Issuing Bank and the Swing Line Bank, the Base Rate Lending Office of the Issuing Bank and the Swing Line Bank, respectively, for all purposes of this Agreement. "Applicable Margin" means (i) at any time during the period from the date of this Agreement through the date of receipt by the Administrative Agent of the Required Financial Information for the Measurement Period ending March 31, 2002, 1.75% per annum for Base Rate Advances under the Term A Facility and the Revolving Credit Facility and 2.00% per annum for Base Rate Advances under the Term B Facility and 2.75% per annum for Eurodollar Rate Advances under the Term A Facility and the Revolving Credit Facility and 3.00% per annum for Eurodollar Rate Advances under the Term B Facility and (ii) at any time and from time to time thereafter, on any date of determination, a percentage per annum equal to the applicable 2 percentage for the Performance Level set forth below as determined by reference to the Leverage Ratio for the most recently completed Measurement Period: ============================================================================================================== Base Rate Advances Eurodollar Rate Advances - --------------------------------- --------------------------------------- ----------------------------- Performance Level Leverage Ratio Term A Facility/Revolving Term B Term A Term B Credit Facility Facility Facility/Revolving Facility Credit Facility - -------------------------------------------------------------------------------------------------------------- I Less than 2.00x 0.50% 2.00% 1.50% 3.00% - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- II Greater than or 1.00% 2.00% 2.00% 3.00% equal to 2.00x but less than 2.50x - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- III Greater than or 1.25% 2.00% 2.25% 3.00% equal to 2.50x but less than 3.00x - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- IV Greater than or 1.50% 2.00% 2.50% 3.00% equal to 3.00x but less than 3.50x - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- V Greater than or 1.75% 2.00% 2.75% 3.00% equal to 3.50x ==============================================================================================================
For the purposes of: (A) clause (ii) of the immediately preceding sentence, the Applicable Margin for each Base Rate Advance shall be determined by reference to the Performance Level in effect from time to time and the Applicable Margin for each Eurodollar Rate Advance shall be determined by reference to the Performance Level in effect on the first day of each Interest Period for such Eurodollar Rate Advance; and (B) determining the Performance Level in respect of the Applicable Margin at any date of determination, changes in the Performance Level shall be effective on the date on which the Administrative Agent and the Lender Parties receive the Required Financial Information reflecting such change; provided, however, that if the Borrower has not delivered to the Administrative Agent and the Lender Parties all of the information required under this clause (B) within five Business Days after the date on which such information is otherwise required under Section 5.03(b) or 5.03(c), as applicable, the Performance Level shall be deemed to be at Performance Level IV for so long as such information has not been submitted. "Applicable Percentage" means, with respect to the Commitment Fee, (a) at any time during the period from the date of this Agreement through the date of receipt by the 3 Administrative Agent of the Required Financial Information for the Measurement Period ending March 31, 2002, 0.50% per annum and (b) at any time and from time to time thereafter, a rate per annum equal to 0.375% if the Leverage Ratio for the most recently completed Measurement Period is less than 3.00:1.00 and 0.50% if such Leverage Ratio is greater than or equal to 3.00:1.00. For the purposes of determining the Leverage Ratio in respect of the Applicable Percentage at any date of determination, changes in the Applicable Percentage shall be effective on the date on which the Administrative Agent and the Lender Parties receive the Required Financial Information reflecting such change; provided, however, that if the Borrower has not delivered to the Administrative Agent and the Lender Parties all of the information required under this definition within five Business Days after the date on which such information is otherwise required under Section 5.03(b) or 5.03(c), as applicable, the Applicable Percentage shall be 0.50% for so long as such information has not been submitted. "Appropriate Lender" means, at any time, (a) with respect to the Term A Facility, the Term B Facility or the Revolving Credit Facility, a Lender that has a Commitment with respect to such Facility at such time, (b) with respect to the Letter of Credit Facility, (i) the Issuing Bank and (ii) if the Revolving Credit Lenders have made Letter of Credit Advances pursuant to Section 2.03(b) that are outstanding at such time, each such Revolving Credit Lender and (c) with respect to the Swing Line Facility, (i) the Swing Line Bank and (ii) if the Revolving Credit Lenders have made Swing Line Advances pursuant to Section 2.02(b) that are outstanding at such time, each such Revolving Credit Lender. "Approved Fund" means any Person (other than a natural Person) that (i) is (or will be) an "accredited investor" (as defined in Regulation D under the Securities Act) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and (ii) is administered, advised or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender. "Assignment and Assumption" means an Assignment and Assumption entered into by a Lender Party and an Eligible Assignee, and accepted by the Administrative Agent and, if applicable, the Borrower, in accordance with Section 8.07 and in substantially the form of Exhibit C hereto. "Available Amount" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing). "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest established by CSFB from time to time as its prime rate (which rate of interest may not be the lowest rate of interest charged by CSFB to its customers); and (b) the Federal Funds Rate plus 0.50%. Any change in the Base Rate resulting from a change in the prime rate established by CSFB shall become effective on the Business Day on which such change in the prime rate is announced by CSFB. 4 "Base Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i). "Base Rate Lending Office" means, with respect to each of the Lender Parties, the office of such Lender Party specified as its "Base Rate Lending Office" opposite its name on Schedule I hereto or in the Assignment and Assumption pursuant to which it became a Lender Party, as the case may be, or such other office of such Lender Party as such Lender Party may from time to time specify to the Borrower and the Administrative Agent for such purpose. "Borrower's Account" means such account of the Borrower as is agreed from time to time in writing between the Borrower and the Administrative Agent. "Borrower's Percentage" means, in respect of the sale or issuance of Equity Interests by any Subsidiary of the Borrower, the percentage of the common Equity Interests of such Subsidiary beneficially owned directly or indirectly by the Borrower after giving effect to such sale or issuance. "Borrowing" means a Term A Borrowing, a Term B Borrowing, a Revolving Credit Borrowing or a Swing Line Borrowing, as the context may require. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York, New York, and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in U.S. dollar deposits in the London interbank market. "Capital Assets" means, with respect to any Person, all equipment, fixed assets and real property or improvements of such Person, or replacements or substitutions therefor or additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such Person. "Capital Expenditures" means, with respect to any Person for any period, all expenditures made directly or indirectly by such Person during such period for Capital Assets (whether paid in cash or other consideration or accrued as a liability and including, without limitation, all expenditures for maintenance and repairs which are required, in accordance with GAAP, to be capitalized on the books of such Person). For purposes of this definition, the purchase price of equipment or other fixed assets that are purchased simultaneously with the trade-in of existing assets or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted by the seller of such assets for the assets being traded in at such time or the amount of such insurance proceeds, as the case may be. "Capitalized Lease" means any lease with respect to which the lessee is required to recognize concurrently the acquisition of property or an asset and the incurrence of a liability in accordance with GAAP. "Capitalized Lease Obligations" means, with respect to any Capitalized Lease, the amount required to be capitalized in the financial statements of the lessee in accordance with GAAP. "Cash Distributions" means, with respect to any Person for any period, all dividends and other distributions on any of the outstanding Equity Interests in such Person, all purchases, 5 redemptions, retirements, defeasances or other acquisitions of any of the outstanding Equity Interests in such Person and all returns of capital to the stockholders, partners or members (or the equivalent persons) of such Person, in each case to the extent paid in cash by or on behalf of such Person during such period. "Cash Equivalents" means (a) securities with maturities of one year or less from the date of acquisition, issued, fully guaranteed or insured by the United States Government, (b) securities with maturities of one year or less from the date of acquisition issued, fully guaranteed or insured by any State of the United States of America or any political subdivision thereof rated at least AA- by S&P's Ratings Services or Aa3 by Moody's, or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, (c) certificates of deposit, time deposits, overnight bank deposits, bankers' acceptances and repurchase agreements issued by a Qualified Issuer having maturities of 270 days or less from the date of acquisition, (d) commercial paper of an issuer rated at least A-2 by S&P's Ratings Services or P-2 by Moody's, or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, and having maturities of 270 days or less from the date of acquisition, (e) money market accounts or funds, a substantial portion of the assets of which constitute Cash Equivalents described in clauses (a) through (d) above, with, issued by or managed by Qualified Issuers, and (f) money market accounts or funds, a substantial portion of the assets of which constitute Cash Equivalents described in clauses (a) through (d) above, which money market accounts or funds have net assets of not less than $500,000,000 and have the highest rating available of either S&P's Ratings Services or Moody's, or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency. "CHAMPUS" means the United States Department of Defense Human Civilian Health and Medical Program of the Uniformed Services. "Change of Control" means, at any time: (a) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) (i) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of Voting Interests in the Borrower (including through securities convertible into or exchangeable for such Voting Interests) representing 35% or more of the combined voting power of all of the Voting Interests in the Borrower (on a fully diluted basis) or (ii) otherwise has the ability, directly or indirectly, to elect a majority of the board of directors of the Borrower; or (b) during any period of 24 consecutive months, whether commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were Continuing Directors shall cease for any reason to constitute a majority of the board of directors of the Borrower; 6 "Closing Date" means the first date on which all of the conditions precedent to the Initial Extension of Credit set forth in Article III are satisfied, which date shall occur on or prior to May 15, 2002. "Collateral" means all of the "Collateral" referred to in the Collateral Documents and all of the other property and assets that are or are intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties. "Collateral Documents" means, collectively, the Security Agreement, collateral assignments, Security Agreement Supplements, security agreements, pledge agreements, mortgages, deeds of trust or other similar agreements delivered to the Administrative Agent and the Lender Parties pursuant to Section 3.01(a) or Section 5.01(j), and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties. "Commitment" means a Term Commitment, a Revolving Credit Commitment or a Swing Line Commitment, as the context may require. "Commitment Fee" has the meaning specified in Section 2.08(a)(i). "Confidential Information" means information that is furnished to the Administrative Agent or any of the Lender Parties by or on behalf of the Borrower or any of its Subsidiaries in a writing that is marked as confidential or otherwise on an expressly confidential basis, but does not include any such information that (a) is or becomes generally available to the public (other than as a result of a breach by the Administrative Agent or such Lender Party of its confidentiality obligations under this Agreement) or (b) is or becomes available to the Administrative Agent or such Lender Party from a source other than the Borrower or any of its Subsidiaries that is not, to the knowledge of the Administrative Agent or such Lender Party, acting in violation of a confidentiality agreement with the Borrower or any such Subsidiary. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Cash Taxes" means, with respect to any Person for any period, (a) the aggregate amount of all payments in respect of income taxes made in cash by such Person and its Subsidiaries to any applicable Governmental Authority during such period less (b) the aggregate amount of all cash refunds in respect of income taxes received by such Person and its Subsidiaries from any applicable Governmental Authority during such period, after giving effect, to the extent available, to the application of net operating losses available to such Person or any such Subsidiary. "Consolidated EBITDA" means, with respect to any Person for any period, the amount equal to (I) the sum of (a) the Consolidated Net Income of such Person and its Subsidiaries for such period plus (b) the sum of each of the following expenses that have been deducted in the determination of the Consolidated Net Income of such Person and its Subsidiaries for such period: (i) the Consolidated Interest Expense of such Person and its Subsidiaries for such period, (ii) all income tax expense (whether federal, state, local, foreign or otherwise) of such Person and its Subsidiaries for such period, (iii) all depreciation expense of such Person and its Subsidiaries for such period, (iv) all amortization expense of such Person and its Subsidiaries for such period and (v) all non-cash charges otherwise deducted in determining the Consolidated Net Income of such Person and its Subsidiaries for such period less all extraordinary gains added in determining 7 the Consolidated Net Income of such Person and its Subsidiaries for such period; provided that for any period, the amount of non-cash charges arising from the write-off of current assets shall not be included in this subclause (v) plus (c) for each such period ending during the twelve-month period immediately following the closing of any acquisition permitted under Section 5.02(f), an amount equal to the Consolidated EBITDA (calculated on the basis as provided herein) for each such acquisition calculated on a pro forma basis as if such acquisition had occurred on the first day of the twelve-month period then ended, minus (d) any cash expenditures for such period relating to the non-cash charges set forth in subclause (b)(v) hereof, whether for such period or any prior period, plus (e) non-recurring charges incurred during such period not exceeding in the aggregate during the period from April 1, 2000 and continuing through the term of this Agreement $45,000,000 resulting from the write-off of accounts receivable and other related charges as a result of the pending third party carrier review of claims for Medicare reimbursement submitted by the Subsidiary of the Borrower operating the Borrower's Florida laboratory or other Governmental Reimbursement Program Costs, minus (II) in respect of (a) any Subsidiary sold in such period or (b) any assets sold or disposed of in such period as to which EBITDA attributable thereto can be determined, an amount equal to the Consolidated EBITDA (calculated on the basis as provided herein) for each such sale or disposition otherwise included in Consolidated EBITDA for such period. "Consolidated Interest Expense" means, with respect to any Person for any period, the gross interest expense accrued on all Debt of such Person and its Subsidiaries during such period, determined on a Consolidated basis and in accordance with GAAP for such period, including, without limitation, (a) in the case of the Borrower, all fees paid or payable pursuant to Section 2.08(a), (b) commissions, discounts and other fees and charges paid or payable in connection with letters of credit (including, without limitation, the Letters of Credit), (c) all amortization of original issue discount in respect of all Debt of such Person and its Subsidiaries, (d) all dividends on Redeemable Preferred Interests, to the extent paid or payable in cash, and (e) the net payment, if any, paid or payable in connection with Hedge Agreements less the net credit, if any, received in connection with Hedge Agreements. "Consolidated Net Income" means, for any period, the net income (or net loss) of any Person and its Subsidiaries for such period, determined on a Consolidated basis and in accordance with GAAP. "Consolidated Pre-Minority EBITDA" means Consolidated EBITDA plus minority interests in income of consolidated Subsidiaries of the Borrower to the extent deducted in determining net income of the Borrower and its Subsidiaries on a Consolidated basis in the calculation of Consolidated EBITDA. "Constitutive Documents" means, with respect to any Person, the certificate of incorporation or registration (including, if applicable, certificate of change of name), articles of incorporation or association, memorandum of association, charter, bylaws, certificate of limited partnership, partnership agreement, trust agreement, joint venture agreement, certificate of formation, articles of organization, limited liability company operating or members agreement, joint venture agreement or one or more similar agreements, instruments or documents constituting the organization or formation of such Person. "Contingent Obligation" means, with respect to any Person, any Obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect 8 guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Obligation of a primary obligor, (b) the Obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any Obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital, equity capital, net worth or other balance sheet condition or any income statement condition of the primary obligor or otherwise to maintain the solvency of the primary obligor, (iii) to purchase, lease or otherwise acquire property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the agreement, instrument or other document evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Continuing Director" means, for any period, an individual who is a member of the board of directors of the Borrower on the first day of such period or who has been nominated to the board of directors of the Borrower by a majority of the other Continuing Directors who were members of the board of directors of the Borrower at the time of such nomination. "Conversion", "Convert" and "Converted" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09 or 2.10. "Debt" means, with respect to any Person (without duplication) (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than unsecured trade payables incurred in the ordinary course of such Person's business, provided that at all times during which the aggregate amount of such payables exceed 50% of Consolidated EBITDA for the most recent Measurement Period, "Debt" shall include all such payables which are past due for more than 60 days (excluding payables being contested in good faith) after the date on which such payable was first past due), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, or upon which interest payments are customarily made, (d) all Obligations of such Person 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 are limited to repossession or sale of such property), (e) all Capitalized Lease Obligations of such Person, (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any preferred Equity Interests in such Person or any other Person, valued, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, take-or-pay agreements or other similar arrangements, valued, in the case of Hedge Agreements, at the Agreement Value thereof, (i) all Obligations of such Person under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing if the transaction giving rise to such Obligation is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP; (j) all Contingent Obligations, and (k) all indebtedness and other 9 payment Obligations referred to in clauses (a) through (j) above of another Person secured by (or for which the holder of such indebtedness or other payment Obligations has an existing right, contingent or otherwise, to be secured by) any Lien on 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 indebtedness or other payment Obligations: provided that for the purposes of this subclause (k) the amount thereof shall be equal to the lesser of (i) the amount of such indebtedness or other payment Obligations and (ii) the fair market value of the property subject to such Lien. "Declining Lender" has the meaning specified in Section 2.06(d). "Default" means any Event of Default or any event or condition that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender Party at any time, the portion of any Advance required to be made by such Lender Party to the Borrower pursuant to Section 2.01 or 2.02 at or prior to such time that has not been made by such Lender Party or by the Administrative Agent for the account of such Lender Party pursuant to Section 2.02(e) as of such time. In the event that a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.16(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any Lender Party at any time, any amount required to be paid by such Lender Party to the Administrative Agent or any other Lender Party hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender Party to (a) the Swing Line Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section 2.03(b) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender Party, (d) any other Lender Party pursuant to Section 2.14 to purchase any participation in Advances owing to such other Lender Party and (e) the Administrative Agent or the Issuing Bank pursuant to Section 7.05 to reimburse the Administrative Agent or the Issuing Bank for such Lender Party's ratable share of any amount required to be paid by the Lender Parties to the Administrative Agent or the Issuing Bank as provided therein. In the event that a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.16(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be paid hereunder or under any other Loan Document on the same date as the Defaulted Amount so deemed paid in part. "Defaulting Lender" means, at any time, any Lender Party that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). "Dialysis Facilities" has the meaning specified in Section 4.01(s). "Documentation Agents" has the meaning specified in the recital of parties to this Agreement. 10 "Domestic Person" means a Person that is organized under the laws of, or whose property is located in, a jurisdiction within the United States. "Domestic Subsidiary" means, at any time, any of the direct or indirect Subsidiaries of the Borrower that is incorporated or organized under the laws of any state of the United States of America or the District of Columbia. "Eligible Assignee" means (a) with respect to any Facility (other than the Letter of Credit Facility), (i) a Lender; (ii) an Affiliate of a Lender or an Approved Fund of a Lender; (iii) 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; (iv) a savings and loan association or savings 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; (v) 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; (vi) the central bank of any country that is a member of the OECD; (vii) a finance company, insurance company or other financial institution, fund (whether a corporation, partnership, trust or other entity) or other entity that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and, except with respect to a Term Facility, having total assets (inclusive of assets of Affiliates or Approved Funds thereof) of at least $100,000,000; and (viii) any other Person approved by the Administrative Agent and, provided no Event of Default is continuing, the Borrower, provided that the approval of the Administrative Agent and the Borrower, when required, shall not be unreasonably withheld or delayed, and (b) with respect to the Letter of Credit Facility, a Person that is an Eligible Assignee under subclause (iii) or (v) of clause (a) of this definition and is approved by the Administrative Agent (such approval not to be unreasonably withheld or delayed); provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Environmental Action" means any outstanding action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement, abatement order or other order or directive (conditional or otherwise) relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Materials or arising from alleged injury or threat to health, safety, natural resources or the environment, including, without limitation, (a) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any applicable Governmental Authority or any other third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Requirement of Law relating to (a) the generation, use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, (b) pollution or the protection of the environment, health, safety or natural resources or (c) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, including, without limitation, CERCLA, in each case as amended from time to time, and including the regulations promulgated and the rulings issued from time to time thereunder. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. 11 "Equipment" has the meaning specified in Section 1(a) of the Security Agreement. "Equity Interests" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued from time to time thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means (a)(i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of Section 4043(b) of ERISA are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA could reasonably be expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) 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); (d) the cessation of operations at a facility of any Loan Party or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the partial or complete withdrawal by any Loan Party or any ERISA Affiliate from a Plan or a Multiple Employer Plan; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) 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 described in Section 4042 of ERISA, that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurodollar Lending Office" means, with respect to each of the Lenders, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Assumption pursuant to which it became a Lender, as the case may be (or, if no such office is specified, its Base Rate Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent for such purpose. "Eurodollar Rate" means, with respect to any Eurodollar Rate Advance for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of such Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in 12 U.S. dollars (as set forth by any service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition the Eurodollar Rate shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in U.S. dollars are offered for such Interest Period to major banks in the London interbank market in London, England by the Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of such Interest Period. Each determination by the Administrative Agent pursuant to this definition shall be conclusive absent manifest error. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Events of Default" has the meaning specified in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "Existing Credit Agreement" means the Credit Agreement, dated as of May 3, 2001, as amended, between the Borrower, the lender parties thereto, CSFB, as Syndication Agent, The Bank of New York, The Bank of Nova Scotia and Suntrust Bank, as Documentation Agents, and BofA, as the Administrative Agent. "Existing Issuing Bank" means BofA, as the issuer of Existing Letters of Credit. "Existing Letters of Credit" means all letters of credit issued under the Existing Credit Agreement and outstanding on the Closing Date, as more fully described on Schedule II hereto. "Facility" means the Term A Facility, the Term B Facility, the Revolving Credit Facility, the Swing Line Facility or the Letter of Credit Facility, as the context may require. "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 immediately preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day that is a Business Day, the average rate charged to the Administrative Agent (in its individual capacity) on such day on such transactions as determined by the Administrative Agent. "Fiscal Quarter" means, with respect to the Borrower or any of its Subsidiaries, the period commencing January 1 in any Fiscal Year and ending on the next succeeding March 31, the period commencing April 1 in any Fiscal Year and ending on the next succeeding June 30, the period commencing July 1 in any Fiscal Year and ending on the next succeeding September 30 or the period commencing October 1 in any Fiscal Year and ending on the next succeeding December 31, as the context may require, or, if any such Subsidiary was not in existence on the first day of any such period, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the last day of such period. "Fiscal Year" means, with respect to the Borrower or any of its Subsidiaries, the period commencing on January 1 in any calendar year and ending on the next succeeding December 31 13 or, if any such Subsidiary was not in existence on January 1 in any calendar year, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the next succeeding December 31. "Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) the amount equal to (i) the sum of (A) Consolidated Pre-Minority EBITDA and (B) Lease Expense less (ii) Capital Expenditures, in each case for the Borrower and its Subsidiaries for such period, to (b) the sum of (i) Consolidated Interest Expense, (ii) the aggregate principal amount (or the equivalent thereto) of all Required Principal Payments, (iii) the aggregate amount of all Consolidated Cash Taxes, and (iv) Lease Expense, in each case for the Borrower and its Subsidiaries for such period. "Foreign Subsidiary" means, at any time, any direct or indirect Subsidiary of the Borrower that is not a Domestic Subsidiary. "Funded Debt" of any Person means all Debt of such Person that by its terms matures more than one year after 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 after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, in each case determined on a Consolidated basis in accordance with GAAP, including, without limitation, (i) the aggregate amount of Governmental Reimbursement Program Costs (exclusive of, with respect to the determination of Funded Debt in any period, the portion of Governmental Reimbursement Program Costs paid in such period) and (ii) in the case of the Borrower, the Advances; provided, however, that the term "Funded Debt" shall not include (x) any Contingent Obligations of such Person (if and to the extent such Contingent Obligations would otherwise be included in such term on any date of determination) that are incurred solely to support Debt or Governmental Reimbursement Program Costs of the Borrower or one or more Subsidiaries of the Borrower to the extent such Contingent Obligations are otherwise expressly permitted to be incurred under Section 5.02(b), and (y) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Redeemable Preferred Interests. "GAAP" has the meaning specified in Section 1.03. "Governmental Authority" means any nation or government, any state, province, city, municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign. "Governmental Authorization" means any authorization, approval, consent, franchise, license, covenant, order, ruling, permit, certification, exemption, notice, declaration or similar right, undertaking or other action of, to or by, or any filing, qualification or registration with, any Governmental Authority. "Governmental Reimbursement Program Costs" means with respect to and payable by the Borrower and its Subsidiaries the sum of: (i) all amounts (including punitive and other similar amounts) agreed to be paid in settlement or payable as a result of a final, non-appealable judgment, award or similar order relating to participation in Medical Reimbursement Programs; 14 (ii) all final, non-appealable fines, penalties, forfeitures or other amounts rendered pursuant to criminal indictments or other criminal proceedings relating to participation in Medical Reimbursement Programs; and (iii) the amount of final, non-appealable recovery, damages, awards, penalties, forfeitures or similar amounts rendered in any litigation, suit, arbitration, investigation or other legal or administrative proceeding of any kind relating to participation in Medical Reimbursement Programs. "Guarantee Supplement" has the meaning specified in the Subsidiary Guarantee. "Guaranteed Obligations" has the meaning specified in the Subsidiary Guarantee. "Guarantor" means each Subsidiary of the Borrower party to the Subsidiary Guarantee or, as the case may be, a Guarantee Supplement. "Hazardous Materials" means (a) petroleum or petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means, collectively, interest rate swap, cap or collar agreements, interest rate future or option contracts, commodity future or option contracts, currency swap agreements, currency future or option contracts, equity swap agreements and other similar agreements. "Hedge Bank" means any Person that is a Lender Party or an Affiliate of a Lender Party, in its capacity as a party to a Hedge Agreement. "Indemnified Party" has the meaning specified in Section 8.04(b). "Information Memorandum" means the information memorandum dated March 2002 used by the Book Managers in connection with the syndication of the Commitments. "Initial Extension of Credit" means, collectively, the initial Borrowings under one or more of the Facilities, and/or the initial issuances of one or more Letters of Credit, made on the Closing Date. "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "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. "Intercreditor Agreement" means an Intercreditor Agreement dated as of the date hereof duly executed by the Agent on behalf of the Lender Parties, the Collateral Agent, as defined therein, and any Lender or an Affiliate thereof who is as of such date or thereafter a party to a Hedge Agreement. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of 15 the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, 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, as the Borrower may, upon notice received by the Administrative Agent not later than 2:00 P.M. (New York, New York time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance under a Facility that ends after any principal repayment installment date for such Facility unless, after giving effect to such selection, the aggregate principal amount of Base Rate Advances and of Eurodollar Rate Advances having Interest Periods that end on or prior to such principal repayment installment date for such Facility shall be at least equal to the aggregate principal amount of Advances under such Facility due and payable on or prior to such date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided, however, 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 immediately preceding Business Day; and (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "Investment" means, with respect to any Person, any loan or advance to such Person, any purchase or other acquisition of Equity Interests in or Debt of, or the property and assets comprising a division or business unit or all or a substantial part of the business of, such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation (or similar transaction) and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (j) or (k) of the definition of "Debt" set forth in this Section 1.01 in respect of such Person. "ISDA Master Agreement" means the Master Agreement (Multicurrency-Cross Border) published by the International Swap and Derivatives Association, Inc., as in effect from time to time. "Issuing Bank" means (i) CSFB or any Affiliate thereof that may from time to time issue Letters of Credit for the account of the Borrower, (ii) any other Revolving Credit Lender that 16 from time to time agrees in writing to issue Letters of Credit hereunder, and (iii) solely with respect to the Existing Letters of Credit, the Existing Issuing Bank. "L/C Cash Collateral Account" has the meaning specified in the Preliminary Statements to the Security Agreement. "L/C Related Documents" has the meaning specified in Section 2.03(b)(ii). "Lease Expense" means, with respect to any Person, for any period for such Person and its subsidiaries on a Consolidated basis, lease and rental expense accrued during such period under all leases and rental agreements, other than Capitalized Leases and leases of personal property, of renal treatment centers, determined in conformity with GAAP. "Lender Party" means any Lender, the Issuing Bank or the Swing Line Bank. "Lenders" means, collectively, the Initial Lenders and each Person that becomes a Lender pursuant to Section 8.07 for so long as such Initial Lender or Person, as the case may be, shall be a party to this Agreement. "Letter of Credit" has the meaning specified in Section 2.01(e). "Letter of Credit Advance" means an advance made by an Issuing Bank or any Revolving Credit Lender pursuant to Section 2.03(b). "Letter of Credit Agreement" has the meaning specified in Section 2.03(a). "Letter of Credit Facility" means, at any time, an amount equal to the lesser of (a) the aggregate amount of the Unused Revolving Credit Commitments of the Issuing Banks at such time and (b) $50,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Leverage Ratio" means, at any date of determination, the ratio of (a) (i) all Funded Debt of the Borrower and its Subsidiaries plus (ii) to the extent not otherwise included in subclause (a)(i) of this definition, the face amount of all Letters of Credit issued for the account of the Borrower or any of its Subsidiaries minus (iii) cash and cash equivalents of the Borrower and its Subsidiaries on a Consolidated basis to (b) Consolidated Pre-Minority EBITDA of the Borrower and its Subsidiaries for the most recently completed Measurement Period prior to such date. "Lien" means, with respect to any Person, (a) any mortgage, lien (statutory or other), pledge, hypothecation, security interest, charge or encumbrance of any kind (including, without limitation, any agreement to give any of the foregoing), (b) any sale of accounts receivable or chattel paper, or any assignment, deposit arrangement or lease intended as, or having the effect of, security, (c) any easement, right of way or other encumbrance on title to real property or (d) any other interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or any Capitalized Lease or upon or with respect to any property or asset of such Person (including, in the case of Equity Interests, voting trust agreements and other similar arrangements). "Loan Documents" means, collectively, this Agreement, the Notes, the Subsidiary Guarantee, the Collateral Documents and each Letter of Credit Agreement, in each case as 17 amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 8.01. "Loan Parties" means, collectively, the Borrower and each of the Subsidiaries of the Borrower party to the Subsidiary Guarantee or any of the Collateral Documents. "Margin Stock" means `margin stock' as defined in Regulation U of the Board of Governors of the Federal Reserve System, as the same may be amended or supplemented from time to time. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries, taken as a whole; provided that the occurrence or subsistence of any such material adverse change which has been disclosed by the Borrower in any filing made with the Securities and Exchange Commission prior to the date of this Agreement shall not constitute a Material Adverse Change. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or any Lender Party under any Loan Document or (c) the ability of any Loan Party to perform its Obligations under any Loan Document to which it is or is to be a party; provided that the occurrence or subsistence of any such material adverse effect which has been disclosed by the Borrower in any filing made with the Securities and Exchange Commission prior to the date of this Agreement shall not constitute a Material Adverse Effect. "Material Subsidiaries" means, as of any date, any Subsidiary or Subsidiaries of the Borrower that either individually or taken as a whole accounted for more than 5% of Consolidated Net Income of the Borrower and its Subsidiaries for the most recently completed Fiscal Quarter on or prior to such date, in each case as reflected in the Required Financial Information most recently delivered to the Administrative Agent and the Lender Parties on or prior to such date and determined in accordance with GAAP for such period. "Measurement Period" means, at any date of determination, the most recently completed four consecutive Fiscal Quarters ended prior to such date for which financial information is available. "Medicaid" means that means-tested entitlement program under Title XIX of the Social Security Act that provides federal grants to states for medical assistance based on specific eligibility criteria. (Social Security Act of 1965, Title XIX, P.L. 89-87, as amended; 42 U.S.C. 1396 et seq.). "Medical Reimbursement Programs" means the Medicare, Medicaid and CHAMPUS programs and any other health care program operated by or financed in whole or in part by any federal, state or local government. "Medicare" means that government-sponsored entitlement program under Title XVIII of the Social Security Act that provides for a health insurance system for eligible elderly and disabled individuals. (Social Security Act of 1965, Title XVIII, P.L. 89-87 as amended; 42 U.S.C. 1395 et seq.). 18 "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which any Loan Party 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. "Multiple Employer Plan" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and at least one Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could reasonably be expected to have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any property or asset, or the incurrence or issuance of any Debt, or the sale or issuance of any Equity Interests (including, without limitation, any capital contribution) in any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person for its own account in connection with any such transaction, after deducting therefrom only (without duplication): (a) out-of-pocket expenses, including brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions; (b) the amount of taxes payable in connection with or as a result of such transaction, and if not paid at the time of the respective transaction, the amount thereof reserved in accordance with GAAP as in effect on the date of determination; (c) in the case of any sale, lease, transfer or other disposition of any property or asset, the outstanding principal amount of, the premium or penalty, if any, on, and any accrued and unpaid interest on, any Debt (other than the Debt outstanding under the Loan Documents) that is secured by a Lien on the property and assets subject to such sale, lease, transfer or other disposition and is required to be repaid under the terms thereof as a result of such sale, lease, transfer or other disposition; (d) in the case of any sale, lease, transfer or other disposition of any property or asset, an amount reserved, in accordance with GAAP as in effect on the date on which the Net Cash Proceeds from such sale, lease, transfer or other disposition are determined, and so reserved, against liabilities under indemnification obligations, liabilities related to environmental matters or other liabilities associated with the property and assets subject to such sale, lease, transfer or other disposition that are required to be so provided for under the terms of the documentation for such sale, lease, transfer or other disposition; and (e) in the case of any sale, lease, transfer or other disposition of any property or asset by a Subsidiary, the amount of any payments or distributions required to be made in respect of such transaction to owners of Equity Interests in such Subsidiary other than the Borrower or any other Subsidiary; 19 provided, however, in the case of clauses (b) and (d) of this definition, that if, at the time such taxes or such contingent liabilities are actually paid or otherwise satisfied, the amount of the reserve therefor exceeds the amount paid or otherwise satisfied, then the Borrower shall prepay the outstanding Advances in accordance with the terms of Section 2.06(b), in an amount equal to the amount of such excess reserve. "Note" means a Term A Note, a Term B Note or a Revolving Credit Note, as the context may require. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Conversion" has the meaning specified in Section 2.09(a). "Notice of Covenant Reduction" means, with respect to any restricted payment pursuant to Section 5.02(g)(vi)(C), a notice substantially in the form of Exhibit I hereto duly executed by a Responsible Officer of the Borrower specifying that (i) immediately prior to such restricted payment and after giving pro forma effect thereto the Leverage Ratio is less than 3.00:1.00 and the Senior Leverage Ratio is less than 1.75:1.00 and (ii) at all times thereafter, for purposes of Section 5.04(a) and (e), respectively, the Leverage Ratio shall be 3.00:1.00 and the Senior Leverage Ratio shall be 1.75:1.00. "Notice of Issuance" has the meaning specified in Section 2.03(a). "Notice of Renewal" has the meaning specified in Section 2.01(e). "Notice of Swing Line Borrowing" has the meaning specified in Section 2.02(b). "Notice of Termination" has the meaning specified in Section 2.01(e). "NPL" means the National Priorities List under CERCLA. "Obligation" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(f). Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnity payments and other amounts payable by any Loan Party under any Loan Document and (b) the obligation of any Loan Party to reimburse any amount in respect of any of the foregoing items that any Lender Party, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "OECD" means the Organization for Economic Cooperation and Development. "Open Year" means, with respect to any Person, any year for which United States federal income tax returns have been filed by or on behalf of such Person and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred (whether by reason of extension or otherwise). 20 "Other Taxes" has the meaning specified in Section 2.13(b). "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Performance Level" means Performance Level I, Performance Level II, Performance Level III, Performance Level IV or Performance Level V, as identified in the definition of "Applicable Margin", as the context may require. "Permitted Liens" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA or any such Lien relating to or imposed in connection with any Environmental Action): (a) Liens for taxes, assessments and governmental charges or levies to the extent not otherwise required to be paid under Section 5.01(b); (b) Liens imposed by law, such as materialmen's, mechanics', carriers', landlords', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations (other than Debt for borrowed money) (i) that are not overdue for a period of more than 60 days or (ii) the amount, applicability or validity of which are being contested in good faith and by appropriate proceedings diligently conducted and with respect to which the Borrower or any of its Subsidiaries, as the case may be, has established reserves in accordance with GAAP; (c) pledges or deposits to secure obligations incurred in the ordinary course of business under workers' compensation laws, unemployment insurance or similar social security legislation (other than in respect of employee benefit plans subject to ERISA) or to secure public or statutory obligations; (d) Liens, pledges and deposits securing the performance of, or payment in respect of, bids, tenders, leases, contracts (other than for the repayment of borrowed money), surety and appeal bonds, letters of credit, and other obligations of a similar nature incurred in the ordinary course of business; (e) any interest or title of a lessor or sublessor and any restriction or encumbrance to which the interest or title of such lessor or sublessor may be subject that is incurred in the ordinary course of business and, either individually or when aggregated with all other Permitted Liens in effect on any date of determination, could not be reasonably expected to have a Material Adverse Effect; (f) Liens in favor of customs and revenue authorities arising as a matter of law or pursuant to a bond to secure payment of customs duties in connection with the importation of goods; (g) Liens arising out of judgments or awards that do not constitute an Event of Default under Section 6.01(g) or 6.01(h) and in respect of which the Borrower or any of its Subsidiaries subject thereto shall be prosecuting an appeal or proceedings for review in good faith and, pending such appeal or proceedings, shall have secured within 30 days after the entry thereof a subsisting stay of execution and shall be maintaining reserves, in accordance with GAAP, with respect to any such judgment or award; (h) unperfected Liens of suppliers and vendors to secure the purchase price of the property or assets sold; (i) protective Uniform Commercial Code filings by lessors under operating leases; and (j) any easements, rights of way, restrictions, defects, encroachments and other encumbrances on title to real property which either individually or when aggregated with all other permitted Liens, would not be reasonably expected to have a Material Adverse Effect. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, unlimited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pledged Debt" has the meaning specified in Section 1 of the Security Agreement. 21 "Pledged Shares" has the meaning specified in Section 1 of the Security Agreement. "Prepayment Date" has the meaning specified in Section 2.06(d). "primary obligation" has the meaning specified in the definition of "Contingent Obligation" set forth in this Section 1.01. "primary obligor" has the meaning specified in the definition of "Contingent Obligation" set forth in this Section 1.01. "Pro Rata Share" of any amount means, with respect to any of the Lenders at any time, the product of (a) a fraction the numerator of which is the amount of such Lender's Commitment(s) under the applicable Facility or Facilities at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01 at or prior to such time, such Lender's Commitment(s) under the applicable Facility or Facilities as in effect immediately prior to such termination) and the denominator of which is the aggregate amount of such Facility or Facilities at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01 at or prior to such time, the applicable Facility or Facilities as in effect immediately prior to such termination) multiplied by (b) such amount. "Qualified Issuer" means (a) any Lender hereunder and (b) any commercial bank that has a combined capital and surplus in excess of $100,000,000. "Reedemable Preferred Interest" means with respect to any Person, (a) any Equity Interest of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time or both would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, not earlier than July 1, 2009, and (b) any Equity Interest of any Subsidiary of such Person other than any common equity with no preferences, privileges, and no redemption or repayment provisions; provided, however, that any Equity Interest that would constitute a Redeemable Preferred Interest solely because the holders thereof have the right to require the issuer to repurchase such a Redeemable Preferred Interest upon the occurrence of a change of control shall not be so treated if the terms thereof (a) do not trigger any rights upon any circumstance constituting a change of control under such Redeemable Preferred Interest that would not constitute a Change of Control under this Agreement and (b) do not permit either any repurchase by such Person or any rights of the holder of such Equity Interest to assert any claim in respect of such failure to purchase as long as any Event of Default exists hereunder. "Reduction Amount" has the meaning specified in Section 2.06(b)(iv). "Register" has the meaning specified in Section 8.07(c). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Financial Information" means, at any date of determination, the Consolidated financial statements of the Borrower and its Subsidiaries most recently delivered to the Administrative Agent and the Lender Parties on or prior to such date pursuant to, and satisfying all of the requirements of, Section 5.03(b) or 5.03(c) and accompanied by the certificates and other information required to be delivered therewith. 22 "Required Lenders" means, at any time, Lenders owed or holding at least a majority in interest of the sum of (a) the aggregate principal amount of the Advances outstanding at such time, (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, and (c) the aggregate Unused Revolving Credit Commitments at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (B) such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit issued by such Lender and outstanding at such time, and (C) the Unused Revolving Credit Commitment of such Lender at such time. For purposes of this definition, the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing Bank and the Available Amount of each Letter of Credit shall be considered to be owed to the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Commitments. "Required Principal Payments" means, with respect to any Person for any period, the sum of all regularly scheduled principal payments or redemptions and all required prepayments, repurchases, redemptions or similar acquisitions for value of outstanding Funded Debt made during such period. "Requirements of Law" means, with respect to any Person, all laws, constitutions, statutes, treaties, ordinances, rules and regulations, all orders, writs, decrees, injunctions, judgments, determinations and awards of an arbitrator, a court or any other Governmental Authority, and all Governmental Authorizations, binding upon or applicable to such Person or to any of its properties, assets or businesses. "Responsible Officer" means, with respect to the Borrower or any of its Subsidiaries, the chief executive officer, the president, the chief financial officer, the principal accounting officer or the treasurer (or the equivalent of any of the foregoing) or any other officer, partner or member (or person performing similar functions) of the Borrower or any such Subsidiary responsible for overseeing the administration of, or reviewing compliance with, all or any portion of this Agreement or any of the other Loan Documents. "Revolving Credit Advance" has the meaning specified in Section 2.01(c). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by the Revolving Credit Lenders. "Revolving Credit Commitment" means, with respect to any Revolving Credit Lender at any time, the amount set forth opposite such Revolving Credit Lender's name on Schedule I hereto under the caption "Revolving Credit Commitment" or, if such Revolving Credit Lender has entered into one or more Assignment and Assumptions, the amount set forth for such Revolving Credit Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Revolving Credit Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Revolving Credit Facility" means, at any time, the aggregate amount of the Revolving Credit Lenders' Revolving Credit Commitments at such time. "Revolving Credit Lender" means, at any time, any Lender that has a Revolving Credit Commitment or Revolving Credit Advance, as the case may be, at such time. 23 "Revolving Credit Note" means a promissory note of the Borrower payable to the order of any Revolving Credit Lender, in substantially the form of Exhibit A-3 hereto, evidencing the aggregate indebtedness of the Borrower to such Revolving Credit Lender resulting from the Revolving Credit Advances made by such Revolving Credit Lender. "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, Inc. "Secured Obligations" has the meaning specified in Section 2 of the Security Agreement. "Secured Parties" means, collectively, the Agents, the Lender Parties, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents. "Securities Act" means the Securities Act of 1933, as amended, and the regulations promulgated and the rulings issued thereunder. "Security Agreement" has the meaning specified in Section 3.01(a)(ii). "Security Agreement Supplement" has the meaning specified in Section 24 of the Security Agreement. "Senior Leverage Ratio" means, at any date of determination, the ratio of (a)(i) all Funded Debt of the Borrower and its Subsidiaries plus (ii) to the extent not otherwise included in subclause (a)(i) of this definition, the face amount of all outstanding Letters of Credit issued for the account of the Borrower or any of its Subsidiaries minus (iii) cash and cash equivalents of the Borrower and its Subsidiaries on a Consolidated basis minus (iv) all Subordinated Debt of the Borrower and its Subsidiaries to (b) Consolidated Pre-Minority EBITDA of the Borrower and its Subsidiaries for the most recently completed Measurement Period prior to such date. "Single Employer Plan" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and no Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" and "Solvency" mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property and assets of such Person is greater than the total amount of liabilities (including, without limitation, contingent liabilities), of such Person, (b) the present fair salable value of the property and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or in a transaction, and is not about to engage in business or in a transaction, for which such Person's property and assets would constitute an unreasonably small capital. The amount of contingent liabilities of any such Person at any time shall be computed as the amount that, in the light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Special Purpose Licensed Entity" means any Person in a related business of the Borrower and its Subsidiaries that (i) the Borrower and its Subsidiaries are prohibited from 24 engaging in directly under applicable law, including provisions of state law (a) prohibiting the ownership of healthcare facilities by public companies, (b) prohibiting the corporate practice of medicine or (c) otherwise restricting the ability of the Borrower or one of its Subsidiaries to acquire directly a required license to operate a healthcare facility, and (ii) has entered into a transaction or series of transactions with the Borrower or any of its Subsidiaries under which: (x) the Borrower or any of its Subsidiaries provides management, administrative or consulting services to the Special Purpose Licensed Entity, (y) the owners of the Special Purpose Licensed Entity are prohibited from transferring any of their interests in the Special Purpose Licensed Entity without the consent of the Borrower or one of its Subsidiaries, and (z) the Borrower or one of its Subsidiaries has the right to require the owners of the Special Purpose Licensed Entity to transfer all of their interests in the Special Purpose Licensed Entity to a Person designated by the Borrower or one of its Subsidiaries. "Subordinated Debt" means the subordinated debt evidenced by the Subordinated Notes or other subordinated Debt issued or incurred by the Borrower subordinated in right of payment to the payment in full of the Obligations of the Borrower to the Loan Parties under the Loan Documents and other senior obligations of the Borrower; provided that (i) the negative covenants in such subordinated Debt are less burdensome than the negative covenants in this Agreement as in effect at the time such subordinated Debt is incurred, (ii) the affirmative covenants in such subordinated Debt are no more burdensome than the affirmative covenants in this Agreement as in effect at the time such subordinated Debt is incurred, (iii) the events of default in such subordinated Debt relating to insolvency and nonpayment of amounts owed thereunder are no more restrictive than the corresponding defaults in this Agreement as in effect at the time such subordinated Debt is incurred, (iv) such subordinated Debt does not cross-default to other Debt (but may cross-accelerate to other Debt of Borrower or any Subsidiary that has guaranteed such subordinated Debt), (v) the subordination provisions in such subordinated Debt are either (A) reasonably satisfactory to the Administrative Agent or (B) confirmed by a nationally recognized investment bank (that is not the Administrative Agent) as market terms and conditions at such time for similar debt securities issued by Persons whose debt securities have credit ratings not greater than that of the Borrower, and (vi) such subordinated Debt does not provide for any scheduled payment or mandatory prepayment of principal earlier than July 1, 2009, other than (x) redemptions made at the option of the holders of such subordinated Debt upon a change in control of the Borrower in circumstances that would also constitute a Change of Control under this Agreement (provided that any such redemption cannot be made fewer than 30 days after such change in control and that any such redemption is fully and absolutely subordinated to the indefeasible payment in full of all principal, interest and other amounts under the Loan Documents) and (y) mandatory prepayments required as a result of asset dispositions if such subordinated Debt allows the Borrower to satisfy such mandatory prepayment requirement by prepayment of Loans under this Agreement or other senior obligations of the Borrower or reinvestment of the asset disposition proceeds within a specified period of time. "Subordinated Notes" means (i) the 5 5/8% convertible subordinated notes of Renal Treatment Centers, Inc. due 2006 in the aggregate principal amount of $125,000,000 issued pursuant to the Indenture dated June 12, 1996 between Rental Treatment Centers, Inc. and PNC Bank, National Association as trustee; (ii) the 7% convertible subordinated notes of the Borrower (f/k/a Total Renal Care Holdings, Inc.) due 2009 in the aggregate principal amount of 25 $345,000,000 issued pursuant to the Indenture dated November 18, 1998 between Total Renal Care Holdings, Inc. and United States Trust Company of New York as trustee; and (iii) the 2001 Subordinated Notes. "Subordinated Notes Documents" means the Subordinated Notes, any indentures or other agreements, instruments and other documents pursuant to which the Subordinated Notes or other Subordinated Debt have been or will be issued or otherwise setting forth the terms of the Subordinated Notes or such Subordinated Debt, including guarantees in respect of the Subordinated Debt referred to in clauses (i) and (iii) of the definition of "Subordinated Notes," in each case as such agreement, instrument or other document may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but only to the extent permitted under the terms of the Loan Documents. "Subsidiary Guarantee" has the meaning specified in Section 3.01(a)(iii). "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, unlimited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture, limited liability company or unlimited liability company or (c) the beneficial interest in such trust or estate, is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries, provided however, that the entities listed on Exhibit H attached hereto shall not be deemed Subsidiaries for so long as the assets of each such entity does not exceed $25,000. "Swing Line Advance" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(d) or (b) simultaneous Swing Line Advances made by the Revolving Credit Lenders pursuant to Section 2.02(b). "Swing Line Bank" has the meaning specified in the recital of parties to this Agreement. "Swing Line Borrowing" means a borrowing consisting of a Swing Line Advance made by the Swing Line Bank. "Swing Line Commitment" means, with respect to the Swing Line Bank at any time, the amount set forth opposite the Swing Line Bank's name on Schedule I hereto under the caption "Swing Line Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Swing Line Facility" means, at any time, an amount equal to the lesser of (a) the amount of the Swing Line Commitment at such time and (b) $25,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "2001 Subordinated Notes" means the 91/4% senior subordinated notes of the Borrower due April 15, 2011, in the aggregate principal amount of $225,000,000 issued pursuant to the Indenture dated April 11, 2001 between the Borrower, certain of its Subsidiaries and U.S. Trust Company of Texas, N.A 26 "Taxes" has the meaning specified in Section 2.13(a). "Term Advance" means a Term A Advance or a Term B Advance. "Term A Advance" has the meaning specified in Section 2.01(a). "Term A Borrowing" means a borrowing consisting of simultaneous Term A Advances of the same Type made by the Term A Lenders. "Term A Commitment" means, with respect to any of the Term A Lenders at any time, the amount set forth opposite such Term A Lender's name on Schedule I hereto under the caption "Term A Commitment" or, if such Term A Lender has entered into one or more Assignment and Assumptions, the amount set forth for such Term A Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Term A Lender's "Term Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Term A Facility" means, at any time, the aggregate Term A Commitments of all Term A Lenders at such time. "Term A Lender" means, at any time, any Lender that has a Term A Commitment or a Term A Advance, as the case may be, at such time. "Term A Note" means a promissory note of the Borrower payable to the order of any Term A Lender, in substantially the form of Exhibit A-1 hereto, evidencing the indebtedness of the Borrower to such Term A Lender resulting from the Term A Advance made by such Term A Lender. "Term B Advance" has the meaning specified in Section 2.01(b). "Term B Borrowing" means a borrowing consisting of simultaneous Term B Advances of the same Type made by the Term B Lenders. "Term B Commitment" means, with respect to any of the Term B Lenders at any time, the amount set forth opposite such Term B Lender's name on Schedule I hereto under the caption "Term B Commitment" or, if such Term B Lender has entered into one or more Assignment and Assumptions, the amount set forth for such Term B Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c) as such Term B Lender's "Term Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Term B Facility" means, at any time, the aggregate Term B Commitments of all Term B Lenders at such time. "Term B Lender" means, at any time, any Lender that has a Term B Commitment or a Term B Advance, as the case may be, at such time. "Term B Note" means a promissory note of the Borrower payable to the order of any Term B Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such Term B Lender resulting from the Term B Advances made by such Term B Lender. 27 "Term Commitment" means a Term A Commitment or a Term B Commitment, as the context requires. "Term Facility" means a Term A Facility or a Term B Facility, as the context requires. "Term Lender" means a Term A Lender or a Term B Lender, as the context requires. "Termination Date" means the earlier of (a) April 26, 2007 and (b) the date of termination in whole of the Swing Line Commitments and the Revolving Credit Commitments pursuant to Section 2.05 or 6.01. "Transaction" means, collectively, (a) the entering into by the Loan Parties of the Loan Documents, to which they are or are intended to be a party, (b) the purchase by the Borrower of the 2001 Subordinated Notes, (c) the purchase by the Borrower of its common stock as contemplated in Section 5.02(g)(v) and (d) the payment of the fees and expenses incurred in connection with the consummation of the foregoing. "TRC" means Total Renal Care, Inc., a California corporation. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused Revolving Credit Commitment" means, with respect to any Revolving Credit Lender at any time, (a) such Revolving Credit Lender's Revolving Credit Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances made by such Revolving Credit Lender (in its capacity as a Lender) and outstanding at such time and (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit outstanding at such time, (B) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.03(b) and outstanding at such time and (C) the aggregate principal amount of all Swing Line Advances made by the Swing Line Bank pursuant to Section 2.01(d) and outstanding at such time. "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Welfare Plan" means a welfare plan (as defined in Section 3(1) of ERISA) that is maintained for employees of any Loan Party or in respect of which any Loan Party could reasonably be expected to have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods; Other Definitional Provisions. In this Agreement and the other Loan Documents, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including", the word "through" means "through and including" and the words "to" and "until" each means "to but excluding." References in this Agreement or any of the other Loan Documents to any agreement , instrument or other document "as amended" shall 28 mean and be a reference to such agreement , instrument or other document as amended, amended and restated, supplemented or otherwise modified hereafter from time to time in accordance with its terms, but solely to the extent permitted hereunder. In this Agreement, the words "herein," "hereof" and words of similar import refer to the entirety of this Agreement and not to any particular Section, subsection, or Article of this Agreement. SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the Consolidated financial statements of the Borrower and its Subsidiaries as at December 31, 2001 and for the Fiscal Year then ended referred to in Section 4.01(g) ("GAAP"). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Advances and the Letters of Credit. -------------------------------------- (a) The Term A Advances. Each Term A Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Term A Advance") in U.S. dollars to the Borrower at any time on or prior to the tenth Business Day after the Closing Date in an amount not in excess of the Term A Commitment of such Term A Lender at such time. The Term A Borrowing shall consist of Term A Advances made simultaneously by the Term A Lenders in accordance with their respective Pro Rata Shares of the Term A Facility. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. (b) The Term B Advances. Each Term B Lender severally agrees, on the terms and conditions hereinafter set forth, to make two advances (each a "Term B Advance") in U.S. dollars to the Borrower, the first on the Closing Date and the second on the same date as the Term A Advances, in an aggregate amount not in excess of the Term B Commitment of such Term B Lender at such time. Each Term B Borrowing shall consist of Term B Advances made simultaneously by the Term B Lenders in accordance with their respective Pro Rata Shares of the Term B Facility. Amounts borrowed under this Section 2.01(b) and repaid or prepaid may not be reborrowed. (c) The Revolving Credit Advances. Each Revolving Credit Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a "Revolving Credit Advance") in U.S. dollars to the Borrower from time to time until the Termination Date, in each case in an amount not to exceed the Unused Revolving Credit Commitment of such Revolving Credit Lender at such time. Each Revolving Credit Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof (other than a Borrowing the proceeds of which shall be used solely to repay or prepay in full outstanding Swing Line Advances or the outstanding Letter of Credit Advances) or, if less, the amount of the aggregate Unused Revolving Credit Commitments at such time. Each Revolving Credit Borrowing shall consist of Revolving Credit Advances made simultaneously by the Revolving Credit Lenders in accordance with their respective Pro Rata Shares of the Revolving Credit Facility. Within the limits of each Revolving Credit Lender's Unused Revolving Credit Commitment in effect from time to time, the Borrower may borrow under this Section 2.01(c), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(c). 29 (d) The Swing Line Advances. The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall on the terms and conditions hereinafter set forth, make Swing Line Advances to the Borrower from time to time on any Business Day during the period from the Closing Date until the Termination Date (i) in an aggregate amount not to exceed $25,000,000 at any time outstanding (the "Swing Line Facility") and (ii) in an amount for each such Swing Line Borrowing not to exceed the aggregate Unused Revolving Credit Commitments of the Revolving Credit Lenders at such time. 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 of $500,000 or an integral multiple of $250,000 in excess thereof and shall bear interest at a rate to be agreed on by the Borrower and the Swing Line Bank. Within the limits of the first sentence of this Section 2.01(d), the Borrower may borrow under this Section 2.01(d), repay pursuant to Section 2.04(c), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(d). (e) Letters of Credit. (i) The Borrower, the Existing Issuing Bank and each of the Revolving Credit Lenders hereby agree that each of the Existing Letters of Credit shall, on and after the Closing Date, be deemed for all purposes of this Agreement to be a Letter of Credit issued and outstanding under the terms of this Agreement. Each Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (the "Letters of Credit") in U.S. dollars for the account of the Borrower from time to time on any Business Day during the period from the date hereof until five Business Days before the Termination Date (A) in an Available Amount for each such Letter of Credit not to exceed at any time the Unused Revolving Credit Commitment of such Issuing Bank at such time and (B) in an aggregate Available Amount for all Letters of Credit not to exceed the lesser of (1) the Letter of Credit Facility at such time and (2) the aggregate Unused Revolving Credit Commitments at such time. No Letter of Credit shall have an expiration date (including all rights of the Borrower or the beneficiary of such Letter of Credit to require renewal) later than the earlier of (x) five Business Days prior to the Termination Date and (y) one year after the date of issuance thereof, but any such Letter of Credit may by its terms be renewable annually on the terms set forth in clause (ii) of this Section 2.01(e). Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, the Borrower may request the issuance of Letters of Credit under this Section 2.01(e)(i), repay any Letter of Credit Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request the issuance of additional Letters of Credit under this Section 2.01(e)(i). (ii) Each Letter of Credit may by its terms be renewable annually upon notice (a "Notice of Renewal") given to the Issuing Bank and the Administrative Agent on or prior to any date for notice of renewal set forth in such Letter of Credit but in any event at least three Business Days prior to the date of the proposed renewal of such Letter of Credit and upon fulfillment of the applicable conditions set forth in Article III unless such Issuing Bank has notified the Borrower (with a copy to the Administrative Agent) on or prior to the date for notice of termination set forth in such Letter of Credit but in any event at least 30 Business Days prior to the date of automatic renewal of its election not to renew such Letter of Credit (a "Notice of Termination"); provided that the terms of each Letter of Credit that is automatically renewable annually (A) shall require the Issuing Bank to give the beneficiary of such Letter of Credit notice of any Notice of Termination, (B) shall permit such beneficiary, upon receipt of such notice, to draw under such Letter of Credit prior to the date such Letter of Credit otherwise would have been 30 automatically renewed and (C) shall not permit the expiration date (after giving effect to any renewal) of such Letter of Credit in any event to be extended to a date later than five Business Days prior to the Termination Date. If either a Notice of Renewal is not given by the Borrower or a Notice of Termination is given by the Issuing Bank pursuant to the immediately preceding sentence, such Letter of Credit shall expire on the date on which it otherwise would have been automatically renewed; provided, however, that in the absence of receipt of a Notice of Renewal the Issuing Bank may in its discretion, unless instructed to the contrary by the Administrative Agent or the Borrower deem that a Notice of Renewal had been timely delivered and, in such case, a Notice of Renewal shall be deemed to have been so delivered for all purposes under this Agreement. SECTION 2.02. Making the Advances. ------------------- (a) Except as otherwise provided in Section 2.02(b) or 2.03, each Borrowing (other than a Swing Line Borrowing) shall be made on notice, given not later than 2:00 P.M. (New York, New York time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing comprised of Eurodollar Rate Advances, or on the first Business Day prior to the date of the proposed Borrowing in the case of a Borrowing comprised of Base Rate Advances, by the Borrower to the Administrative Agent, which shall give prompt notice thereof to each Appropriate Lender. Each notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or by telecopier, in substantially the form of Exhibit B-1 hereto, shall be duly executed by a Responsible Officer of the Borrower, and shall specify therein: (i) the requested date of such Borrowing (which shall be a Business Day); (ii) the Facility under which such Borrowing is requested to be made; (iii) the Type of Advances requested to comprise such Borrowing; (iv) the requested aggregate amount of such Borrowing; and (v) in the case of a Borrowing comprised of Eurodollar Rate Advances, the requested duration of the initial Interest Period for each such Advance. Each Appropriate Lender shall, before 2:00 P.M. (New York, New York time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's Pro Rata Share of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account; provided, however, that, in the case of any Revolving Credit Borrowing, the Administrative Agent shall first make a portion of such funds equal to the aggregate principal amount of any Swing Line Advances and Letter of Credit Advances made by the Swing Line Bank or the Issuing Bank, as the case may be, and by any Revolving Credit Lender and outstanding on the date of such Revolving Credit Borrowing, plus accrued and unpaid interest thereon to and as of such date, available to the Swing Line Bank or the Issuing Bank, as applicable, and such other Revolving Credit Lenders for repayment of such Swing Line Advances and Letter of Credit Advances. (b) (i) Each Swing Line Borrowing shall be made on notice, given not later than 2:00 P.M. (New York, New York time) on the date of the proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent. Each notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier, shall be in substantially the form of Exhibit B-2 hereto and duly executed by a Responsible Officer of the Borrower, and shall specify therein: (A) the requested date of such Borrowing (which shall be a Business Day); (B) the requested amount of such Borrowing; and (C) the requested maturity of such Borrowing (which maturity shall be no later than the seventh day after the requested date of such Borrowing). Upon fulfillment of the applicable conditions set 31 forth in Article III, the Swing Line Bank will make the amount thereof available for the account of its Applicable Lending Office to the Borrower by crediting the Borrower's Account. (ii) Upon demand by the Swing Line Bank, with a copy of such demand to the Administrative Agent (which shall give prompt notice thereof to each Revolving Credit Lender), each Revolving Credit Lender shall purchase from the Swing Line Bank, and the Swing Line Bank shall sell and assign to each such Revolving Credit Lender, such Revolving Credit Lender's Pro Rata Share of such outstanding Swing Line Borrowing as of the date of such demand, by making available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account for the account of the Swing Line Bank, in same day funds, an amount equal to such Pro Rata Share. Promptly after receipt of such funds, the Administrative Agent shall transfer such funds to the Swing Line Bank at its Applicable Lending Office. Each Revolving Credit Lender hereby agrees to purchase its Pro Rata Share of an outstanding Swing Line Borrowing on (A) the Business Day on which demand therefor is made by the Swing Line Bank so long as notice of such demand is given not later than 12:00 Noon (New York, New York time) on such Business Day or (B) the first Business Day next succeeding such demand if notice of such demand is given after such time. The Borrower hereby agrees to each such sale and assignment. Upon any such assignment by the Swing Line Bank to any Revolving Credit Lender of a portion of a Swing Line Borrowing, the Swing Line Bank represents and warrants to such Revolving Credit Lender that the Swing Line Bank is the legal and beneficial owner of such interest being assigned by it, but makes no other representation or warranty and assumes no responsibility with respect to such Swing Line Borrowing, the Loan Documents or any Loan Party. If and to the extent that any Revolving Credit Lender shall not have so made its Pro Rata Share of any applicable Swing Line Borrowing available to the Administrative Agent in accordance with the foregoing provisions of this Section 2.02(b)(ii), such Revolving Credit Lender hereby agrees to pay to the Administrative Agent forthwith on demand the amount of its Pro Rata Share, together with interest thereon, for each day from the date of demand by the Swing Line Bank therefor until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate. If such Lender shall pay to the Administrative Agent the amount of its Pro Rata Share 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 Lender on such Business Day for all 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. (iii) The obligation of each Revolving Credit Lender to purchase its Pro Rata Share of each outstanding Swing Line Borrowing upon demand by the Swing Line Bank therefor pursuant to clause (ii) of this Section 2.02(b) shall be absolute, unconditional and irrevocable, and shall be made strictly in accordance with the terms of clause (ii) of this Section 2.02(b) under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (B) the existence of any claim, set-off, defense or other right that such Revolving Credit Lender may have at any time against the Swing Line 32 Bank, the Borrower or any other Person, whether in connection with the transactions contemplated by the Loan Documents or any unrelated transaction; (C) the occurrence and continuance of any Default or Event of Default; or (D) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. (c) Anything in subsection (a) of this Section 2.02 to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or 2.10. In addition, the Term Advances may not be outstanding as part of more than 10 separate Borrowings and the Revolving Credit Advances may not be outstanding as part of more than 10 separate Borrowings. (d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Appropriate Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Eurodollar Rate Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. A certificate of the Lender requesting compensation pursuant to this subsection (d) submitted to the Borrower by such Lender and specifying therein the amount of such additional compensation (including the basis of calculation thereof) shall be conclusive and binding for all purposes, absent manifest error. (e) Unless the Administrative Agent shall have received notice from an Appropriate Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's Pro Rata Share of such Borrowing, the Administrative Agent may assume that such Lender has made the amount of such Pro Rata Share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) or (b) of this Section 2.02, as applicable, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made the amount of such Pro Rata Share available to the Administrative Agent, such Lender and the Borrower severally agree to repay or to pay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at such time under Section 2.07 to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Advance as part of such Borrowing for all purposes under this Agreement. (f) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any 33 other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. ----------------------------------------------------------- (a) Request for Issuance. Each Letter of Credit shall be issued upon notice, given not later than 2:00 P.M. (New York, New York time) on the fifth Business Day prior to the date of the proposed issuance of such Letter of Credit (or such later day as the Issuing Bank in its sole discretion shall agree), by the Borrower to the Issuing Bank, which shall give to the Administrative Agent and each Revolving Credit Lender prompt notice thereof. Each notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed immediately in writing, or by telecopier, shall be duly executed by a Responsible Officer of the Borrower, and shall specify therein: (i) the requested date of such issuance (which shall be a Business Day); (ii) the requested Available Amount of such Letter of Credit; (iii) the requested expiration date of such Letter of Credit (which shall comply with the requirements of Section 2.01(e)); (iv) the name and address of the proposed beneficiary of such Letter of Credit; and (v) the proposed form of such Letter of Credit, and shall be accompanied by such application and agreement for letters of credit as the Issuing Bank may specify to the Borrower for use in connection with such requested Letter of Credit (such applications and agreements, and all similar agreements entered into in connection with an Existing Letter of Credit, a "Letter of Credit Agreement"). If the requested form of such Letter of Credit is acceptable to the Issuing Bank in its sole discretion, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the Borrower at its office referred to in Section 8.02 or as otherwise agreed with the Borrower in connection with the issuance of such Letter of Credit. If and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern. (b) Drawing and Reimbursement. (i) The obligation of the Borrower to reimburse the Issuing Bank for each payment made by the Issuing Bank under any Letter of Credit, and to pay interest thereon as provided herein, shall be absolute, unconditional and irrevocable, without regard to any circumstances, including, without limitation, those referred to in Section 2.04(d) below. The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by the Issuing Bank of a Letter of Credit Advance, which shall be a Base Rate Advance, in the amount of such draft; provided that such payment shall not be deemed a Base Rate Advance if the Borrower reimburses the Issuing Bank therefor prior to 2:00 P.M. (New York, New York time) on the date of such payment, or if such payment by the Issuing Bank is made on or after 2:00 P.M. (New York, New York time), then prior to 2:00 P.M. (New York, New York time), on the Business Day immediately succeeding the date of such payment, together with interest thereon from the date of such payment to the date of such reimbursement at a rate per annum equal to the sum of the Base Rate then in effect from time to time and the Applicable Margin for Base Rate Advances that are Revolving Credit Advances then in effect from time to time. Upon demand by the Issuing Bank, with a copy of such demand to the Administrative Agent (which shall give prompt notice thereof to each Revolving Credit Lender), each Revolving Credit Lender shall purchase from the Issuing Bank, and the Issuing Bank shall sell and assign to each such Revolving Credit Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the date of such purchase, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Issuing 34 Bank, at the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Letter of Credit Advance to be purchased by such Lender. Promptly after receipt thereof, the Administrative Agent shall transfer such funds to the Issuing Bank. The Borrower hereby agrees to each such sale and assignment. Each Revolving Credit Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit Advance on (A) the Business Day on which demand therefor is made by the Issuing Bank so long as notice of such demand is given not later than 2:00 P.M. (New York, New York time) on such Business Day or (B) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Issuing Bank to any other Revolving Credit Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents and warrants to such other Lender that the Issuing Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any liens, but makes no other representation or warranty and assumes no responsibility with respect to such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to the extent that any Revolving Credit Lender shall not have so made the amount of such Letter of Credit Advance available to the Administrative Agent, such Revolving Credit Lender agrees to pay to the Administrative Agent forthwith on demand such amount, together with interest thereon, for each day from the date of demand by the Issuing Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate, for its account or the account of the Issuing Bank, as applicable. If such Revolving Credit Lender shall pay to the Administrative Agent such amount for the account of the Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Letter of Credit Advance made by such Revolving Credit Lender on such Business Day for all purposes of this Agreement, and the outstanding principal amount of the Letter of Credit Advance made by the Issuing Bank shall be reduced by such amount on such Business Day. (ii) The Obligation of each Revolving Credit Lender to purchase its Pro Rata Share of each outstanding Letter of Credit Advance upon demand by the Issuing Bank therefor pursuant to clause (i) of this Section 2.03(b) shall be absolute, unconditional and irrevocable, and shall be made strictly in accordance with the terms of clause (i) of this Section 2.03(b) under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (collectively, the "L/C Related Documents"); (B) the existence of any claim, set-off, defense or other right that such Revolving Credit Lender may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, the Borrower or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (C) the occurrence and continuance of any Default or Event of Default; or (D) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 35 (c) Failure to Make Letter of Credit Advances. The failure of any Revolving Credit Lender to make the Letter of Credit Advance to be made by it on the date specified in Section 2.03(b) shall not relieve any other Revolving Credit Lender of its obligation hereunder to make its Letter of Credit Advance on such date, but no Revolving Credit Lender shall be responsible for the failure of any other Revolving Credit Lender to make the Letter of Credit Advance to be made by such other Revolving Credit Lender on such date. SECTION 2.04. Repayment of Advances. --------------------- (a) Term Advances. (i) The Borrower shall repay to the Administrative Agent for the ratable account of the Appropriate Lenders the aggregate principal amount of all Term Advances outstanding on the following dates in the respective amounts set forth opposite such dates (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.06): ================================== ============================================= DATE AMOUNT - ---------------------------------- ---------------------- ---------------------- Term A Facility Term B Facility - ---------------------------------- ---------------------- ---------------------- June 30, 2002 $5,625,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- September 30, 2002 $5,625,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- December 31, 2002 $5,625,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- March 31, 2003 $5,625,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- June 30, 2003 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- September 30, 2003 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- December 31, 2003 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- March 31, 2004 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- June 30, 2004 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- September 30, 2004 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- December 31, 2004 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- March 31, 2005 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- June 30, 2005 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- September 30, 2005 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- December 31, 2005 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- March 31, 2006 $7,500,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- June 30, 2006 $9,375,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- September 30, 2006 $9,375,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- December 31, 2006 $9,375,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- March 31, 2007 $9,375,000 $2,125,000 - ---------------------------------- ---------------------- ---------------------- June 30, 2007 $100,937,500 - ---------------------------------- ---------------------- ---------------------- September 30, 2007 $100,937,500 - ---------------------------------- ---------------------- ---------------------- December 31, 2007 $100,937,500 - ---------------------------------- ---------------------- ---------------------- March 31, 2008 $100,937,500 - ---------------------------------- ---------------------- ---------------------- June 30, 2008 $100,937,500 - ---------------------------------- ---------------------- ---------------------- September 30, 2008 $100,937,500 - ---------------------------------- ---------------------- ---------------------- December 31, 2008 $100,937,500 - ---------------------------------- ---------------------- ---------------------- March 31, 2009 $100,937,500 ================================== ====================== ====================== 36 provided, however, that the final principal installment of the respective Term Advances shall be in an amount equal to the aggregate principal amount of all such Term Advances then outstanding. (b) Revolving Credit Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Revolving Credit Lenders on the Termination Date the aggregate principal amount of all Revolving Credit Advances outstanding on such date. (c) Swing Line Advances. The Borrower shall repay to the Administrative Agent for the account of the Swing Line Bank and each Revolving Credit Lender that has made a Swing Line Advance on the earlier of (i) the maturity date for each Swing Line Advance (as specified in the applicable Notice of Swing Line Borrowing (which maturity shall be no later than the seventh day after the date on which such Swing Line Borrowing was initially made by the Swing Line Bank) and (ii) the Termination Date, the principal amount of each such Swing Line Advance made by the Swing Line Bank and each such Revolving Credit Lender and outstanding on such date. (d) Letter of Credit Advances. (i) The Borrower shall repay to the Administrative Agent for the account of the Issuing Bank and each Revolving Credit Lender that has made a Letter of Credit Advance on the earlier of (A) the date of demand therefor and (B) the Termination Date, the principal amount of each such Letter of Credit Advance made by the Issuing Bank and each such Revolving Credit Lender and outstanding on such date. (ii) The Obligations of the Borrower under this Agreement, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement or such other agreement or instrument under all circumstances, including, without limitation, the following circumstances (it being understood that any such payment by the Borrower is without prejudice to, and does not constitute a waiver of, any rights the Borrower might have or might acquire as a result of the payment by the Issuing Bank of any draft drawn or the reimbursement by the Borrower thereof): (A) any lack of validity or enforceability of any L/C Related Document; (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; 37 (D) any statement or any other document presented under a 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; (E) payment by the Issuing Bank under a Letter of Credit against presentation of a draft, certificate or other document that does not strictly comply with the terms of such Letter of Credit; (F) any exchange, release or nonperfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from the Subsidiary Guarantee or any other guarantee, for all or any of the Obligations of the Borrower in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. SECTION 2.05. Termination or Reduction of the Commitments. ------------------------------------------- (a) Optional. The Borrower may, upon at least three Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the unused portions of the Letter of Credit Facility, the Unused Revolving Credit Commitments or the unused portions of the Term A Facility or the Term B Facility; provided, however, that each partial reduction of a Facility shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof or, if less, the aggregate amount of such Facility. (b) Mandatory. (i) The Revolving Credit Facility shall be automatically and permanently reduced on each date on which the prepayment of Revolving Credit Advances outstanding thereunder is required to be made pursuant to Section 2.06(b)(i) by an amount equal to the applicable Reduction Amount. (ii) The Swing Line Facility shall be automatically and permanently reduced on the date of each reduction in the Revolving Credit Facility by the amount, if any, by which the amount of the Swing Line Facility on such date exceeds the amount of the Revolving Credit Facility on such date (after giving effect to such reduction of the Revolving Credit Facility on such date). (iii) The Letter of Credit Facility shall be automatically and permanently reduced on the date of each reduction in the Revolving Credit Facility by an amount equal to the amount, if any, by which (A) the Letter of Credit Facility on such date exceeds (B) the Revolving Credit Facility on such date, after giving effect to such reduction of the Revolving Credit Facility. (iv) The Term A Facility shall be automatically and permanently reduced on the date of the Term A Advances to the amount equal to the aggregate amount of all Term A Advances made on such date. 38 (v) The Term B Facility shall be automatically and permanently reduced on the date of the second Term B Advances to the amount equal to the aggregate amount of all Term B Advances theretofore made, including the Term B Advances made on such date. (c) Application of Commitment Reductions. Upon each reduction of a Facility pursuant to this Section 2.05, the Commitment of each Appropriate Lender under such Facility shall be reduced by such Lender's Pro Rata Share of the amount by which such Facility is reduced. SECTION 2.06. Prepayments. ----------- (a) Optional. The Borrower may, (i) on any Business Day, prepay all or any portions of any Swing Line Advance and (ii) upon at least three Business Days' notice to the Administrative Agent for a Eurodollar Rate Advance or upon at least one Business Days' notice to the Administrative Agent for a Base Rate Advance, in each case, stating the Facility under which Advances are proposed to be prepaid and the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the aggregate principal amount of the Advances comprising part of the same Borrowing and outstanding on such date, in whole or ratably in part; provided, however, that each partial prepayment of (i) Revolving Credit Advances shall be in an aggregate principal amount of $1,000,000 or an integral multiple of $250,000 in excess thereof and (ii) Term Advances shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $500,000 in excess thereof or, if less, the aggregate outstanding principal amount of such Facility. Each prepayment of Term Advances made pursuant to this clause (a) shall be applied against the principal repayment installments of the respective Term Facility designated by the Borrower in the respective notice of prepayment. (b) Mandatory. (i) The Borrower shall, not later than three Business Days after the date of receipt of the Net Cash Proceeds by the Borrower or any of its Subsidiaries from: (A) the sale, lease, transfer or other disposition of any property or assets of the Borrower or any of its Subsidiaries (other than any property or assets expressly permitted to be sold, leased, transferred or otherwise disposed of pursuant to clause (i), (ii), (iii), (iv) or (v) of Section 5.02(e)); (B) the incurrence or issuance by the Borrower or any of its Subsidiaries of any Debt (other than Debt expressly permitted to be incurred or issued pursuant to clause (i), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi) or (xiii) of Section 5.02(b)); and (C) the issuance or sale by the Borrower or any Subsidiary thereof (which is or will be as a result thereof subject to the Securities Exchange Act of 1934, as amended) of any Equity Interests therein (other than (i) the issuance by the Borrower of (a) its common stock pursuant to equity incentive or benefit plans of the Borrower, (b) Equity Interests to effect any acquisition permitted under Section 5.02(f) hereof, provided that in the case in which the proceeds of such issuance are contemplated to be used to effect such acquisition, then all the proceeds thereof are used within 180 days of such issuance to effect such acquisition, and any such proceeds not so used by such 180th day shall be applied 39 as a prepayment as provided herein, or (c) Equity Interests in connection with a redemption of Subordinated Debt to the extent contemplated in Section 5.02(i) and, (ii) the issuance by any Subsidiary of the Borrower of any Equity Interests therein (a) to the Borrower or to another Subsidiary thereof, or (b) to any other Person or Persons in an aggregate amount in any one transaction or series of related transactions not in excess of $10,000,000), prepay an aggregate principal amount of the Advances comprising part of the same Borrowings equal to (x) 100% of the amount of the Net Cash Proceeds in respect of any sale, lease, transfer or other disposition of any property or assets of the Borrower or any of its Subsidiaries referred to in subclause (b)(i)(A) above to the extent such Net Cash Proceeds have not been reinvested within the applicable reinvestment period as provided in Section 5.02(e)(vi); (y) the first $200,000,000 of Net Cash Proceeds from the incurrence or issuance by the Borrower or any of its Subsidiaries of all Debt referred to in subclause (b)(i)(B) above plus 50% of any such Net Cash Proceeds in excess of $200,000,000; and (z) 50% of the amount of the Net Cash Proceeds of the issuance or sale by the Borrower of any Equity Interests referred to in subclause (b)(i)(C), and in the case of Net Cash Proceeds from the issuance or sale by any Subsidiary of the Borrower of Equity Interests referred to in subclause (b)(i)(C) above, 50% of an amount equal to the Borrower's Percentage of such Net Cash Proceeds; provided however, that prepayments of Net Cash Proceeds from the issuance or sale by the Borrower or any Subsidiary of the Borrower of Equity Interests referred to in subclause (b)(i)(C) above shall not be required if, after giving pro forma effect to such issuance or sale, the Borrower has a Leverage Ratio of less than 2.75:1.00. Each prepayment of advances required to be made pursuant to this subclause (i) shall first be applied on a pro rata basis between the Term Facilities, and with respect to each Term Facility, applied on a pro rata basis against the respective principal repayment installments thereof, and thereafter applied to the Revolving Credit Facility in the manner set forth in this Section 2.06(b). (ii) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Revolving Credit Advances comprising part of the same Borrowings, the Letter of Credit Advances and the Swing Line Advances and, if applicable, deposit an amount into the L/C Cash Collateral Account equal to the amount by which (A) the sum of (1) the aggregate principal amount of all Revolving Credit Advances, Letter of Credit Advances and Swing Line Advances outstanding on such Business Day and (2) the aggregate Available Amount of all Letters of Credit outstanding on such Business Day exceeds (B) the Revolving Credit Facility on such Business Day (after giving effect to any permanent reduction thereof pursuant to Section 2.05 on such Business Day). (iii) The Borrower shall, on each Business Day, pay to the Administrative Agent for deposit into the L/C Cash Collateral Account an amount sufficient to cause the aggregate amount on deposit in the L/C Cash Collateral Account on such Business Day to equal the amount by which (A) the aggregate Available Amount of all Letters of Credit outstanding on such Business Day exceeds (B) the Letter of Credit Facility on such Business Day (after giving effect to any permanent reduction thereof pursuant to Section 2.05 on such Business Day). (iv) Prepayments of the Revolving Credit Facility made pursuant to clause (i), (ii) or (iii) of this Section 2.06(b), first, shall be applied to prepay Letter of Credit Advances outstanding at such time until all such Letter of Credit Advances are paid in full, second, shall be applied to prepay Swing Line Advances outstanding at such time 40 until all such Swing Line Advances are paid in full, third, shall be applied to prepay Revolving Credit Advances comprising part of the same Borrowings and outstanding at such time until all such Revolving Credit Advances are paid in full and, fourth, shall be deposited into the L/C Cash Collateral Account to cash collateralize 100% of the Available Amount of all Letters of Credit outstanding at such time; and, in the case of prepayments of the Revolving Credit Facility required pursuant to clause (i) or (ii) of this Section 2.06(b), the amount remaining, if any, after the prepayment in full of all Advances outstanding at such time and the 100% cash collateralization of the aggregate Available Amount of all Letters of Credit outstanding at such time (the sum of such prepayment amounts, cash collateralization amounts and remaining amount being, collectively, the "Reduction Amount") may be retained by the Borrower for use in the ordinary course of its business, and the Letter of Credit Facility shall be automatically and permanently reduced as set forth in Section 2.05(b)(iii). Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied (without any further action by or notice to or from the Borrower or any other Loan Party) to reimburse the Issuing Bank or the Revolving Credit Lenders, as applicable. (c) Prepayments to Include Accrued Interest, Etc. All prepayments under this Section 2.06 shall be made together with (i) accrued and unpaid interest to the date of such prepayment on the principal amount so prepaid and (ii) in the case of any such prepayment of a Eurodollar Rate Advance on a date other than the last day of an Interest Period therefor, any amounts owing in respect of such Eurodollar Rate Advance pursuant to 8.04(c). (d) Term B Lender Opt-Out. Any Term B Lender may elect (upon such election, such Term B Lender being a "Declining Lender"), by notice to the Administrative Agent in writing (or by telecopy or telephone promptly confirmed in writing) by 12:00 p.m., New York, New York time, at least two Business Days prior to any prepayment of Term B Advances required to be made by the Borrower for the account of such Declining Lender pursuant to this Section 2.06(d), not to accept the portion of such prepayment to which such Declining Lender would be entitled and upon such election, such declined amount shall be applied instead to prepay a portion of the Term A Advances (to the extent Term A Advances remain outstanding after giving effect to such prepayment of the Term A Advances) in accordance with subsection 2.06(b)(i) above and this subsection 2.06(d). On the date of such prepayment (the "Prepayment Date"), (i) an amount equal to that portion of the prepayment required to be made to the Term B Lenders other than the Declining Lenders (such Term B Lenders being the "Accepting Lenders") shall be applied by the Administrative Agent on behalf of the Borrower to prepay Term B Advances owing to such Accepting Lenders on a pro rata basis as provided above, (ii) fifty percent of any amounts that would otherwise have been applied to prepay Advances under the Term B Facility owing to Declining Lenders shall instead be applied ratably to prepay the remaining Term A Advances owing to Term A Lenders as provided above, and (iii) the remaining fifty percent of such amounts shall be credited to the Borrower's Account; provided that on prepayment in full of all Term B Advances owing to Accepting Lenders and all Term A Advances owing to Term A Lenders, the remainder of such amounts shall be applied ratably to prepay Term B Advances owing to Declining Lenders. SECTION 2.07. Interest -------- (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender Party from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: 41 (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time and (B) the Applicable Margin for such Base Rate Advance in effect from time to time, payable in arrears quarterly on the last Business Day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Eurodollar Rate Advance to the sum of (A) the Eurodollar Rate for such Eurodollar Rate Advance for such Interest Period and (B) the Applicable Margin for such Advance in effect on the first day of such Interest Period, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every 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. (iii) Default Interest. Upon the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f) or an Event of Default, the Administrative Agent may, and upon the request of the Required Lenders shall, require that the Borrower pay interest on (i) the unpaid principal amount of each Advance owing to each Lender Party, payable in arrears on the dates referred to in clause (i) or (ii) of Section 2.07(a), as applicable, and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (i) or (ii) of Section 2.07(a), as applicable, and (ii) to the fullest extent permitted by applicable law, the amount of any interest, fee or other amount payable under this Agreement or any other Loan Document to any Agent or any Lender Party that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (i) or (ii) of Section 2.07(a), as applicable, and, in all other cases, on Base Rate Advances pursuant to clause (i) of Section 2.07(a). (b) Notice of Interest Rate. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a), a Notice of Conversion pursuant to Section 2.09(a) or a notice of selection of an Interest Period pursuant to the definition of "Interest Period" set forth in Section 1.01, the Administrative Agent shall give notice to the Borrower and each Appropriate Lender of the applicable interest rate determined by the Administrative Agent for purposes of clause (i) or (ii) of Section 2.07(a), as applicable. SECTION 2.08. Fees. ---- (a) Commitment Fee. (i) The Borrower shall pay to the Administrative Agent for the account of the Revolving Credit Lenders a commitment fee (the "Commitment Fee"), from the date hereof in the case of each Initial Lender and from the effective date specified in the Assignment and Assumption pursuant to which it became a Revolving Credit Lender in the case of each other Revolving Credit Lender until, in each case, the Termination Date, payable in arrears on the date of the Initial Extension of Credit, thereafter quarterly on the 42 last Business Day of each March, June, September and December, commencing June 30, 2002, and on the Termination Date, at the Applicable Percentage in effect from time to time on the sum of (i) the average daily Unused Revolving Credit Commitment of each Revolving Credit Lender plus (ii) such Revolving Credit Lender's Pro Rata Share of the average daily outstanding Swing Line Advances during such quarter; provided, however, that no Commitment Fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (ii) The Borrower shall pay to the Administrative Agent for the account of the Term A Lenders a commitment fee, from the date hereof in the case of each Initial Lender and from the effective date specified in the Assignment and Assumption pursuant to which it became a Term A Lender in the case of each other Term A Lender until the date of the Term A Advances, payable on such date at the rate of 0.50% per annum on the amount of the respective Term A Lender's respective Term A Commitment. (iii) The Borrower shall pay to the Administrative Agent for the account of the Term B Lenders a commitment fee, from the date hereof in the case of each Initial Lender and from the effective date specified in the Assignment and Assumption pursuant to which it became a Term B Lender in the case of each other Term B Lender until the date of the second Term B Advance, payable on such date at the rate of 0.50% per annum on the unused amount of the respective Term B Lender's respective Term B Commitment during such period. (b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender a commission, payable in arrears quarterly on the last Business Day of each March, June, September and December, commencing June 30, 2002, and on the earliest to occur of the full drawing, expiration, termination or cancellation of any such Letter of Credit and on the Termination Date, on such Revolving Credit Lender's Pro Rata Share of the average daily aggregate Available Amount of all Letters of Credit outstanding from time to time during such quarter at the rate per annum equal to the Applicable Margin in effect at such time for Eurodollar Rate Advances under the Revolving Credit Facility. Upon the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f) or an Event of Default, the amount of commission payable by the Borrower under this clause (b)(i) shall be increased by 2% per annum. (ii) The Borrower shall pay to each Issuing Bank, for its own account, an issuing bank fee, payable in arrears quarterly on the last Business Day of each March, June, September and December, commencing June 30, 2002, and on the earliest to occur of the full drawing, expiration, termination or cancellation of any such Letter of Credit issued by such Issuing Bank and on the Termination Date, on the average daily aggregate Available Amount of all Letters of Credit issued by such Issuing Bank and outstanding from time to time during such quarter at the rate per annum equal to 0.25%, together with such commissions, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as the Borrower and such Issuing Bank shall from time to time agree. 43 (c) Agents' Fees. The Borrower shall pay to the Administrative Agent for the account of the Agents such fees as may from time to time be agreed between the Borrower and the Administrative Agent. SECTION 2.09. Conversion of Advances. ---------------------- (a) Optional. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than (i) 2:00 P.M. (New York, New York time) on the third Business Day prior to the date of the proposed Conversion in the case of a Conversion of Base Rate Advances into Eurodollar Rate Advances or of Eurodollar Rate Advances of one Interest Period into Eurodollar Rate Advances of another Interest Period, or (ii) 2:00 P.M. (New York, New York time) on the Business Day immediately preceding the date of the proposed Conversion in the case of a Conversion of Eurodollar Rate Advances into Base Rate Advances; provided, however, that in each case: (A) any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be made only if no Default under Section 6.01(f) or Event of Default shall have occurred and be continuing and shall be in an amount not less than the minimum amount specified in Section 2.01(c); (B) no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(c); and (C) each Conversion of Advances comprising part of the same Borrowing under any Facility shall be made among the Appropriate Lenders in accordance with their respective Pro Rata Shares of such Borrowing. Each notice of a Conversion (a "Notice of Conversion") shall be delivered by telephone, confirmed immediately in writing, or by telecopier, in substantially the form of Exhibit B-3 hereto, shall be duly executed by a Responsible Officer of the Borrower, and shall, within the restrictions set forth in the immediately preceding sentence, specify therein: (1) the requested date of such Conversion (which shall be a Business Day); (2) the Advances requested to be Converted; and (3) if such Conversion is into Eurodollar Rate Advances, the requested duration of the Interest Period for such Eurodollar Rate Advances. The Administrative Agent shall give each of the Appropriate Lenders prompt notice of each Notice of Conversion received by it. Each Notice of Conversion shall be irrevocable and binding on the Borrower. (b) Mandatory. (i) On the last day of any Interest Period during which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $5,000,000, such Advances shall automatically Convert into Base Rate Advances. 44 (ii) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" set forth in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the continuance of any Default under Section 6.01(f) or any Event of Default, (A) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (B) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. --------------------- (a) If, after the date hereof, the adoption of any applicable Requirement of Law, or any change in any applicable Requirement of Law, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Rate Advances, any of its Notes, or its obligation to make any Eurodollar Rate Advances, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Rate Advances (other than, for purposes of this Section 2.10, any such increased costs resulting from (A) Taxes or Other Taxes (as to which Section 2.13 shall govern), and (B) changes in the basis of taxation of overall net income or overall gross income by the United States of America or the jurisdiction under the laws of which such Lender Party has its principal office or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitments of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into or maintaining any Eurodollar Rate Advances or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Rate Advances, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. Each Lender shall promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 2.10(a) and will 45 designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it (other than by reason of administrative convenience or preference). Any Lender claiming compensation under this Section 2.10(a) shall furnish to the Borrower and the Administrative Agent a statement setting forth the additional amount or amounts to be paid to it hereunder (including the method of calculation), which shall be conclusive and binding, absent manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. If any Lender requests compensation by the Borrower under this Section 2.10(a), the Borrower may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender to make or Convert Eurodollar Rate Advances, or to Convert Base Rate Advances into Eurodollar Rate Advances, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 2.10(e) shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable Requirement of Law regarding capital adequacy or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. Each Lender shall promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 2.10(b) and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 2.10(b) shall furnish to the Borrower and the Administrative Agent a statement setting forth the additional amount or amounts to be paid to it hereunder (including the method of calculation), which shall be conclusive and binding, absent manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. (c) If, on or prior to the first day of any Interest Period for any Eurodollar Rate Advance, the Required Lenders at any time notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately and fairly reflect the cost to the Appropriate Lenders of funding their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall promptly so notify the Borrower and the Appropriate Lenders, whereupon (i) each such 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 Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower (promptly following notice from the Appropriate Lenders) that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund 46 Eurodollar Rate Advances hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make Eurodollar Rate Advances and to Convert Base Rate Advances into Eurodollar Rate Advances shall be suspended until such time as such Lender may again make, maintain and fund Eurodollar Rate Advances (in which case the provisions of Section 2.10(e) shall be applicable). (e) If the obligation of any Lender to make a Eurodollar Rate Advance or to Convert Base Rate Advances into Eurodollar Rate Advances shall be suspended pursuant to any other provision of this Section 2.10, such Lender's suspended Eurodollar Rate Advances shall be automatically Converted into Base Rate Advances on the last day(s) of the then current Interest Period(s) therefor (or, in the case of a Conversion required by Section 2.10(d), on such earlier date as such Lender may specify to the Borrower with a copy to the Administrative Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in such other provision of this Section 2.10 that gave rise to such Conversion no longer exist: (i) to the extent that such Lender's suspended Eurodollar Rate Advances have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's suspended Eurodollar Rate Advances shall be applied instead to its Base Rate Advances; and (ii) all Eurodollar Rate Advances that would otherwise be made or Converted by such Lender shall be made instead as (or shall remain as) Base Rate Advances. If such Lender gives notice to the Borrower (with a copy to the Administrative Agent) that the circumstances otherwise specified in this Section 2.10 that gave rise to the suspension of the making of Eurodollar Rate Advances by such Lender no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Rate Advances by other Lenders with Commitments under the same Facility are outstanding, such Lender's Base Rate Advances shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) therefor, to the extent necessary into Eurodollar Rate Advances. SECTION 2.11. Evidence of Debt. ---------------- (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the debt of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) The Register maintained by the Administrative Agent pursuant to Section 8.07(e) shall include accounts for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Advance made hereunder, (ii) the terms of each Assignment and Assumption 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 Lender hereunder and (iv) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof. (c) The entries made as provided in this Section 2.11 shall be conclusive and binding for all purposes, absent manifest error. 47 SECTION 2.12. Payments and Computations. ------------------------- (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim, deduction or set-off (except as otherwise provided in Section 2.16), not later than 2:00 P.M. (New York, New York time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by the Borrower is in respect of principal, interest, commitment fees or any other Obligation then due and payable hereunder and under the Notes to more than one Lender Party, to such Lender Parties for the accounts of their respective Applicable Lending Offices in accordance with their respective Pro Rata Shares of the amounts of such respective Obligations due and payable to such Lender Parties at such time and (ii) if such payment by the Borrower is in respect of any Obligation then due and payable hereunder solely to one Lender Party, to such Lender Party 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 Assumption and recording of the information contained therein in the Register pursuant to Section 8.07(c), from and after the effective date of such Assignment and Assumption, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender Party assignee thereunder, and the parties to such Assignment and Assumption shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender Party, if and to the extent payment owed to such Lender Party is not made when due hereunder or, in the case of a Lender, under the Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender Party any amount so due. (c) All computations of interest based on the Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of the letter of credit commissions and commitment or letter of credit fees payable hereunder shall be made by the Administrative Agent on the basis of a year of 360 days, 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, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission 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, letter of credit commissions or commitment or letter of credit fees, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next succeeding calendar month, such payment shall be made on the immediately preceding Business Day. (e) Unless the Borrower or any Lender Party has notified the Administrative Agent prior to the date any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender Party, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender Party, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that 48 such payment was not in fact made to the Administrative Agent in immediately available funds, then: (i) if the Borrower failed to make such payment, each Lender Party shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender Party in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender Party to the date such amount is repaid to the Administrative Agent in immediately available funds, at the Federal Funds Rate from time to time in effect; and (ii) if any Lender Party failed to make such payment, such Lender Party shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the "Compensation Period") at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender Party pays such amount to the Administrative Agent, then such amount shall constitute such Lender Party's Advance included in the applicable Borrowing. If such Lender Party does not pay such amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender Party from its obligation to fulfill its applicable Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender Party as a result of any default by such Lender Party hereunder. A notice from the Administrative Agent to any Lender Party with respect to any amount owing under this subsection (e) shall be conclusive, absent manifest error. (f) Whenever any payment received by the Administrative Agent under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Agents and the Lender Parties under or in respect of this Agreement and the other Loan Documents on any date, such payment shall be distributed by the Administrative Agent and applied by the Agents and the Lender Parties in the following order of priority: (i) first, to the payment of all of the fees, indemnification payments, costs and expenses that are due and payable to the Agents (solely in their respective capacities as Agents) under or in respect of this Agreement and the other Loan Documents on such date, ratably based upon the respective aggregate amounts of all such fees, indemnification payments, costs and expenses owing to the Agents on such date; (ii) second, to the payment of all of the fees, indemnification payments, costs and expenses that are due and payable to the Issuing Bank and the Swing Line Bank (solely in their respective capacities as such) under or in respect of this Agreement and the other Loan Documents on such date, ratably based upon the respective aggregate amounts of all such fees, indemnification payments, costs and expenses owing to the Issuing Bank and the Swing Line Bank on such date; 49 (iii) third, to the payment of all of the indemnification payments, costs and expenses that are due and payable to the Lenders under Section 8.04 hereof, Section 12 of the Subsidiary Guarantee, Section 21 of the Security Agreement and any similar section of any of the other Loan Documents on such date, ratably based upon the respective aggregate amounts of all such indemnification payments, costs and expenses owing to the Lenders on such date; (iv) fourth, to the payment of all of the amounts that are due and payable to the Administrative Agent and the Lender Parties under Sections 2.10 and 2.13 hereof and Section 5 of the Subsidiary Guarantee on such date, ratably based upon the respective aggregate amounts thereof owing to the Administrative Agent and the Lender Parties on such date; (v) fifth, to the payment of all of the accrued and unpaid interest on the Obligations of the Borrower under or in respect of the Loan Documents that is due and payable to the Administrative Agent and the Lender Parties under Section 2.07(a) on such date and all of the fees that are due and payable to the Lenders or the Issuing Bank under Section 2.08(a) or 2.08(b) on such date, ratably based upon the respective aggregate Commitments of the Lenders under the Facilities on such date; (vi) sixth, to the payment of the principal amount of all of the outstanding Advances that is due and payable to the Administrative Agent and the Lender Parties on such date, ratably based upon the respective aggregate amounts of all such principal owing to the Administrative Agent and the Lender Parties on such date; and (vii) seventh, to the payment of all other Obligations of the Loan Parties owing under or in respect of the Loan Documents that are due and payable to the Administrative Agent and the other Secured Parties on such date, ratably based upon the respective aggregate amounts of all such Obligations owing to the Administrative Agent and the other Secured Parties on such date. If the Administrative Agent receives funds for application to the Obligations of the Loan Parties under or in respect of the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each of the Lender Parties in accordance with such Lender Party's Pro Rata Share of the sum of (A) the aggregate principal amount of all Advances outstanding at such time and (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, in repayment or prepayment of such of the outstanding Advances or other Obligations then owing to such Lender Party, and, in the case of the Term Facility, for application to such principal repayment installments thereof, as the Administrative Agent shall direct. SECTION 2.13. Taxes. ----- (a) Any and all payments by the Borrower to or for the account of any Lender Party or any Agent hereunder or under any other Loan Document shall be made, in accordance with Section 2.12 or the applicable provisions of such other Loan Document, if any, 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 Lender Party and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by 50 the state or foreign jurisdiction under the laws of which such Lender Party or such Agent, as the case may be, is organized or is a resident, or has a fixed place of business or a permanent establishment, or any political subdivision of any of the foregoing, and, in the case of each Lender Party, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of either of its Applicable Lending Offices or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being, collectively, "Taxes"). If the Borrower shall be required under applicable Requirements of Law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender Party or any Agent, (i) the sum payable by the Borrower shall be increased as necessary so that after the Borrower and the Administrative Agent have been made all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender Party or such 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, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other Governmental Authority in accordance with applicable Requirements of Law and (iv) within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof, to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Administrative Agent. (b) In addition, the Borrower agrees to pay any present or future stamp, recording or documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under any other Loan Document or from the execution, delivery of, or registration of, any performance under, or otherwise with respect to, this Agreement or any other Loan Document (collectively, "Other Taxes"). (c) The Borrower shall indemnify each of the Lender Parties and each of the Agents for, and hold each of them harmless against, the full amount of Taxes and Other Taxes, and the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.13, imposed on or paid by such Lender Party or such Agent, as the case may be, and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. The indemnity by the Borrower provided for in this subsection (c) shall apply and be made whether or not the Taxes or Other Taxes for which indemnification hereunder is sought have been correctly or legally asserted; provided, however, that such Lender or such Agent seeking such indemnification shall take all reasonable actions (consistent with its internal policy and legal and regulatory restrictions) requested by the Borrower to assist the Borrower in recovering the amounts paid thereby pursuant to this subsection (c) from the relevant taxation authority or other Governmental Authority. Amounts payable by the Borrower under the indemnity set forth in this subsection (c) shall be paid within 30 days from the date on which the applicable Lender or Agent, as the case may be, makes written demand therefor (including the method of calculation). (d) In the case of any payment hereunder or under any other Loan Document by or on behalf of the Borrower through an account or branch outside the United States, or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at its address referred to in Section 8.02, an opinion of counsel reasonably acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e) of this Section 2.13, the terms 51 "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender Party organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, the Swing Line Bank or the Initial Issuing Bank, as the case may be, and on or prior to the date of the Assignment and Assumption pursuant to which it becomes a Lender Party in the case of each other Lender Party, and from time to time thereafter as reasonably requested in writing by the Borrower (but only so long thereafter as such Lender Party remains lawfully able to do so), provide each of the Administrative Agent and the Borrower with two original Internal Revenue Service forms W-8BEN, W-8ECI or W-8IMY, or in the case of a Lender Party that has certified in writing to the Administrative Agent that it is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest" from W-8BEN), (and, if such Lender Party delivers a form W-8BEN, a certificate representing that such Lender Party is not (i) a "bank" for purposes of Section 881(c) of the Internal Revenue Code, (ii) a ten-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrower or (iii) a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or any other Loan Document or, in the case of a Lender Party providing a form W-8BEN, certifying that such Lender Party is a foreign corporation, partnership, estate or trust. If any such forms provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes solely for the periods governed by such forms. However, if at the date of the Assignment and Assumption pursuant to which a Lender Party becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) of this Section 2.13 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender Party assignee on such date. None of the Lender Parties shall be entitled to payment pursuant to subsection (a) or (c) of this Section 2.13 with respect to any additional Taxes that result solely and directly from a change in either of the Applicable Lending Offices of such Lender Party (other than any such additional Taxes that are imposed as a result of a change in the applicable Requirements of Law, or in the interpretation of application thereof, occurring after the date of such change), unless such change is made pursuant to the terms of Section 2.10(e) or subsection (g) of this Section 2.13 or as a result of a request therefor by the Borrower. (f) For any period with respect to which a Lender Party has failed to provide the Borrower with the appropriate form, certificate or other document described in subsection (e) of this Section 2.13 (other than if such failure is due to a change in the applicable Requirements of Law, or in the interpretation or application thereof, occurring after the date on which a form, certificate or other document originally was required to be provided or if such form, certificate or other document otherwise is not required under subsection (e) of this Section 2.13), such Lender Party shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.13 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender Party become subject to Taxes because of its failure to deliver a form, certificate 52 or other document required hereunder, the Borrower shall take such steps as such Lender Party shall reasonably request to assist such Lender Party in recovering such Taxes. (g) Each of the Lender Parties hereby agrees that, upon the occurrence of any circumstances entitling such Lender Party to additional amounts pursuant to this Section 2.13, such Lender Party shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party (other than by reason of administrative convenience or preference). SECTION 2.14. Sharing of Payments, Etc. If any Lender Party shall obtain at ------------------------ any time any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) (a) on account of Obligations due and payable to such Lender Party under or in respect of this Agreement or any of the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender Party at such time (other than pursuant to Section 2.10, 2.13, 8.04 or 8.07) to (ii) the aggregate amount of the Obligations due and payable to all Lender Parties at such time) of payments on account of the Obligations due and payable to all Lender Parties under or in respect of this Agreement and the other Loan Documents at such time obtained by all the Lender Parties at such time or (b) on account of Obligations owing (but not due and payable) to such Lender Party under or in respect of this Agreement or any of the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing to such Lender Party at such time (other than pursuant to Section 2.10, 2.13, 8.04 or 8.07) to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lender Parties under or in respect of this Agreement and the other Loan Documents at such time) of payments on account of the Obligations owing (but not due and payable) to all Lender Parties under or in respect of this Agreement and the other Loan Documents at such time obtained by all of the Lender Parties at such time, such Lender Party shall forthwith purchase from the other Lender Parties such interests or participating interests in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each other Lender Party shall be rescinded and such other Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such Lender Party's ratable share (according to the proportion of (A) the purchase price paid to such Lender Party to (B) the aggregate purchase price paid to all Lender Parties) of such recovery, together with an amount equal to such Lender Party's ratable share (according to the proportion of (1) the amount of such other Lender Party's required repayment to (2) the total amount so recovered from the purchasing Lender Party) of any interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered; provided further that, so long as the Obligations under the Loan Documents shall not have been accelerated, any excess payment received by any Appropriate Lender shall be shared on a pro rata basis only with other Appropriate Lenders. The Borrower hereby agrees that any Lender Party so purchasing an interest or participating interest from another Lender Party pursuant to this Section 2.14 may, to the fullest extent permitted under applicable law, exercise all its rights of payment (including the right of setoff) with respect to such an interest or participating interest, as the case may be, as fully as if such Lender Party were the direct creditor of the Borrower in the amount of such an interest or participating interest. SECTION 2.15. Use of Proceeds. The proceeds of the Advances and issuances --------------- of Letters of Credit shall be available (and the Borrower agrees that it shall use such proceeds and Letters of Credit) solely to purchase the 2001 Subordinated Notes, to purchase its common stock as contemplated in Section 53 5.02(g)(v), to repay all principal, accrued interest and fees to the lenders and agents under the Existing Credit Agreement, for acquisitions as permitted herein and for general corporate purposes of the Borrower and its Subsidiaries, and to pay fees and expenses incurred in connection with the consummation of the Transaction. SECTION 2.16. Defaulting Lenders. ------------------ (a) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower may, so long as no Default shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of the Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff under the Facility pursuant to which such Defaulted Advance was originally required to have been made pursuant to Section 2.01. Such Advance shall be a Base Rate Advance and shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). The Borrower shall notify the Administrative Agent at any time the Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Lender which is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.16. (b) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to the Administrative Agent or any of the other Lender Parties and (iii) the Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Lender Parties and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Lender Parties, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Lender Parties and, if the amount of such payment made by the Borrower shall at such time be insufficient to pay all 54 Defaulted Amounts owing at such time to the Administrative Agent and the other Lender Parties, in the following order of priority: (A) first, to the Administrative Agent for any Defaulted Amount then owing to the Administrative Agent; (B) second, to the Issuing Bank and the Swing Line Bank for any Defaulted Amount then owing to them, in their capacities as such, ratably in accordance with such respective Defaulted Amounts then owing to such Issuing Bank and such Swing Line Bank; and (C) third, to any other Lender Parties for any Defaulted Amounts then owing to such other Lender Parties, ratably in accordance with such respective Defaulted Amounts then owing to such other Lender Parties. Any portion of such amount paid by the Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.16. (c) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any other Lender Party shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower or such other Lender Party shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with CSFB, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be CSFB's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender Party, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (A) first, to the Administrative Agent for any amount then due and payable by such Defaulting Lender to the Administrative Agent hereunder; (B) second, to the Issuing Bank and the Swing Line Bank for any amounts then due and payable to them hereunder, in their capacities as such, by such Defaulting Lender, ratably in accordance with such amounts then due and payable to such Issuing Bank and such Swing Line Bank; 55 (C) third, to any other Lender Parties for any amount then due and payable by such Defaulting Lender to such other Lender Parties hereunder, ratably in accordance with such respective amounts then due and payable to such other Lender Parties; and (D) fourth, to the Borrower for any Advance then required to be made by such Defaulting Lender pursuant to a Commitment of such Defaulting Lender. In the event that any Lender Party that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender Party shall be distributed by the Administrative Agent to such Lender Party and applied by such Lender Party to the Obligations owing to such Lender Party at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.16 are in addition to other rights and remedies that the Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that the Administrative Agent or any Lender Party may have against such Defaulting Lender with respect to any Defaulted Amount. ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit. The --------------------------------------------------- obligation of each Lender to make an Advance or of the Issuing Bank to issue a Letter of Credit on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (a) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Administrative Agent (unless otherwise specified) and (except for the Notes) in sufficient copies for each Lender Party: (i) The Notes payable to the order of each respective Lender (if requested by any such Lender). (ii) A security agreement, in substantially the form of Exhibit D hereto (together with each other security agreement and security agreement supplement delivered pursuant to Section 5.01(j), in each case as amended, the "Security Agreement"), duly executed by each Loan Party, together with: (A) where applicable, certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt referred to therein indorsed in blank, (B) proper financing statements, in form for filing, under the Uniform Commercial Code of the jurisdiction of incorporation of each Loan 56 Party to the Security Agreement, covering the Collateral described in the Security Agreement, (C) all other documents for recording and filing, in proper form, for or with respect to the Security Agreement that the Administrative Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby, (D) evidence of the insurance required by the terms of the Security Agreement, (E) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement is ready to be taken concurrently with the Initial Extension of Credit (including, without limitation, receipt of UCC-3 termination statements with respect to the Existing Credit Agreement). (iii) A guarantee, in substantially the form of Exhibit E hereto (together with each other guarantee and guarantee supplement delivered pursuant to Section 5.01(j), in each case as amended, the "Subsidiary Guarantee"), duly executed by each Guarantor. (iv) An intellectual property security agreement, in substantially the form annexed to the Security Agreement (together with each other intellectual property security agreement and intellectual property security agreement supplement delivered pursuant to Section 5.01(j), in each case as amended, the "Intellectual Property Security Agreement"), duly executed by each Loan Party, together with evidence that all action that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Intellectual Property Security Agreement is ready to be taken concurrently with the Initial Extension of Credit. (v) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the Transaction and each Loan Document to which it is or is to be a party, and of all documents evidencing other necessary Governmental Authorizations and other necessary corporate actions or third party approvals and consents, if any, with respect to the Transaction and each Loan Document to which it is or is to be a party. (vi) A copy of a certificate of the Secretary of State of the jurisdiction of incorporation of each Loan Party, dated reasonably near the date of the Initial Extension of Credit, certifying (A) as to a true and correct copy of the charter (or comparable Constitutive Document) of such Loan Party and each amendment thereto on file in such Secretary's office (B) that such amendments are the only amendments to such Loan Party's (or comparable Constitutive Document) on file in such Secretary's office, and (C) such Loan Party is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation. (vii) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (A) the absence of any amendments to the charter (or comparable Constitutive Document) of 57 such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(a)(vi), (B) a true and correct copy of the bylaws (or comparable Constitutive Document) of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(v) were adopted and on the date of the Initial Extension of Credit, (C) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, and (D) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit except for representations and warranties that by their terms speak as of another specific date, which shall be true as of such specific date. (viii) 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 or is to be a party and the other documents to be delivered hereunder and thereunder. (ix) Such financial, business and other information regarding each Loan Party and its Subsidiaries as the Lender Parties shall have reasonably requested, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under Plans, Multiemployer Plans and Welfare Plans, collective bargaining agreements and other arrangements with employees, audited annual financial statements dated December 31, 2001, interim financial statements dated the end of the most recent fiscal quarter for which financial statements are available, pro forma financial statements as to the Borrower and forecasts prepared by management of the Company, of balance sheets, income statements and cash flow statements on a quarterly basis for the first year following the day of the Initial Extension of Credit and on an annual basis for five years thereafter. (x) Evidence of insurance naming the Administrative Agent as additional insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to the Lender Parties, including, without limitation, business interruption insurance. (xi) The Intercreditor Agreement duly executed by the Agent on behalf of the Lenders, the Collateral Agent, as defined therein, and any Lender or Affiliate thereof who is then a party to a Hedge Agreement. (xii) A Notice of Borrowing or Notice of Issuance, as applicable. (xiii) A favorable opinion of Steven J. Udicious, general counsel for the Loan Parties, in substantially the form of Exhibit F hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. (xiv) A favorable opinion of Riordan & McKinzie, special counsel to the Lender Parties, in substantially the form of Exhibit G hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. (b) The Administrative Agent shall have received satisfactory evidence that not less than 90% of the principal amount of the 2001 Subordinated Notes has been tendered to, and purchased by, the Borrower pursuant to an Offer to Purchase and Consent Solicitation dated 58 March 21, 2002 and that any covenants in the Indenture relating to such notes prohibiting the Borrower entering into this Agreement or the consummation of the transactions contemplated hereby have been eliminated, waived or otherwise discharged pursuant to a duly executed Supplemental Indenture or other instrument satisfactory to the Administrative Agent. (c) All Governmental Authorizations and all third party consents and approvals necessary in connection with the Transaction shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender Parties) and shall remain in effect; and no Requirements of Law shall be applicable in the judgment of the Lender Parties that restrains, prevents or imposes materially adverse conditions upon the Transaction. (d) The Borrower shall have paid all accrued fees of the Agents and the Lender Parties and all accrued expenses of the Agents. (e) (i) All amounts owing by the Borrower or any of its Subsidiaries to the lenders and agents under the Existing Credit Agreement shall have been, or concurrently with the Initial Extension of Credit made on the Closing Date shall be, paid in full, (ii) all commitments of the lenders under the Existing Credit Agreement (except for the Existing Letters of Credit) shall have been, or concurrently with the Initial Extension of Credit made on the Closing Date shall be, terminated in accordance with the terms of the Existing Credit Agreement, (iii) the lenders or any collateral agent under the Existing Credit Agreement shall have executed such instruments (including without limitation Uniform Commercial Code termination statements) and agreed to take such other actions as are reasonably necessary to terminate or release all security interests granted in connection with the Existing Credit Agreement and (iv) adequate arrangements shall have been made with the issuer of the Existing Letters of Credit concerning the continuation thereof. SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance and ------------------------------------------------------- Renewal. -------- The obligation of each Appropriate Lender to make an Advance (other than a Letter of Credit Advance made by the Issuing Bank or a Revolving Credit Lender pursuant to Section 2.03(b) and a Swing Line Advance made by a Revolving Credit Lender pursuant to Section 2.02(b)) on the occasion of each Borrowing (including the initial Borrowing, but excluding any conversion of Advances pursuant to Section 2.09 as provided therein), and the obligation of the Issuing Bank to issue a Letter of Credit (including the initial issuance) or renew a Letter of Credit and the right of the Borrower to request a Swing Line Borrowing, shall be subject to the further conditions precedent that on the date of such Borrowing or issuance or renewal (a) the following statements shall be true and the Administrative Agent shall have received for the account of such Lender or the Issuing Bank a certificate signed by a duly authorized officer of the Borrower, dated the date of such Borrowing or issuance or renewal, stating that (and each of the giving of the applicable Notice of Borrowing, Notice of Swing Line Borrowing, Notice of Issuance or Notice of Renewal and the acceptance by the Borrower of the proceeds of such Borrowing or of such Letter of Credit or the renewal of such Letter of Credit shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Borrowing or issuance or renewal such statements are true): (i) the representations and warranties contained in each Loan Document are correct on and as of such date, before and after giving effect to such Borrowing or issuance or renewal and to the application of the proceeds therefrom, as though made on and as of such date except (A) for any such representations or warranties that, by their terms, refer to a specific date other than the date of such Borrowing or issuance or renewal, in which case as of such specific date and (B) if any Required Financial Information has been delivered to the Administrative Agent and the Lender Parties on or 59 prior to the date of such Borrowing or issuance or renewal, that the Consolidated financial statements of the Borrower and its Subsidiaries referred to in Section 4.01(g)(i) shall be deemed at any time and from time to time after the Closing Date to refer to the Consolidated financial statements of the Borrower and its Subsidiaries comprising part of the Required Financial Information most recently delivered to the Administrative Agent and the Lender Parties pursuant to Sections 5.03(b) and 5.03(c) (except that in the case of financial statements delivered pursuant to Section 5.03(c), such financial statements may not contain all notes and may be subject to year end audit adjustments), respectively, on or prior to the date of such Borrowing, issuance or renewal; and (ii) no Default has occurred and is continuing, or would result from such Borrowing or issuance or renewal or from the application of the proceeds therefrom; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Appropriate Lender through the Administrative Agent may reasonably request. SECTION 3.03. Determinations Under Section 3.01. For purposes of determining --------------------------------- compliance with the conditions specified in Section 3.01, each Lender Party shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender Parties unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender Party prior to the Initial Extension of Credit specifying its objection thereto and, if the Initial Extension of Credit consists of a Borrowing, such Lender Party shall not have made available to the Administrative Agent such Lender Party's ratable portion of such Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Borrower ---------------------------------------------- represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is duly organized, validly existing and in good standing (if such concept is applicable) under the laws of the jurisdiction of its organization, (ii) is duly qualified and in good standing as a foreign business enterprise (if such concept is applicable) in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to be so qualified or licensed would not result in a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all material Governmental Authorizations) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. 60 (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of the Borrower, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its organization, the number of shares or other units of each class of its Equity Interests authorized, and the number outstanding, on the date hereof and the percentage of each such class of its Equity Interests owned (directly or indirectly) by the Borrower or any Subsidiary thereof and the number of shares or other units covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the date hereof, except for any obligations or rights of the Borrower or any of its Subsidiaries to acquire any minority interest in any Subsidiary of the Borrower that is a partnership or a limited liability company. All of the outstanding Equity Interests in each such Subsidiary have (A) (in the case of Subsidiaries that are corporations) been validly issued, are fully paid and non-assessable and are (B) to the extent owned by the Borrower or one or more of its Subsidiaries, free and clear of all Liens, except those created under the Collateral Documents or Permitted Liens. (c) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or is to be a party, and the consummation of the Transaction, are within such Loan Party's corporate, partnership or limited liability company powers, as applicable, have been duly authorized by all necessary corporate, partnership or limited liability company action, as applicable, and do not (i) contravene such Loan Party's Constitutive Documents, (ii) violate any Requirements of Law, (iii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any material contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party or any of its properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party. No Loan Party is in violation of any such Requirements of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which would be reasonably likely to have a Material Adverse Effect. (d) No Governmental Authorization, and no other authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Loan Document to which it is or is to be a party, or for the consummation of the Transaction, (ii) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created under the Collateral Documents on such of the Collateral located in the United States in which a Lien may be perfected by the filing of financing statements, the recordation of security agreements with the U.S. Patent and Trademark Office or the U.S. Copyright Office or the delivery of Collateral (including the first priority nature thereof) or (iv) the exercise by any Agent or any Lender Party of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for (A) the authorizations, approvals, filings and actions on Schedule 4.01(d) hereto, all of which have been duly obtained and are in full force and effect or will be obtained and in full force and effect prior to the Initial Extension of Credit, (B) filings, notices, recordings and other similar actions necessary for the creation or perfection of the Liens and security interests contemplated by the Loan Documents and (C) the actions required by laws generally with respect to the exercise by secured creditors of their rights and remedies. All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party thereto, enforceable against such Loan Party in accordance with its terms. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or, to the knowledge of the Borrower, threatened before any Governmental Authority or arbitrator that (i) 61 could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of any Loan Document or the consummation of the Transaction, except as described on Schedule 4.01(f) hereto or disclosed prior to the Closing Date in the Borrower's filings made with the Securities and Exchange Commission. (g) (i) The Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2001, and the related Consolidated statement of income and Consolidated statement of cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of KPMG LLP, independent public accountants, copies of which have been furnished to each Lender Party, fairly present the Consolidated financial condition of the Borrower and its Subsidiaries as at such date and the Consolidated results of operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles applied on a consistent basis, and (ii)since December 31, 2001, there has been no Material Adverse Change. (h) The Consolidated forecasted balance sheet, statement of income and statement of cash flows of the Borrower and its Subsidiaries delivered to the Lender Parties pursuant to Section 3.01(a)(ix) or Section 5.03 were prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed to be reasonable in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. (i) Neither the Information Memorandum nor any other information, exhibit or report furnished by any Loan Party to any Agent or any Lender Party in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (j) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, except for the purchase by the Borrower of its common stock as contemplated in Sections 5.02(g)(v) and (vi). (k) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither any Loan Party nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated by the Loan Documents and Related Documents, will violate any provision of any such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (l) Upon making of the filings and taking of the other actions necessary to create, perfect and protect the security interest in the Collateral created under the Collateral Documents, the Collateral Documents create in favor of the Administrative Agent for the benefit of the Secured Parties a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations, subject to 62 Permitted Liens. The Loan Parties are the legal and beneficial owners of the Collateral free and clear of any Lien, except for the liens and security interests created or permitted under the Loan Documents. (m) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (n) (i) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan that has resulted in or is reasonably expected to result in a material liability of any Loan Party or any ERISA Affiliate. (ii) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Lender Parties, is complete and accurate 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. (iii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability exceeding $100,000 to any Multiemployer Plan. (iv) Neither any Loan Party 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 such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (o) Except as described on Schedule 4.01(o) hereto: (i) The operations and properties of each Loan Party comply in all material respects with all applicable Environmental Laws and Environmental Permits, except where any such failure to comply would not be reasonably expected to have a Material Adverse Effect, all past non-compliance with such Environmental Laws and Environmental Permits has been resolved without ongoing obligations or costs, except where any such failure to comply would not be reasonably expected to have a Material Adverse Effect and, to Borrower's knowledge, no circumstances exist that could be reasonably likely to (A) form the basis of an Environmental Action against any Loan Party or any of their properties that could have a Material Adverse Effect or (B) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (ii) None of the properties currently or, to Borrower's knowledge, formerly owned or operated by any Loan Party is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or, to Borrower's knowledge, is adjacent to any such property; and except to the extent that any of the following would not have a Material Adverse Effect, (A) there are no and, to Borrower's knowledge, never have been any underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned or operated by any Loan Party or, to its knowledge, on any property formerly owned or operated by any Loan Party, (B) there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party, and (C) Hazardous 63 Materials have not been released, discharged or disposed of on any property currently or, to Borrower's knowledge, formerly owned or operated by any Loan Party except in compliance with Environmental Laws. (iii) No Loan Party is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party have been disposed of in a manner not reasonably expected to result in liability to any Loan Party that, individually or in the aggregate, would have a Material Adverse Effect. (p) Each Loan Party and each of its Affiliates has filed, has caused to be filed or has been included in all tax returns (Federal, state, local and foreign) required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties. Set forth on Schedule 4.01(p) hereto is a complete and accurate list, as of the date hereof, of each Open Year of each Loan Party and each of its Affiliates. The aggregate unpaid amount, as of the date hereof, of adjustments to the Federal income tax liability of each Loan Party and each of its Affiliates proposed by the Internal Revenue Service with respect to Open Years does not exceed $62,500,000. No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, could be reasonably likely to have a Material Adverse Effect. (q) Set forth on Schedule 4.01(q) hereto is a complete and accurate list of all Liens (other than Permitted Liens) on the property or assets of any Loan Party, showing as of the date hereof the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party subject thereto. (r) Set forth on Schedule 4.01(r) hereto is a complete and accurate list of all Investments held by any Loan Party on the date hereof, showing the amount, obligor or issuer and maturity, if any, thereof. (s) Except as set forth on Schedule 4.01(s), the dialysis facilities operated by each of the Borrower and its Subsidiaries (the "Dialysis Facilities") are qualified for participation in the Medicare programs and the Medicaid programs in which they participate (together with their respective intermediaries or carriers, the "Government Reimbursement Programs") and are entitled to reimbursement under the Medicare program for services rendered to qualified Medicare beneficiaries, and comply in all material respects with the conditions of participation in all Government Reimbursement Programs in which they participate or have participated. Except as set forth on Schedule 4.01(s), there is no pending or, to Borrower's knowledge, threatened proceeding or investigation by any of the Government Reimbursement Programs with respect to (i) the Borrower's or any of its Subsidiaries' qualification or right to participate in any Government Reimbursement Program in which they participate or have participated, (ii) the compliance or non-compliance by the Borrower or any of its Subsidiaries with the terms or provisions of any Government Reimbursement Program in which they participate or have participated, or (iii) the right of the Borrower or any of its Subsidiaries to receive or retain amounts received or due or to become due from any Government Reimbursement Program in which they participate or have participated, which proceeding or investigation, together with all other such proceedings and investigations, could reasonably be expected to (x) have a Material 64 Adverse Effect or (y) result in Consolidated net operating revenues for any (including any future) four fiscal quarter period of the Borrower constituting less than 95% of Consolidated net operating revenues for the immediately preceding four fiscal quarter period of the Borrower. (t) Neither the Borrower nor any of its Subsidiaries, nor any of their respective officers or directors has, on behalf of the Borrower or any of its Subsidiaries, knowingly or willfully violated the federal Medicare and Medicaid statutes, 42 U.S.C. ss.1320a-7b, or the regulations promulgated pursuant to such statutes or related state or local statutes or regulations, including but not limited to the following: (i) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any applications for any benefit or payment; (ii) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (iii) failing to disclose knowledge by a claimant of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with intent to secure such benefit or payment fraudulently; (iv) knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind or offering to pay such remuneration (a) in return for referring an individual to a Person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part by Medicare, Medicaid or other applicable government payers, or (b) in return for purchasing, leasing or ordering or arranging for or recommending the purchasing, leasing or ordering of any good, facility, service or item for which payment may be made in whole or in part by Medicare, Medicaid or other applicable government payers. With respect to this Section, knowledge of an individual director or officer of the Borrower or a Subsidiary of any of the events described in this Section shall not be imputed to the Borrower or such Subsidiary unless such knowledge was obtained or learned by the director or officer in his or her official capacity as a director or officer of the Borrower or such Subsidiary. (u) The subordination provisions of (i) the Subordinated Notes Documents, (ii) the Subordinated Notes, (iii) any Subordinated Debt now existing or hereafter incurred or assumed by any Loan Party and (iv) any guarantee by any Loan Party of any Subordinated Debt will be enforceable against the holders thereof, and the Advances and all other monetary obligations hereunder and all monetary obligations under the Subsidiary Guarantee will constitute "Senior Indebtedness" and "Designated Senior Indebtedness" (or any comparable terms) as defined in such provisions. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance or any --------------------- other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable Requirements of Law, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, except to the extent that non-compliance could not be reasonably expected to result in a Material Adverse Effect. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and 65 governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim (A) the non-payment or non-discharge of which could not be reasonably expected to result in a Material Adverse Effect or (B) that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors and subjects the property to a substantial risk of forfeiture. (c) Compliance with Environmental Laws. Comply, and cause each of its Subsidiaries and all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew and cause each of its Subsidiaries to obtain and renew all Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. (d) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations 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. (e) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory) and material franchises; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to preserve any right, privilege or franchise if the Board of Directors of the Borrower or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the Lender Parties and any Subsidiary may merge with or into or be liquidated into another Subsidiary or the Borrower as permitted under Section 5.02(d). (f) Visitation Rights. At any reasonable time and from time to time, and, unless a Default or an Event of Default shall have occurred and be continuing, upon reasonable notice, permit any of the Agents or any of the Lender Parties, 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 any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants (provided that representatives of the Borrower shall be entitled to notice of and to participate in any such discussion). (g) Keeping of Books. Keep, and cause each of its Subsidiaries 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 using sound 66 business practices sufficient to permit the preparation of financial statements based thereon in accordance with generally accepted accounting principles in effect from time to time. (h) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (i) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to the Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (j) Covenant to Guarantee Obligations and Give Security. Upon (x) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (y) the acquisition of any personal property or real property fee interests (other than any real property fee interest on which the only business conducted by the Borrower or any of its Subsidiaries is the operation of a Dialysis Facility and services related or incidental thereto) by any Loan Party, which, in the judgment of the Administrative Agent, shall not already be subject to a perfected first priority security interest in favor of the Administrative Agent for the benefit of the Secured Parties, then the Borrower shall, in each case at the Borrower's expense: (i) in connection with the formation or acquisition of a wholly-owned Domestic Subsidiary, not later than 15 Business Days following the last day of the Fiscal Quarter in which such formation or acquisition occurs, cause each such Domestic Subsidiary, and cause each direct and indirect parent of such Domestic Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a guarantee or guarantee supplement, in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties' obligations under the Loan Documents, and, in connection with the formation or acquisition of a Foreign Subsidiary, not later than 15 Business Days following the last day of the Fiscal Quarter in which such formation or acquisition occurs, pledge or, cause its respective Subsidiary to pledge, to the Administrative Agent for the benefit of the Secured Parties 65% of the Equity Interests in such Foreign Subsidiary, (ii) not later than 15 Business Days following the last day of the Fiscal Quarter in which such formation or acquisition occurs, furnish to the Administrative Agent a description of (A) the material personal properties and such real property fee interests of such wholly-owned Domestic Subsidiary and (B) such property which was not previously subject to such perfected security interest, in each case in detail satisfactory to the Administrative Agent, (iii) not later than 15 Business Days following the last day of the Fiscal Quarter in which such formation or acquisition occurs, duly execute and deliver, and cause each such wholly-owned Domestic Subsidiary and each direct and indirect parent of such wholly-owned Domestic Subsidiary (if it has not already done so) to duly execute and deliver, to the Administrative Agent pledges, assignments, mortgages, deeds of trust, security agreements and security agreement supplements, as specified by and in form and substance satisfactory to the Administrative Agent, with respect to the Equity Interests in and assets of such wholly-owned Domestic Subsidiary and such personal property and such real property fee interests, 67 (iv) not later than 15 Business Days following the last day of the Fiscal Quarter in which such formation or acquisition occurs, take, and cause such wholly-owned Subsidiary or such parent to take, whatever action (including, without limitation, the filing of Uniform Commercial Code financing statements, the filing of mortgages or deeds of trust, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the pledges, assignments, mortgages, deeds of trust, security agreements and security agreement supplements delivered pursuant to this Section 5.01(j), enforceable against all third parties in accordance with their terms, (v) not later than 45 days following the last day of the Fiscal Quarter in which such formation or acquisition occurs, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion (subject to customary qualifications, limitations and exceptions), addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (i), (iii) and (iv) above, as to such guarantees, guarantee supplements, pledges, assignments, mortgages, deeds of trust, security agreements and security agreement supplements being legal, valid and binding obligations of the respective Loan Party thereto enforceable in accordance with their terms, as to the matters contained in clause (iv) above, as to such recordings, filings, notices, endorsements and other actions being sufficient to create valid perfected Liens on such properties, and as to such other matters as the Administrative Agent may reasonably request, and (vi) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, pledges, assignments, mortgages, deeds of trust, security agreements and security agreement supplements. (k) Further Assurances. (i) Promptly upon request by any Agent, or any Lender Party through the Administrative Agent, correct, and cause each of its Subsidiaries promptly to correct, any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof; and (ii) Promptly upon request by any Agent, or any Lender Party through the Administrative Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, pledge agreements, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as any Agent, or any Lender Party through the Administrative Agent, may reasonably require from time to time in order to (A) carry out more effectively the purposes of the Loan Documents, (B) to the fullest extent permitted by applicable law, subject any Loan Party's properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm 68 more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party is or is to be a party, and cause each of its Subsidiaries to do so. SECTION 5.02. Negative Covenants. So long as any Advance or any other ------------------ Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will not, at any time: (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 on or with respect to any of its properties of any character whether now owned or hereafter acquired, or sign or file or suffer to exist, or permit any of its Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial Code of any jurisdiction, a financing statement that names the Borrower or any of its Subsidiaries as debtor, or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Liens created under the Loan Documents; (ii) Permitted Liens; (iii) Liens existing on the Closing Date and described on Schedule 4.01(q) hereto; (iv) Liens upon or in real property or equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that (a) such Liens shall be created not more than 180 days after the date of acquisition or completion of construction or improvement and (b) no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved and any attachments thereto and proceeds thereof, 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 aggregate principal amount of the Debt secured by Liens permitted by this clause (iv) shall not exceed the amount permitted under Section 5.02(b)(v) at any time outstanding; (v) Liens arising in connection with Capitalized Leases permitted under Section 5.02(b)(vi); provided that no such Lien shall extend to or cover any Collateral or assets other than the assets subject to such Capitalized Leases; and (vi) the replacement, extension or renewal of any Lien permitted by clause (iii) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Debt secured thereby. 69 (b) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt, except: (i) Debt under the Loan Documents; (ii) Debt existing on the Closing Date and described on Schedule 5.02(b) hereto; (iii) Debt of the Borrower in respect of Hedge Agreements (A) existing on the date of this Agreement and described in Schedule 5.02(b) hereto or (B) entered into from time to time after the date of this Agreement with counter parties that are Lender Parties at the time such Hedge Agreement is entered into (or Affiliates of such Lender Party at such time); and which counter party is then a party to the Intercreditor Agreement; provided that, in all cases under this clause (iii), all such Hedge Agreements shall not be speculative in nature (including, without limitation, with respect to the term and purpose thereof); (iv) Debt of (A) the Borrower owing to any other Loan Party, and (B) any of the Subsidiaries owing to the Borrower or any other Loan Party to the extent permitted under Section 5.02(f)(viii); (v) Debt incurred after the date of this Agreement and secured by Liens expressly permitted under Section 5.02(a)(iv) in an aggregate principal amount not to exceed, when aggregated with the principal amount of all Debt incurred under clause (vi) of this Section 5.02(b), $50,000,000 any time outstanding; (vi) Capitalized Leases incurred after the date of this Agreement which, when aggregated with the principal amount of all Debt incurred under clause (v) of this Section 5.02(b), do not exceed $50,000,000 at any time outstanding; (vii) Contingent Obligations of (A) the Borrower guaranteeing all or any portion of the outstanding Obligations of any of the Subsidiaries and (B) any Subsidiary of the Borrower guaranteeing any Obligations of the Borrower or another Subsidiary thereof; provided that each such primary Obligation is otherwise permitted under the terms of the Loan Documents; (viii) Unsecured Debt not otherwise permitted under this Section 5.02(b) in an aggregate amount not to exceed $50,000,000 at any time outstanding; (ix) Endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (x) Debt comprised of indemnities given by the Borrower or any of its Subsidiaries, or guarantees or other similar undertakings by the Borrower or any of its Subsidiaries entered into in lieu thereof, in favor of the purchaser of property and assets of the Borrower and its Subsidiaries being sold, leased, transferred or otherwise disposed of in accordance with this Agreement and covering liabilities incurred by the Borrower or its applicable Subsidiary in respect of such property and assets prior to the date of consummation of the sale, lease, transfer or other disposition thereof, which indemnities, guarantees or undertakings are required under the terms of the documentation for such sale, lease, transfer or other disposition; 70 (xi) Debt comprised of liabilities or other Obligations assumed or retained by the Borrower or any of its Subsidiaries from Subsidiaries of the Borrower that are, or all or substantially all of the property and assets of which are, sold, leased, transferred or otherwise disposed of pursuant to Section 5.02(e)(iii) or (vi); provided that such liabilities or other Obligations were not created or incurred in contemplation of the related sale, lease, transfer or other disposition; (xii) Unsecured Subordinated Debt or Redeemable Preferred Interests not otherwise permitted under this Section 5.02(b), provided that the aggregate amount of the outstanding principal amount of such unsecured Subordinated Debt and the maximum amount of the purchase price, redemption price or liquidation value (whichever is greater) of such Redeemable Preferred Interests does not exceed $400,000,000 at any time; provided further, that the Net Cash Proceeds thereof are applied to prepay the Advances to the extent provided in Section 2.06(b); and (xiii) Debt extending the maturity of, or refunding, refinancing or replacing, in whole or in part, any Debt incurred under clause (ii) of this Section 5.02(b); provided, however, that (A) the aggregate principal amount of such extended, refunding, refinancing or replacement Debt shall not be increased above the principal amount thereof and the premium, if any, thereon outstanding immediately prior to such extension, refunding, refinancing or replacement, (B) the direct and contingent obligors therefor shall not be changed as a result of or in connection with such extension, refunding, refinancing or replacement, (C) such extended, refunding, refinancing or replacement Debt shall not mature prior to the stated maturity date or mandatory redemption date of the Debt being so extended, refunded, refinanced or replaced, and (D) if the Debt being so extended, refunded, refinanced or replaced is subordinated in right of payment or otherwise to the Obligations of the Borrower or any of its Subsidiaries under and in respect of the Loan Documents, such extended, refunding, refinancing or replacement Debt shall be subordinated to such Obligations to at least the same extent. (xiv) Debt comprised of guarantees given by the Borrower or any of its Subsidiaries in respect of any Special Purpose Licensed Entity which obligations, when aggregated with the aggregate amount of all Investments made under Section 5.02(f)(ix) hereof, shall not exceed $20,000,000 at any time. (c) Change in Nature of Business. Engage or permit any of its Subsidiaries to engage in any business other than the businesses carried on at the date hereof and any businesses incidental or related thereto. (d) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that: (i) any of the Subsidiaries may merge into or consolidate with the Borrower, provided that the Borrower is the surviving corporation; (ii) any Subsidiary of the Borrower may merge into or consolidate with any other Subsidiary of the Borrower, provided that, in the case of any such merger or consolidation involving a wholly-owned Subsidiary, the Person formed by or surviving such merger or consolidation shall be a wholly-owned Subsidiary of the Borrower, provided further that, in the case of any such merger or consolidation to which a 71 Subsidiary Guarantor is a party, the Person formed by such merger or consolidation shall be a Subsidiary Guarantor; (iii) in connection with any purchase or other acquisition of Equity Interests in, or property and assets of, any Person permitted under Section 5.02(f)(v), the Borrower may permit any other Person to merge into or consolidate with it (provided that the Borrower is the surviving entity), and any of the Subsidiaries of the Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that the Person with which such Subsidiary is merging or consolidating (1) shall be engaged in substantially the same lines of business as one or more of the businesses of the Borrower and the Subsidiaries or in an incidental or related business and (2) shall not have any contingent liabilities that could reasonably be expected to be material and adverse to the Borrower and its Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or persons performing similar functions) of the Borrower or such Subsidiary if the board of directors is otherwise approving such transaction, and in each other case, by a Responsible Officer), and (3) in the case of any wholly-owned Domestic Subsidiary, such Person shall take all actions required under Section 5.01(j); and (iv) in connection with any sale, transfer or other disposition of all or substantially all of the Equity Interests in, or the property and assets of, any Person permitted under Section 5.02(e)(vi), any of the Subsidiaries of the Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; and provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default. (e) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except: (i) the Borrower and its Subsidiaries may sell inventory in the ordinary course of business; (ii) (A) the Borrower may sell, lease, transfer or otherwise dispose of any of its property or assets to any of the Subsidiaries, and (B) any of the Subsidiaries may sell, lease, transfer or otherwise dispose of any of its property or assets to the Borrower or any of the other Subsidiaries; provided that, in each case, no such sale, lease, transfer or other disposition to non-wholly-owned Subsidiaries shall be made unless, after giving pro forma effect thereto, the Borrower and its Subsidiaries would be in compliance with Section 5.02(l) and Section 5.04(d); (iii) any Subsidiary of the Borrower that is no longer actively engaged in any business or activities and does not have property and assets with an aggregate book value in excess of $1,000,000 may be wound up, liquidated or dissolved so long as such winding up, liquidation or dissolution is determined in good faith by management of the Borrower to be in the best interests of the Borrower and its Subsidiaries; 72 (iv) the Borrower and its Subsidiaries may sell, lease, transfer or otherwise dispose of any obsolete, damaged or worn out equipment thereof or any other equipment that is otherwise no longer useful in the conduct of their businesses; (v) the Borrower and its Subsidiaries may lease or sublease real property to the extent required for their respective businesses and operations in the ordinary course so long as such lease or sublease is not otherwise prohibited under the terms of the Loan Documents; (vi) the Borrower and its Subsidiaries may sell, lease, transfer or otherwise dispose of property and assets not otherwise permitted to be sold, leased, transferred or disposed of pursuant to this Section 5.02(e) so long as the aggregate book value of all of the property and assets of the Borrower and its Subsidiaries sold, leased, transferred or otherwise disposed of pursuant to this clause (vi) does not exceed $300,000,000 in the aggregate during the term of this Agreement; provided that: (A) the gross proceeds received from any such sale, lease, transfer or other disposition shall be at least equal to the fair market value of the property and assets so sold, leased, transferred or otherwise disposed of, determined at the time of such sale, lease, transfer or other disposition; (B) at least 75% of the value of the aggregate consideration received from any such sale, lease, transfer or other disposition shall be in cash, provided, that up to one-third of such 75% may consist of notes or other obligations received by the Borrower or such Subsidiary that are due and payable or otherwise converted by the Borrower or such Subsidiary into cash within 365 days of receipt, which cash (to the extent received) shall constitute Net Cash Proceeds attributable to the original transaction; and provided further that any Debt of the Borrower or any of its Subsidiaries (as shown on the Borrower's or such Subsidiary's most recent balance sheet) that is assumed by the transferee of any such assets shall constitute cash for purposes of this Section 5.02(e)(vi), so long as the Borrower and all of its Subsidiaries are fully and unconditionally released therefrom; (C) immediately before and immediately after giving pro forma effect to any such sale, lease, transfer or other disposition, no Default shall have occurred and be continuing, and (D) within fifteen Business Days after each disposition under this subsection, the Borrower shall deliver to the Administrative Agent, on behalf of the Lender Parties, a certificate identifying the property disposed of and stating (a) that immediately before and after giving effect thereto, no Default or Event or Default existed, (b) that the consideration received or to be received by the Borrower or such Subsidiary for such property has been determined by the Borrower or the applicable Subsidiary to be not less than the fair market value of such property and (c) the total consideration to be paid in respect of such disposition and (d) the Net Cash Proceeds resulting from such disposition; and (E) if and to the extent that the Net Cash Proceeds of any transaction effected pursuant to this Section 5.02(e)(vi) shall not have been reinvested in assets or property of the Borrower or any of its Subsidiaries with respect to any 73 transaction completed (1) on or prior to December 31, 2002, by December 27, 2003 and (2) thereafter, within 360 days after the date of receipt thereof, then such uninvested Net Cash Proceeds shall be applied on the first Business Day following December 27, 2003 or the applicable 360-day period, as the case may be, to prepay Advances in accordance with Section 2.06(b); and (vii) the Borrower and its Subsidiaries may exchange assets and properties with another Person; provided that: (A) the assets or properties received by the Borrower or its Subsidiaries shall be used in the business of the Borrower or such Subsidiary as conducted immediately prior to such transaction, or in an incidental or related business; (B) the total consideration received by the Borrower or such Subsidiary for such assets or property shall have been determined by the Borrower or such Subsidiary to be not less than the fair market value of the assets or property exchanged; (C) immediately before and immediately after giving pro forma effect to any such exchange, no Default shall have occurred and be continuing; (D) any cash received by the Borrower or any such Subsidiary in connection with such exchange shall be treated as Net Cash Proceeds subject to Section 2.06(b) and any cash paid by the Borrower or any Subsidiary in connection with such exchange shall be treated as an acquisition expenditure under Section 5.02(f)(v); and (E) within fifteen Business Days after each exchange under this Section 5.02(e)(vii), the Borrower shall deliver to the Administrative Agent, on behalf of the Lender Parties, a certificate identifying the assets or property disposed of and acquired in such exchange, and stating (a) that immediately before and after giving effect thereto, no Default or Event or Default existed, (b) that the total consideration received by the Borrower or such Subsidiary for such assets or property has been determined by the Borrower or such Subsidiary to be not less than the fair market value of the assets or property exchanged, and (c) the amount, if any, of the cash paid or Net Cash Proceeds received in connection with such exchange. (f) Investments in Other Persons. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person, except: (i) Investments by the Borrower and its Subsidiaries in Cash Equivalents; (ii) Investments existing on the Closing Date and described on Schedule 4.01(r) hereto; (iii) Investments by the Borrower in Hedge Agreements permitted under Section 5.02(b) (iii); 74 (iv) Investments in accounts and notes payable in the ordinary course of business, including notes received in transactions permitted under Section 5.02(e)(vi); (v) the purchase or other acquisition of (1) Equity Interests in any Domestic Person that, upon the consummation thereof, will be more than 50% owned by the Borrower or one or more of its wholly owned Subsidiaries (including, without limitation, as a result of a merger or consolidation) or (2) all or substantially all the property and assets of a Person or consisting of a line of business or business unit of a Person; provided that, with respect to each purchase or other acquisition made pursuant to this clause (v): (A) the lines of business of the Person to be (or the property and assets of which are to be) so purchased or otherwise acquired shall be substantially the same lines of business as one or more of the businesses of the Borrower and its Subsidiaries or a business that is incidental or related thereto; (B) such purchase or other acquisition shall not include or result in any contingent liabilities that could reasonably be expected to be material and adverse to the business, financial condition, operations or prospects of the Borrower and its Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or the persons performing similar functions) of the Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Responsible Officer); (C) the total cash consideration (excluding all Equity Interests issued or transferred to the sellers thereof but including the aggregate amounts paid or to be paid under deferred purchase price, noncompete, consulting and other similar agreements with the sellers thereof and all assumptions of debt, liabilities and other obligations in connection therewith) paid by or on behalf of the Borrower and its Subsidiaries (1) for any such purchase or other acquisition (or any series of related purchases or acquisitions) shall not exceed $50,000,000 unless such purchase or acquisition has been approved by the Required Lenders, and (2) for all such purchases or acquisitions effected during the term of this Agreement shall not exceed $200,000,000; provided that such amount shall be increased to $400,000,000 at all times after the Leverage Ratio is less than or equal to 2.75:1.00; (D) (1) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (2) immediately after giving effect to such purchase or other acquisition, the Borrower and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 5.04, such compliance to be determined on the basis of the Required Financial Information most recently delivered to the Administrative Agent and the Lender Parties as though such purchase or other acquisition had been consummated as of the first day of the fiscal period covered thereby; and (E) the Borrower shall have delivered to the Administrative Agent, on behalf of the Lender Parties, at least three Business Days prior to the date on which any such purchase or other acquisition in which the total cash consideration is more than $30,000,000 is to be consummated, a certificate of a 75 Responsible Officer, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in this clause (v) have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition; (vi) Investments by the Borrower or any Subsidiary in 50% or less of the Equity Interests in another Person (the "Minority Investment"), provided that (i) the Borrower or any Subsidiary owns at least 20% (on a fully diluted basis) of the issued and outstanding Equity Interests in such Person, (ii) the aggregate outstanding amount of Minority Investments made by the Borrower and any Subsidiary shall not exceed $60,000,000 at any one time, (iii) the Borrower or any Subsidiary shall have full control over all bank accounts of such Person if the Borrower or any Subsidiary is the largest holder of Equity Interests in such Person, (iv) the Borrower or any Subsidiary shall control or act as the managing general partner of such Person if such Person is a partnership and if the Borrower or any Subsidiary is the largest holder of Equity Interests in such Person, and (v) immediately before and after giving effect thereto, no Default or Event of Default shall exist; (vii) notes from employees issued to the Borrower representing payment for capital stock of the Borrower or representing payment of the exercise price of options to purchase capital stock of the Borrower, and employee relocation expenses incurred in the ordinary course of business, in an aggregate amount at any time outstanding not to exceed $10,000,000; (viii) Investments of the Borrower or any of its Subsidiaries in any Subsidiary of the Borrower; provided that no such Investments in non-wholly-owned Subsidiaries shall be made unless, after giving pro forma effect thereto, the Borrower and its Subsidiaries would be in compliance with Section 5.02(l) and Section 5.04(d); and (ix) Investments of the Borrower or any of its Subsidiaries in any Special Purpose Licensed Entity which, when aggregated with the aggregate amount of all obligations guaranteed under Section 5.02(b)(xiv) hereof, shall not exceed $20,000,000 at any time. (g) Restricted Payments. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Borrower, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom: (i) the Borrower may (A) declare and pay dividends and distributions payable only in its common Equity Interests, (B) except to the extent the Net Cash Proceeds thereof are required to be applied to the prepayment of the Advances pursuant to Section 2.06(b), purchase, redeem, retire, defease or otherwise acquire Equity Interests with the proceeds received contemporaneously from the issue of new Equity Interests with equal or inferior voting powers, designations, preferences and rights, and (C) repurchase its Equity Interests owned by management or employees and physicians under 76 contract with the Borrower or any of its Subsidiaries in an amount not in excess of $10,000,000 in any twelve month period; (ii) any Subsidiary of the Borrower may (A) declare and pay cash dividends to the Borrower, and (B) declare and pay cash dividends to any other Loan Party of which it is a Subsidiary; (iii) any of the non-wholly owned Subsidiaries of the Borrower may declare and pay or make dividends and other distributions to its shareholders, partners or members (or the equivalent persons thereof) generally so long as the Borrower and each of the Subsidiaries that own any of the Equity Interests therein receive at least their respective proportionate shares of any such dividend or distribution (based upon their relative holdings of the Equity Interests therein and taking into account the relative preferences, if any, of the various classes of the Equity Interests therein); (iv) purchase, redeem or otherwise acquire for value any of the subordinated notes referred to in clause (i) or (ii) of the definition of "Subordinated Notes", provided that (1) immediately prior to each such transaction and after giving effect thereto the aggregate amount of the Unused Revolving Credit Commitment is not less than $75,000,000, and (2) at the time of each such transaction and immediately after giving pro forma effect to each such transaction the Senior Leverage Ratio is less than 2.50:1.00; [DELETE] 77 (h) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in (i) accounting policies or reporting practices, except as allowed by generally accepted accounting principles, or (ii) Fiscal Year. (i) Prepayments, Etc., of Subordinated Debt. Except as permitted under Section 5.02(g)(iv) or (vi) and except for the purchase of the 2001 Subordinated Notes, including those purchased pursuant to an Offer to Purchase and Consent Solicitation dated March 21, 2002, (i) prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Subordinated Debt, or give any notice in respect thereof, or (ii) amend, modify or change in any manner any term or condition of any of the Subordinated Notes Documents, or permit any of its Subsidiaries to do any of the foregoing, except that if such Subordinated Debt is convertible into common stock of the Borrower, the Borrower, subject to the approval of the Administrative Agent (which approval shall not unreasonably be withheld), may give notice with respect thereof if the purpose of such notice is to force the holders of such Subordinated Debt to convert such Subordinated Debt into common stock of the Borrower and thereafter the Borrower may exercise any right it may have to so redeem all or any part of such Subordinated Debt. (j) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets except (i) in favor of the Secured Parties or (ii) in connection with (A) any Debt permitted by Section 5.02(b)(v) solely to the extent that the agreement or instrument governing such Debt prohibits a Lien on the property acquired with the proceeds of such Debt, or (B) any Capitalized Lease permitted by Section 5.02(b)(vi) solely to the extent that such Capitalized Lease prohibits a Lien on the property subject thereto, or (C) any Debt outstanding on the date any Subsidiary of the Borrower becomes such a Subsidiary (so long as such agreement was not entered into solely in contemplation of such Subsidiary becoming a Subsidiary of the Borrower), or (D) solely with respect to Subsidiaries that are not Guarantors, restrictions contained in the Constitutive Documents of such Subsidiaries. (k) Payment Restrictions Affecting Subsidiaries. Directly or indirectly, enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement or arrangement limiting the ability of any of its Subsidiaries to declare or pay dividends or other distributions in respect of its Equity Interests or repay or prepay any Debt owed to, make loans or advances to, or otherwise transfer assets to or invest in, the Borrower or any Subsidiary of the Borrower (whether through a covenant restricting dividends, loans, asset transfers or investments, a financial covenant or otherwise), except (i) the Loan Documents, (ii) any agreement in effect at the time such Subsidiary becomes a Subsidiary of the Borrower, so long as such agreement was not entered into solely in contemplation of such Person becoming a Subsidiary of the Borrower, (iii) restrictions on transfer contained in Debt incurred pursuant to Sections 5.02(b)(v) and (vi); provided, that such restrictions relate only to the transfer of the property financed with such Debt; (iv) in connection with and pursuant to refinancing Debt under Section 5.02(b)(xiii), replacements of restrictions that are not more restrictive than those being replaced and do not apply to any other 78 Person or assets than those that would have been covered by the restrictions in the Debt so refinanced; and (v) solely with respect to Subsidiaries that are not Guarantors, restrictions under the Constitutive Documents governing such Subsidiary: (A) with respect to existing Subsidiaries, existing on the date of this Agreement; and (B) with respect to Subsidiaries created or acquired after the date of this Agreement: (1) prohibiting such Subsidiary from guaranteeing Debt of the Borrower or another Subsidiary; (2) on dividend payments and other distributions solely to permit pro rata dividends and other distributions in respect of any Equity Interests of such Subsidiary; (3) limiting transactions with the Borrower or another Subsidiary to those with terms that are fair and reasonable to such Subsidiary and no less favorable to such Subsidiary than could have been obtained in an arm's length transaction with an unrelated third party; and (vi) encumbrances or restrictions (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract entered into in the ordinary course of business, or the assignment or transfer of any lease, license or contract entered into in the ordinary course of business and (B) arising by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Borrower or any Subsidiary. (l) Non-Wholly-Owned Subsidiaries. Permit at any time (x) the aggregate total assets (calculated without duplication) at such time of all Subsidiaries of the Borrower formed or acquired after April 30, 1998 that are not Guarantors, plus (y) the aggregate total Investments made during the period from April 30, 1998 to such time (calculated without duplication and excluding Investments made pursuant to Section 5.02(f)(vi) to the extent the proceeds thereof were used to acquire Equity Interests or assets included in (x) above) by the Loan Parties in all Subsidiaries of the Borrower that are not Guarantors, less (z) the aggregate total assets at such time of all Subsidiaries of the Borrower existing on April 30, 1998 that became Guarantors after April 30, 1998, to exceed 10% of the Consolidated total assets of the Borrower and its Subsidiaries. (m) Issuance of Additional Stock. Permit any of its Subsidiaries to issue any additional Equity Interests, except as follows: (i) in connection with a permitted Investment or to employees or consultants in the ordinary course of business; (ii) the Borrower and any Subsidiary thereof may organize new wholly-owned Subsidiaries and any Subsidiary may issue additional Equity Interests to the Borrower or to a wholly-owned Subsidiary of the Borrower; (iii) subject to compliance with the provisions this Agreement, including Section 5.02(1) and Section 5.04(d), the Borrower and its Subsidiaries may (A) organize new non-wholly-owned Subsidiaries, and (B) (i) cause Subsidiaries to issue additional Equity Interests or (ii) sell outstanding Equity Interests therein, in each case to Persons other than Affiliates of the Borrower or its Subsidiaries. SECTION 5.03. Reporting Requirements. So long as any Advance or any other ---------------------- Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will furnish to the Administrative Agent (for distribution to the agents and Lender Parties): (a) Default Notice. As soon as possible and in any event within five days after the Borrower knows or reasonably should have known of the occurrence of a Default or any event, 79 development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default or other event, development or occurrence and the action that the Borrower has taken and proposes to take with respect thereto. (b) Annual Financials. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and a Consolidated and consolidating statements of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for such Fiscal Year, in each case accompanied by an unqualified opinion of KPMG LLP or other independent public accountants of recognized national standing, together with (i) a certificate of such accounting firm to the Lender Parties stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04, provided that in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.04 from GAAP, a statement of reconciliation conforming such financial statements to GAAP and (iii) a certificate of the Chief Financial Officer of the Borrower stating that to the best of such officer's knowledge, no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto. (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated and consolidating statements of income for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated and consolidating statements of income and a Consolidated statement of cash flows 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 quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments) by the Chief Financial Officer of the Borrower as having been prepared in accordance with generally accepted accounting principles (except that such financial statements may not contain all required notes and may be subject to year end audit adjustments), together with (i) a certificate of said officer stating that to the best of such officer's knowledge, no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Borrower in determining compliance with the covenants contained in Section 5.04, provided that in the event of any change in generally accepted accounting principles used in the preparation of such financial statements as compared to GAAP, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP, and (iii) a report (in a form satisfactory to the Administrative Agent) specifying all permitted 80 Investments made during such quarter and during the period from the date hereof to the end of such quarter and specifying the total consideration paid with respect to each such Investment. (d) Annual Forecasts. As soon as available and in any event no later than 30 days after the end of each Fiscal Year, forecasts prepared by management of the Borrower, in form satisfactory to the Administrative Agent, of Consolidated balance sheets, income statements and cash flow statements of the Borrower and its Subsidiaries on a quarterly basis for the Fiscal Year following such Fiscal Year and on an annual basis for each Fiscal Year thereafter until the Termination Date. (e) Litigation. (i) Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any Governmental Authority or arbitrator, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f), and promptly after the occurrence thereof, notice of any material adverse change in the status or the financial effect on any Loan Party or any of its Subsidiaries of the litigation from that described on Schedule 4.01(f) hereto, and (ii) prompt written notice of: (A) any citation, summons, subpoena, order to show cause or other document naming the Borrower or any of its Subsidiaries a party to any proceeding before any Governmental Authority that could reasonably be expected to have a Material Adverse Effect or that expressly calls into question the validity or enforceability of any of the Loan Documents, and include with such notice a copy of such citation, summons, subpoena, order to show cause or other document, (B) any lapse or other termination of any material intellectual property, license, permit, franchise or other authorization issued to the Borrower or any of its Subsidiaries by any Person or Governmental Authority, or (C) any refusal by any Person or Governmental Authority to renew or extend such material intellectual property, license, permit, franchise or other authorization, which lapse, termination, refusal or dispute could reasonably be expected to have a Material Adverse Effect. (f) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that any Loan Party or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (g) ERISA. (i) ERISA Events and ERISA Reports. (A) Promptly and in any event within 10 days after any Loan Party 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 such Loan Party or such ERISA Affiliate has taken and proposes to take with respect thereto and (B) on the date any records, documents or other information must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and information. (ii) Plan Terminations. Promptly and in any event within two Business Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan. 81 (iii) Plan Annual Reports. Promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan. (iv) Multiemployer Plan Notices. Promptly and in any event within five Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B). (h) Environmental Conditions. Promptly after the assertion or occurrence thereof, notice of any Environmental Action against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could reasonably be expected to have a Material Adverse Effect. (i) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Agent or any Lender Party, through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance or any other ------------------- Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will: (a) Leverage Ratio. Maintain a Leverage Ratio at all times during each Measurement Period set forth below of not more than the amount set forth below opposite such Measurement Period: ==================================================================== Measurement Period Ending In Ratio ==================================================================== June 30, 2002 4.50:1.00 ==================================================================== September 30, 2002 4.50:1.00 ==================================================================== December 31, 2002 4.50:1.00 ==================================================================== March 31, 2003 4.50:1.00 ==================================================================== June 30, 2003 4.50:1.00 ==================================================================== September 30, 2003 4.25:1.00 ==================================================================== December 31, 2003 4.25:1.00 ==================================================================== March 31, 2004 4.00:1.00 ==================================================================== June 30, 2004 4.00:1.00 ==================================================================== September 30, 2004 3.75:1.00 ==================================================================== December 31, 2004 3.75:1.00 ==================================================================== March 31, 2005 3.50:1.00 ==================================================================== 82 ==================================================================== June 30, 2005 3.50:1.00 ==================================================================== September 30, 2005 3.25:1.00 ==================================================================== December 31, 2005 3.25:1.00 ==================================================================== March 31, 2006 and thereafter 3.00:1.00 ==================================================================== provided, however, that upon receipt by the Administrative Agent of a Notice of Covenant Reduction, the Leverage Ratio thereafter for purposes of this covenant shall at all times be 3.00:1.00. (b) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio as of the last day of each Measurement Period set forth below of not less than the amount set forth below opposite such Measurement Period: ==================================================================== Measurement Period Ending In Ratio ==================================================================== June 30, 2002 1.20:1.00 ==================================================================== September 30, 2002 1.20:1.00 ==================================================================== December 31, 2002 1.20:1.00 ==================================================================== March 31, 2003 1.20:1.00 ==================================================================== June 30, 2003 1.20:1.00 ==================================================================== September 30, 2003 1.20:1.00 ==================================================================== December 31, 2003 1.20:1.00 ==================================================================== March 31, 2004 1.20:1.00 ==================================================================== June 30, 2004 1.20:1.00 ==================================================================== September 30, 2004 1.20:1.00 ==================================================================== December 31, 2004 1.20:1.00 ==================================================================== March 31, 2005 1.25:1.00 ==================================================================== June 30, 2005 1.25:1.00 ==================================================================== September 30, 2005 1.25:1.00 ==================================================================== December 31, 2005 1.25:1.00 ==================================================================== March 31, 2006 1.30:1.00 ==================================================================== June 30, 2006 0.90:1.00 ==================================================================== September 30, 2006 0.90:1.00 ==================================================================== December 31, 2006 0.90:1.00 ==================================================================== March 31, 2007 0.90:1.00 ==================================================================== June 30, 2007 and thereafter 0.70:1.00 ==================================================================== 83 (c) Minimum Net Worth. Maintain at all times a Consolidated net worth of the Borrower and its Subsidiaries of not less than (negative $250,000,000), plus the sum of 75% of Consolidated Net Income of the Borrower and its Subsidiaries (determined as of the end of each Fiscal Quarter, but excluding net losses in any Fiscal Quarter) and 100% of the Net Cash Proceeds received by the Borrower from its issuance of Equity Interests, in each case determined on a cumulative basis for the period commencing April 1, 2002, minus non-recurring charges incurred not exceeding in the aggregate $45,000,000 resulting from the write-off of accounts receivable and other related charges as a result of the pending third party carrier review of claims for Medicare reimbursement submitted by the Subsidiary of the Borrower operating the Borrower's Florida laboratory or other Governmental Reimbursement Program Costs. (d) Minimum Consolidated EBITDA Ratio. Maintain at all times a ratio of Consolidated EBITDA to Consolidated Pre-Minority EBITDA of not less than 0.8:1.0. (e) Senior Leverage Ratio. Maintain a Senior Leverage Ratio at all times during each Measurement Period set forth below of not more than the amount set forth below opposite such period. ==================================================================== Measurement Period Ending In Ratio ==================================================================== June 30, 2002 3.00:1.00 ==================================================================== September 30, 2002 3.00:1.00 ==================================================================== December 31, 2002 3.00:1.00 ==================================================================== March 31, 2003 3.00:1.00 ==================================================================== June 30, 2003 3.00:1.00 ==================================================================== September 30, 2003 2.80:1.00 ==================================================================== December 31, 2003 2.80:1.00 ==================================================================== March 31, 2004 2.60:1.00 ==================================================================== June 30, 2004 2.60:1.00 ==================================================================== September 30, 2004 2.35:1.00 ==================================================================== December 31, 2004 2.35:1.00 ==================================================================== March 31, 2005 2.15:1.00 ==================================================================== June 30, 2005 2.15:1.00 ==================================================================== September 30, 2005 1.90:1.00 ==================================================================== December 31, 2005 1.90:1.00 ==================================================================== March 31, 2006 and thereafter 1.75:1.00 ==================================================================== provided, however, that upon receipt by the Administrative Agent of a Notice of Covenant Reduction, the Leverage Ratio thereafter for purposes of this covenant shall at all times be 1.75:1.00. 84 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of ----------------- Default") shall occur and be continuing: (a) the Borrower shall fail to pay (i) any principal of any Advance when the same shall become due and payable, or (ii) within three Business Days after the date due and payable, any interest on any Advance; or any of the Loan Parties shall fail to make any other payment under or in respect of any of the Loan Documents required to have been made by it, within three Business Days after the same shall become due and payable, in each case whether by scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise; or (b) any representation or warranty made by any of the Loan Parties (or any of their respective officers) under or in connection with any of the Loan Documents (including, without limitation, in any certificate, report, statement or other writing at any time furnished (or deemed to have been furnished) to the Administrative Agent or any of the Lender Parties by or on behalf of any of the Loan Parties) shall prove to have been incorrect in any material respect on the date as of which it was made or deemed made; or (c) (i) the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(e) or Section 5.02, 5.03 or 5.04 or (ii) any of the other Loan Parties shall fail to perform or observe any term, covenant or agreement contained in Section 4 or 7 of the Subsidiary Guarantee on its part to be performed or observed; or (d) any of the Loan Parties shall fail to perform or observe any term, covenant or agreement contained in any of the Loan Documents on its part to be performed or observed that is not otherwise referred to in Section 6.01(c) if such failure shall remain unremedied for at least 30 consecutive days after the earlier of the date on which (i) a Responsible Officer of the Borrower or any of its Subsidiaries first becomes aware of such failure and (ii) written notice thereof shall have been given to the Borrower by the Administrative Agent or any of the Lender Parties; or (e) (i) the Borrower or any of its Subsidiaries shall fail to pay any principal of, premium or interest on, or any other amount payable in respect of, one or more items of Debt of the Borrower and its Subsidiaries (excluding Debt outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal amount (or, in the case of any Hedge Agreement, having an Agreement Value) of at least $10,000,000 at the time of such failure, 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 agreements or instruments relating to all such Debt; or (ii) any other event shall occur or condition shall exist under the agreements or instruments relating to one or more items of Debt of the Borrower and its Subsidiaries (excluding Debt outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal amount (or, in the case of any Hedge Agreement, having an Agreement Value) of at least $10,000,000 at the time of such other event or condition, and shall continue after the applicable grace period, if any, specified in all such agreements or instruments, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or (iii) one or more items of Debt of the Borrower and its Subsidiaries (excluding Debt outstanding hereunder) that is outstanding (or 85 under which one or more Persons have a commitment to extend credit) in an aggregate principal amount (or, in the case of any Hedge Agreement, having an Agreement Value) of at least $10,000,000 shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled or required prepayment or redemption), purchased or defeased, or an 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 (f) the Borrower or any Material Subsidiary or 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 the Borrower or any Material Subsidiary or 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, administrator or other similar official for it or for any substantial part of its property and assets and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of at least 60 consecutive 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 any substantial part of its property and assets) shall occur; or any event or action analogous to or having a substantially similar effect to any of the events or actions set forth above in this Section 6.01(f) (other than a solvent reorganization) shall occur under the Requirements of Law of any jurisdiction applicable to the Borrower or any Material Subsidiary or Subsidiaries; or the Borrower or any Material Subsidiary or Subsidiaries shall take any corporate, partnership, limited liability company or other similar action to authorize any of the actions set forth above in this Section 6.01(f); or (g) one or more judgments or orders for the payment of money in excess of $10,000,000 in the aggregate shall be rendered against one or more of the Borrower and its Subsidiaries and shall remain unsatisfied and there shall be any period of at least 30 consecutive Business Days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 6.01(g) if and for so long as (A) the amount of such judgment or order which remains unsatisfied is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or (h) one or more nonmonetary judgments or orders (including, without limitation, writs or warrants of attachment, garnishment, execution, distraint or similar process) shall be rendered against the Borrower or any of its Subsidiaries that, either individually or in the aggregate, is reasonably expected to have a Material Adverse Effect and there shall be any period of at least 30 consecutive Business Days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any of the Loan Documents after delivery thereof pursuant to Sections 3.01, 5.01(j) or 5.01(k) shall for any reason (other than pursuant to the terms thereof) cease to be valid and binding on or enforceable against any of the Loan Parties intended to be a party to it, or any such Loan Party shall so state in writing; 86 (j) any Collateral Document or financing statement after delivery thereof pursuant to Sections 3.01, 5.01(j) or 5.01(k) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected Lien on any material portion of the Collateral purported to be covered thereby subject only to Liens permitted thereby; or (k) any of the following events or conditions shall have occurred and such event or condition, when aggregated with any and all other such events or conditions set forth in this subsection (k), has resulted or is reasonably expected to result in liabilities of the Loan Parties and/or the ERISA Affiliates in an aggregate amount exceeding $10,000,000 at any time: (i) any ERISA Event shall have occurred with respect to a Plan; or (ii) any of the Loan Parties or any of the ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or (iii) any of the Loan Parties or any of the ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization, is insolvent or is being terminated, within the meaning of Title IV of ERISA, and, as a result of such reorganization, insolvency or termination, the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all of the Multiemployer Plans that are in reorganization, are insolvent or being terminated at such time have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization, insolvency or termination occurs; or (iv) any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, shall exist with respect to one or more of the Plans, or any Lien shall exist on the property and assets of any of the Loan Parties or any of the ERISA Affiliates in favor of the PBGC or any Plan; or (l) the Borrower or any of its Subsidiaries shall suspend or discontinue all or any part of its businesses and operations other than in the ordinary course of business and such suspension or discontinuance, in the aggregate, is reasonably expected to have a Material Adverse Effect; or (m) a Change of Control shall occur; (n) an "Event of Default" (as defined in any of the Subordinated Notes Documents) shall have occurred and be continuing under the respective Subordinated Notes Documents; or (o) The Borrower or any Subsidiary, in each case to the extent it is engaged in the business of providing services for which Medicare or Medicaid reimbursement is sought, shall for any reason, including, without limitation, as the result of any finding, designation or decertification, lose its right or authorization, or otherwise fail to be eligible, to participate in Medicaid or Medicare programs or to accept assignments or rights to reimbursements under Medicaid regulations or Medicare regulations, or the Borrower or any Subsidiary has, for any reason, had its right to receive reimbursements under Medicaid or Medicare regulations suspended, and such loss, failure or suspension (together with all such other losses, failures and suspensions continuing at such time) shall have resulted in (x) a Material Adverse Effect or (y) 87 Consolidated net operating revenues for the immediately preceding four fiscal quarter period of the Borrower constituting less than 95% of Consolidated net operating revenues for any preceding four fiscal quarter period of the Borrower; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Commitments of each of the Lender Parties and the obligation of each of the Lender Parties to make Advances (other than Letter of Credit Advances by the Issuing Bank or any of the Revolving Credit Lenders pursuant to Section 2.03(c)(i) and Swing Line Advances by any of the Revolving Credit Lenders pursuant to Section 2.02(b)(ii)) and of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, (A) by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under or in respect of this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower and (B) by notice to each party required under the terms of any agreement in support of which a Letter of Credit is issued, request that all of the Obligations under such agreement be declared to be due and payable; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party under the United States Federal Bankruptcy Code or a similar order or action under any other Requirements of Law covering the protection of creditors' rights or the relief of debtors applicable to any Loan Party, (1) the Commitments of each of the Lender Parties and the obligation of each of the Lender Parties to make Advances (other than Letter of Credit Advances by the Issuing Bank or any of the Revolving Credit Lenders pursuant to Section 2.03(c)(i) and Swing Line Advances by any of the Revolving Credit Lenders pursuant to Section 2.02(b)(ii)) and of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (2) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If -------------------------------------------------------- any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent in same day funds at the Administrative Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party under the United States Federal Bankruptcy Code or a similar order or action under any other Requirements of Law covering the protection of creditors' rights or the relief of debtors applicable to any Loan Party, the Borrower, without requirement of demand by the Administrative Agent or any other Person, will forthwith pay to the Administrative Agent in same day funds at the Administrative Agent's office for deposit in the L/C Cash Collateral Account an amount equal to such aggregate Available Amount. If at any time the Administrative Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Secured Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Bank or Revolving Credit Lenders, as applicable, in the manner provided for in the Security Agreement and to the extent permitted by applicable law. 88 ARTICLE VII THE AGENTS SECTION 7.01. Appointment, Powers and Immunity. -------------------------------- (a) Each Lender Party (in its capacities as a Lender, the Swing Line Bank (if applicable), the Issuing Bank (if applicable) and on behalf of itself and its Affiliates as potential Hedge Banks) hereby appoints and authorizes the Administrative Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 7.05(a) and the first sentence of Section 7.06 shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (i) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender Party; (ii) shall not be responsible to the Lender Parties for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document, or any other document referred to or provided for therein or for any failure by any Loan Party or any other Person to perform any of its obligations thereunder; (iii) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Loan Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Loan Party or any of its Subsidiaries or Affiliates; (iv) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (v) shall not be responsible for any action taken or omitted to be taken by it or any of its directors, officers, agents or employees under or in connection with any Loan Document, except for its or their own gross negligence or willful misconduct. (b) The Administrative Agent shall also act as the "collateral agent" under the Loan Documents, and each of the Lender Parties (in its capacities as a Lender, the Swing Line Bank (if applicable), Issuing Bank (if applicable) hereby appoints and authorizes the Administrative Agent to act as the agent of such Lender Party for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. The Administrative Agent may from time to time in its discretion appoint any of the other Lender Parties or any of the affiliates of a Lender Party to act as its co-agent or sub-agent or its attorney-in-fact for any purpose, including for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents or of exercising any rights and remedies thereunder at the direction of the Administrative Agent, and the Administrative Agent shall not be responsible for the negligence or misconduct of any such co-agents, sub-agents or attorneys-in-fact selected by it with reasonable care. In this connection, the Administrative Agent, as "collateral agent", and such co-agents, sub-agents and attorneys-in-fact shall be entitled to the benefits of all provisions of this Article VII (including, without limitation, Section 7.05, as 89 though such co-agents, sub-agents and attorneys-in-fact were the "collateral agent" under the Loan Documents) as if set forth in full herein with respect thereto. (c) The Book Managers, the Syndication Agent and the Documentation Agents shall not have any powers or discretion under this Agreement or any of the other Loan Documents other than those bestowed upon it as a co-agent or sub-agent from time to time by the Administrative Agent pursuant to subsection (b) of this Section 7.01, and each of the Lender Parties hereby acknowledges that the Book Managers, the Syndication Agent and the Documentation Agents shall not have any liability under this Agreement or any of the other Loan Documents. SECTION 7.02. Reliance by Agent. The Administrative Agent shall be entitled ----------------- to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Loan Party), independent accountants, and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until the Administrative Agent receives and accepts an Assignment and Assumption executed in accordance with Section 8.07. As to any matters not expressly provided for by this Agreement, the Administrative 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 Required Lenders or, to the extent any action requires the consent of all Lenders as specifically provided in Section 8.01, upon the instructions of all Lenders, and such instructions shall be binding on all of the Lender Parties; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to any Loan Document or applicable Requirements of Law or unless it shall first be indemnified to its satisfaction by the Lender Parties against any and all liability and expense which may be incurred by it by reason of taking any such action. SECTION 7.03. Defaults. The Administrative Agent shall not be deemed to -------- have knowledge or notice of the occurrence of a Default or Event of Default unless the Administrative Agent has received written notice from a Lender Party or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, the Administrative Agent shall give prompt notice thereof to the Lender Parties. The Administrative Agent shall (subject to Section 7.02) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders or, to the extent any action requires the consent of all Lenders as specifically provided in Section 8.01, then as directed by all Lenders; provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lender Parties. SECTION 7.04. CSFB and Affiliates. With respect to its Commitments, the ------------------- Advances made by it and the Note or Notes issued to it, CSFB (and any successor acting as the Administrative Agent) in its capacity as a Lender Party hereunder shall have the same rights and powers under the Loan Documents as any other Lender Party and may exercise the same as though it were not acting as the Administrative Agent; and the term "Lender Party" or "Lender Parties" shall, unless otherwise expressly indicated, include CSFB in its individual capacity. CSFB (and any successor acting as the Administrative Agent), and its affiliates may (without having to account therefor to any Lender Party) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Loan Party or any of its Subsidiaries or Affiliates as if it were not acting as an 90 Agent, and CSFB (and any successor acting as the Administrative Agent), and its affiliates may accept fees and other consideration from any Loan Party or any of its Subsidiaries or Affiliates, or any Person that may do business with or own securities of any Loan Party or any such Subsidiary or Affiliate, for services in connection with this Agreement or otherwise without having to account for the same to the Lender Parties. SECTION 7.05. Indemnification. --------------- (a) The Lenders severally agree to indemnify the Administrative Agent (to the extent not promptly reimbursed under Section 8.04, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Administrative Agent under any Loan Document (collectively, the "Indemnified Costs"); provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person to be indemnified. In the case of any claim, investigation, litigation or proceeding for which indemnity under this Section 7.05(a) applies, such indemnity shall apply whether or not such claim, investigation, litigation or proceeding is brought by the Administrative Agent, any of the other Agents, any of the Lender Parties or a third party. Without limitation of the foregoing, each Lender severally agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 8.04, to the extent that the Administrative Agent is not promptly reimbursed for such costs and expenses (including, without limitation, fees and expenses of counsel) by the Borrower. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05 applies whether any such investigation, litigation or proceeding is brought by any Lender Party or any other Person. The failure of any Lender Party to reimburse the Administrative Agent promptly upon demand for its ratable share of any amount required to be paid by the Lender Party to the Administrative Agent as provided herein shall not relieve any other Lender Party of its obligation hereunder to reimburse the Administrative Agent for its ratable share of such amount, but no Lender Party shall be responsible for the failure of any other Lender Party to reimburse the Administrative Agent for such other Lender Party's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender Party hereunder, the agreement and obligations of each Lender contained in this Section 7.05(a) shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. (b) The Revolving Credit Lenders severally agree to indemnify the Issuing Bank (to the extent not promptly reimbursed under Section 8.04, but without limiting the obligations of the Borrower under such Section) for such Revolving Credit Lender's Pro Rata Share of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Issuing Bank in any way relating to or arising out of the Loan Documents or the transactions contemplated thereby or any action taken or omitted by the Issuing Bank under the Loan Documents; provided, however, that no Revolving Credit Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Issuing Bank's gross negligence or willful misconduct. In the case of any claim, investigation, litigation or proceeding for which indemnity under this Section 7.05(b) applies, such indemnity shall apply whether or not such claim, investigation, litigation or proceeding is brought by the Issuing Bank, any of the other Lender 91 Parties or a third party. Without limitation of the foregoing, each Revolving Credit Lender severally agrees to reimburse the Issuing Bank promptly upon demand for its Pro Rata Share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrower under Section 8.04, to the extent that the Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrower. The failure of any Revolving Credit Lender to reimburse the Issuing Bank promptly upon demand for its Pro Rata Share of any amount required to be paid by the Revolving Credit Lenders to the Issuing Bank as provided herein shall not relieve any other Revolving Credit Lender of its obligation hereunder to reimburse the Issuing Bank for its Pro Rata Share of such amount, but no Revolving Credit Lender shall be responsible for the failure of any other Revolving Credit Lender to reimburse the Issuing Bank for such other Revolving Credit Lender's Pro Rata Share of such amount. Without prejudice to the survival of any other agreement of any Revolving Credit Lender hereunder, the agreement and obligations of each Revolving Credit Lender contained in this Section 7.05(b) shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 7.06. Non-Reliance on Agent and Other Lender Parties. Each Lender ---------------------------------------------- Party agrees that it has, independently and without reliance on any Agent or any other Lender Party, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Loan Parties and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon any Agent or any other Lender Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lender Parties by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender Party with any credit or other information concerning the affairs, financial condition, or business of any Loan Party or any of its Subsidiaries or Affiliates that may come into the possession of the Administrative Agent or any of its affiliates. SECTION 7.07. Resignation of Administrative Agent. The Administrative Agent ----------------------------------- may resign at any time by giving notice thereof to the Lender Parties and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lender Parties, appoint a successor Administrative Agent which shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having combined capital and surplus of at least $100,000,000. If within 30 days after written notice is given of the retiring Administrative Agent's resignation under this Section 7.07 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 30th day (a) the retiring Administrative Agent's resignation shall become effective, (b) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (c) the Required Lenders shall thereafter perform all duties and obligations of the retiring Administrative Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above in this Section 7.07. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor and upon the execution and filing or recording of such financing statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's 92 resignation hereunder as Administrative Agent, the provisions of this Article VII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. SECTION 7.08. Release of Collateral. Upon the payment of all Notes and all --------------------- other amounts payable under the Loan Documents, the termination of all Letters of Credit and the termination of all commitments of the Lender Parties hereunder, the Lender Parties hereby agree that all Collateral is released from the security interest granted under the respective Collateral Documents, and upon (i) the sale, lease, transfer or other disposition of any item of Collateral of any Loan Party, (ii) the issuance or sale pursuant to Section 5.02(m)(iii) of any Equity Interests causing a Subsidiary of the Borrower to cease to be wholly-owned by the Borrower or any of its Subsidiaries, in each case in accordance with the terms of the Loan Documents, the Lender Parties hereby agree that such item of Collateral in the case of clause (i), or all Collateral owned by such Subsidiary in the case of clause (ii), shall be released from the security interest granted under the respective Collateral Documents. In connection therewith, the Lender Parties hereby irrevocably authorize the Administrative Agent to release any such Collateral. The Administrative Agent will, at the Borrower's expense, execute and deliver to the respective Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the security interest granted under the Collateral Documents. SECTION 7.09. Release of Guarantor. Upon the sale of outstanding shares of -------------------- capital stock and other equity, ownership and profit interests in any Guarantor in a transaction which is permitted under Section 5.02(e) and, if applicable, 5.02(m)(iii), then upon request by the Borrower, the Administrative Agent, on behalf of each Lender Party, shall confirm in writing that the liability of such Guarantor under the Subsidiary Guarantee is released and discharged effective when such transaction is consummated and all requirements hereunder in connection therewith are satisfied, including with respect to the application of the proceeds of such sale. Such confirmation from the Administrative Agent (a) shall establish conclusively that the liability of such Guarantor under the Subsidiary Guarantee is released and discharged and (b) may be relied on, without further inquiry, by the purchaser in such transaction and each of its transferees. Each Lender Party hereby irrevocably authorizes the Administrative Agent to release any Guarantor from time to time to the extent provided for herein and to execute any document reasonably required in connection therewith. SECTION 7.10. Actions in Respect of Intercreditor Agreement. The Lenders --------------------------------------------- and the Issuing Banks hereby authorize the Administrative Agent, in its capacity as Administrative Agent on behalf of the Lenders and the Issuing Banks, to enter into the Intercreditor Agreement and hereby consent to the Administrative Agent acting as Collateral Agent under the Intercreditor Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of --------------- this Agreement, the Notes, or any of the other Loan Documents (except to the extent otherwise expressly provided for therein), nor consent to any departure by any of the Loan Parties therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, 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: (a) no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any of the Lenders that is, at such time, a Defaulting Lender), do any of the following at any time: 93 (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extensions of Credit, Section 3.02; (ii) change the number of Lenders or the percentage of the Commitments or the aggregate outstanding principal amount of Advances or the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Lender Parties or any of them to take any action hereunder; (iii) except to the extent contemplated herein, release all or substantially all of the Guarantors that are a party to the Subsidiary Guarantee from their Obligations thereunder in any transaction or series of related transactions; (iv) release all or substantially all of the Collateral in any transaction or series of related transactions; (v) amend Section 2.13 or this Section 8.01; or (vi) amend the definition of Interest Period to include additional monthly periods for setting the duration of an Interest Period. (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each of the Lenders (other than any of the Lenders that is, at such time, a Defaulting Lender) that has a Commitment under the Term Facilities or the Revolving Credit Facility or is owed any amounts under or in respect thereof, if such Lender is directly affected by such amendment, waiver or consent: (i) increase the Commitments of such Lender or subject such Lender to any additional Obligations; (ii) reduce the principal or interest rate of, or interest on, any Advance of such Lender or any fees or other amounts payable hereunder to such Lender; (iii) postpone any date scheduled for any payment of principal of, or interest on, any Advance of such Lender or any fees or other amounts payable to such Lender; or (iv) change the order of application of any prepayment set forth in Section 2.06 in any manner that materially affects such Lender; 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 Lenders required above to take such action, affect the rights or duties of the Swing Line Bank or the Issuing Bank, respectively, under this Agreement or any of the other Loan Documents; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any of the other Loan Documents. Notwithstanding any of the foregoing provisions of this Section 8.01, none of the defined terms set forth in Section 1.01 shall be amended, supplemented or otherwise modified hereafter in any manner that would change the meaning, purpose or effect of this Section 8.01 or any Section referred to herein unless such amendment, supplement or modification is agreed to in writing by the number and percentage of Lenders (and the Issuing Bank, the Swing Line Bank and 94 Administrative Agent, in each case if applicable) otherwise required to amend such Section under the terms of this Section 8.01. SECTION 8.02. Notices, Etc. ------------ (a) All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and mailed, telecopied or delivered, if to the Borrower, at its address at 21250 Hawthorne Blvd., Suite 800, Torrance, California 90503 (Telecopier (310) 792-9281), Attention: Chief Financial Officer with a copy to Borrower's general counsel at the same address (Telecopier (310) 792-0044); if to any Initial Lender, the Swing Line Bank or the Initial Issuing Bank, at its Base Rate Lending Office specified opposite its name on Schedule I hereto; if to any other Lender Party, at its Base Rate Lending Office specified in the Assignment and Assumption pursuant to which it became a Lender Party; and if to the Administrative Agent, at its address at Eleven Madison Avenue, New York, New York 10010-3629, Attention: Agency Group Manager; or, as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. All such notices and other communications shall, when mailed or telecopied, be effective when deposited in the mails, or transmitted by telecopier, respectively, except that notices and communications to any Agent pursuant to Article II, III or VII shall not be effective until received by such Agent. Delivery by telecopier of an executed counterpart of a signature page to any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. (b) If any notice required under this Agreement is permitted to be made, and is made, by telephone, actions taken or omitted to be taken in reliance thereon by the Administrative Agent or any of the Lender Parties shall be binding upon the Borrower and the other Loan Parties notwithstanding any inconsistency between the notice provided by telephone and any subsequent writing in confirmation thereof provided to the Administrative Agent or such Lender Party; provided that any such action taken or omitted to be taken by the Administrative Agent or such Lender Party shall have been in good faith and in accordance with the terms of this Agreement. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender ------------------- Party or any Agent to exercise, and no delay in exercising, any right, power or privilege hereunder or under any Note or any other Loan Document shall operate as a waiver thereof or consent thereto; nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by applicable law. SECTION 8.04. Costs and Expenses. ------------------ (a) The Borrower agrees to pay on demand (i) all costs and expenses of each Agent in connection with the syndication, preparation, execution, delivery, administration, modification and amendment of, or any consent or waiver under, the Loan Documents and the other documents to be delivered thereunder (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Administrative Agent (including the cost of internal counsel) with respect thereto, with respect to advising such Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents), and (ii) all costs and expenses of 95 each Agent and each Lender Party in connection with the enforcement of the Loan Documents and the other documents to be delivered thereunder, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel (including the cost of internal counsel) for the Administrative Agent and each Lender Party with respect thereto). (b) The Borrower agrees to indemnify, defend and save and hold harmless each Agent, each Lender Party and each of their affiliates and their respective affiliates, officers, directors, trustees, employees, agents and advisors (each, an "Indemnified Party") from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the Transaction (or any aspect thereof), Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents, or any of the transactions contemplated thereby; (ii) any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries or Affiliates of all or any portion of the Equity Interests in or Debt securities or substantially all of the property and assets of any other Person; or (iii) the actual or alleged presence of Hazardous Materials on any property of any Loan Party or any of its Subsidiaries or any Environmental Action relating in any way to any Loan Party or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct or have arisen after such Loan Party or Subsidiary is dispossessed of or relinquishes its interest in such property. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any other Person, whether or not any Indemnified Party is otherwise a party thereto and whether or not the Transaction or any of the other transactions contemplated hereby is consummated. If and to the extent that the indemnity in this subsection (b) is unenforceable for any reason other than by operation of the last clause of the first sentence of this subsection 8.04(b), the Borrower hereby agrees to make to each applicable Indemnified Party the maximum contribution to the payment of the claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) for which the indemnity in this subsection (b) has been determined to be unenforceable that is permitted under applicable law. The Borrower also agrees not to assert any claim against any Agent, any Lender Party or any of their respective affiliates, officers, directors, trustees, employees, agents and advisors, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Transaction (or any aspect thereof) Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents, or any of the other transactions contemplated hereby. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender Party other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender Party other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 8.07 as a result of a demand by the Borrower pursuant to Section 8.07(a), or if the Borrower fails to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to 97 Section 2.04, 2.06 or 6.01 or otherwise, the Borrower shall, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party any amounts required to compensate such Lender Party for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender Party to fund or maintain such Advance. (d) If any Loan Party fails to pay when due, after the expiration of any grace period, if applicable, any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnification payments, such amount may be paid on behalf of such Loan Party by the Administrative Agent or any Lender Party, in its sole discretion. (e) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrower contained in Sections 2.10 and 2.13 and this Section 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 8.05. Right of Set-off. Upon (a) the occurrence and during the ---------------- continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and each Lender Party and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise 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 Agent, such Lender Party or such Affiliate 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 the Loan Documents, irrespective of whether such Agent or such Lender Party shall have made any demand under this Agreement or such Note or Notes and although such Obligations may be unmatured. Each Agent and each Lender Party agrees promptly to notify the Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender Party and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Lender Party and their respective Affiliates may have. SECTION 8.06. Successors and Assigns. (a) The provisions of this Agreement ---------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender Party and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with Section 8.07(a), (ii) by way of participation in accordance with Section 8.07(e), or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 8.07(f) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 8.07(e) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lender Parties) any legal or equitable right, remedy or claim under or by reason of this Agreement. 98 SECTION 8.07. Assignments and Participations. ------------------------------ (a) (i) Any Lender may, and (ii) so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default has occurred and is continuing, if demanded by the Borrower (following (x) a demand by such Lender for the payment of additional compensation pursuant to Section 2.10(a), 2.10(b) or 2.13 or (y) an assertion by such Lender pursuant to Section 2.10(c) or 2.10(d) that it is impractical or unlawful for such Lender to make Eurodollar Rate Advances), upon at least five Business Days' notice to such Lender and the Administrative Agent, each of the Lenders will, at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it, the Note or Notes held by it and its participation in reimbursement obligations of the Borrower in respect of Letters of Credit); provided that: (A) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment or Commitments, the Advances owing to it, the Note or Notes held by it, its participation in reimbursement obligations of the Borrower in respect of Letters of Credit or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Advances outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Advance of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $2,500,000, in the case of any assignment in respect of the Revolving Credit Facility, or $1,000,000, in the case of any assignment in respect of the Term Loan Facility, unless each of the Administrative Agent and, so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default has occurred and is continuing, the Borrower otherwise consent (each such consent not to be unreasonably withheld or delayed); (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Advance or the Commitment assigned, except that this clause (B) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis; (C) any assignment of a Revolving Credit Commitment must be approved by the Administrative Agent and the Issuing Bank unless the Person that is the proposed assignee is itself a Lender with a Revolving Credit Commitment (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee); (D) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with any Note or Notes subject to such assignment and, except in the case of an assignment by any of the Lenders to an Affiliate or an Approved Fund of such Lender, a processing and recordation fee of $3,500 (and in the case of assignments on the same day by a Lender to more than one fund managed or advised by the same investment 99 advisor (which funds are not then Lenders hereunder), only a single $3,500 processing and recordation fee shall be payable for all such assignments by such Lender to such funds), at the discretion of the Administrative Agent, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; (E) the Swing Line Bank may not assign or otherwise transfer to any other Person any of its rights or obligations under its Swing Line Commitment. (F) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(a)(ii) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement. (b) Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 8.07(c), from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender or the Issuing Bank under this Agreement, and the assigning Lender or Issuing Bank thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's or Issuing Bank's rights and obligations under this Agreement, such Lender or Issuing Bank shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.10, 2.13 and 8.04 (and other similar provisions of the other Loan Documents to survive the payment in full of the Obligations of the Loan Parties under or in respect of the Loan Documents) with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with this Section 8.07(d). (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at its office as set forth in Section 8.02, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lender Parties, and the Commitments of, and principal amounts of the Advances owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lender Parties may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender Party hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Administrative Agent shall (i) upon the request by the Borrower or any Lender Party, provide a copy of the Register to the Borrower or such Lender Party, and (ii) upon its receipt of an Assignment and Assumption executed by an assigning Lender Party or Issuing Bank and an assignee, together with any Note or Notes subject to such assignment, if such Assignment and Assumption has been completed and is in substantially the form of Exhibit C hereto, (x) accept such Assignment and Assumption, and (y) record the information contained therein in the Register. In the case of any assignment by a Lender Party, the Borrower shall, at its own expense, and upon request by the Administrative Agent or any assignee, execute and deliver to 100 the Administrative Agent in exchange for the surrendered Note or Notes a new Note or Notes from the Borrower payable to or to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it under each Facility pursuant to such assignment and Assumption and, if the assigning Lender Party has retained a Commitment under such Facility, a new Note or Notes from the Borrower payable to or to the order of the assigning Lender Party in an amount equal to the Commitment retained by it under such Facility. Each of the new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Assumption and shall otherwise be in substantially the form of Exhibit A-1, Exhibit A-2 or Exhibit A-3 hereto, as appropriate. (d) Any Lender Party may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such Lender Party's rights and/or obligations under this Agreement (including all or a portion of its Commitment or Commitments, the Advances owing to it, the Note or Notes, if any, held by it and its participation, if any, in reimbursement obligations of the Borrower in respect of Letters of Credit); provided that: (i) such Lender Party's obligations under this Agreement shall remain unchanged, (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lender Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender Party sells such a participation shall provide that such Lender Party shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender Party will not, without the consent of the Participant, agree to any amendment, modification or waiver described in Section 8.01(a) or (b) that affects such Participant. Subject to Section 8.07(e), the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.10, 2.13 and 8.04 to the same extent as if it were a Lender Party and had acquired its interest by assignment pursuant to Section 8.07(a). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.05 as though it were a Lender Party. (e) A Participant shall not be entitled to receive any greater payment under Sections 2.10, 2.13 and 8.04 than the applicable Lender Party would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a foreign lender party if it were a Lender Party shall not be entitled to the benefits of Section 2.13 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.13 as though it were a Lender Party. (f) Any Lender Party may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender Party, 101 including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender Party from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender Party as a party hereto. In the case of any Lender that is a fund that invests in bank loans, such Lender may, without the consent of the Borrower or Administrative Agent, assign or pledge all or any portion of its rights under this Agreement, including the Loans and Notes or any other instrument evidencing its rights as a Lender under this Agreement, to any holder of, trustee for, or any other representative of holders of, obligations owed or securities issued, by such fund, as security for such obligations or securities; provided that any foreclosure or similar action by such trustee or representative shall be subject to the provisions of this Section 8.07 concerning assignments. (g) Notwithstanding anything to the contrary contained herein, any Lender Party (a "Granting Lender") may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an "SPC") the option to provide all or any part of any Advance that such Granting Lender would otherwise be obligated to make pursuant to this Agreement, provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Advance, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto hereby agrees that (i) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender Party would be liable, (ii) no SPC shall be entitled to the benefits of Sections 2.10 and 2.13 (or any other increased costs protection provision) and (iii) the Granting Lender shall for all purposes, including, without limitation, the approval of any amendment or waiver of any provision of any Loan Document, remain the Lender Party of record hereunder. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior Debt of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained in this Agreement, any SPC may (i) with notice to, but without prior consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or any portion of its interest in any Advance to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Advances to any rating agency, commercial paper dealer or provider of any surety or guarantee or credit or liquidity enhancement to such SPC. This subsection (g) may not be amended without the prior written consent of each Granting Lender, all or any part of whose Advances are being funded by the SPC at the time of such amendment. (h) In the event that the Borrower shall request that the Lender Parties enter into any amendment, modification, consent or waiver with respect to this Agreement or any other Loan Document, and any Lender Party elects not to enter into such amendment, modification, consent or waiver (each such Lender Party being a "Dissenting Lender"), then the Borrower shall have the right upon 10 days' written notice to the Administrative Agent and such Dissenting Lender, to require each such Dissenting Lender to assign 100% of the rights and obligations of the Dissenting Lender at par to any Lender or any other financial institution which satisfies the requirements of Section 8.07(a) and has been consented to by the Administrative Agent, the Swing Line Lender and in the case of any assignment of a Revolving Credit Commitment each Issuing Bank (which consents in the case of the Administrative Agent and the Swing Line Lender 102 shall not be unreasonably withheld or delayed). Each such assignment shall be made pursuant to an Assignment and Assumption and shall comply with the other terms of this Section 8.07. The Borrower shall pay to such Dissenting Lender, concurrently with the effectiveness of such assignment, any amounts payable under this Agreement that would have been payable if the Borrower had voluntarily prepaid such Advances. The Dissenting Lender shall not be required to pay any fee relating to such assignment. SECTION 8.08. 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. Delivery by telecopier of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 8.09. No Liability of the Issuing Bank. The Borrower assumes all -------------------------------- risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) the Issuing Bank's willful misconduct or gross negligence, or failure to conform with the standards specified in Section 5-108 of the UCC, as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, but subject to Section 5-109(a) of the UCC, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 8.10. Confidentiality. Neither any Agent nor any Lender Party shall --------------- disclose any Confidential Information to any Person without the consent of the Borrower, other than (a) to such Agent's or such Lender Party's Affiliates and their officers, directors, employees, agents and advisors, to other Lender Parties and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, Federal or foreign authority or examiner (including the National Association of Insurance Commissioners or any similar organization or quasi-regulatory authority) regulating such Lender Party, (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender Party in accordance with such rating agency's internal procedures generally applicable to information of the same type, (e) in connection with any litigation or proceeding to which such Agent or such Lender Party or any of its Affiliates may be a party, (f) in connection with the exercise of any remedy under this Agreement or any other Loan Document, or (g) to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section 8.10). 103 SECTION 8.11. 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. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.12. Governing Law, Jurisdiction, Etc. --------------------------------- (a) This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York (without reference to conflict of laws provisions). (b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property and assets, to the nonexclusive jurisdiction of any New York State court or any federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment in respect thereof, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted under applicable law, in any such federal court. Each of the parties hereto hereby irrevocably consents to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to such party, at its address specified in Section 8.02, or by any other method permitted under applicable law. Each of the parties hereto hereby 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 applicable law. Nothing in this Agreement shall affect any right that any of the parties hereto may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (c) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.13. Designation as Designated Senior Debt. This Agreement, the ------------------------------------- Subsidiary Guarantee, the Loan Documents and all monetary obligations hereunder or thereunder are hereby expressly designated as "Designated Senior Indebtedness" as that term (or any comparable term) is defined in the Subordinated Notes Documents. 104 SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND -------------------- THE LENDER PARTIES IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE ADVANCES, THE LETTERS OF CREDIT OR THE ACTIONS OF ANY AGENT OR ANY LENDER PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. 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. DAVITA INC., as Borrower By ----------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH, as an Issuing Bank, as Swing Line Bank, as an Initial Lender, as a Book Manager and as Administrative Agent By ---------------------------------- Name: Title: By ---------------------------------- Name: Title: BANK OF AMERICA, N.A., as Syndication Agent and an Initial Lender By ---------------------------------- Name: Title: BANC OF AMERICA SECURITIES LLC, as a Book Manager By ---------------------------------- Name: Title: THE BANK OF NEW YORK, as a Documentation Agent and an Initial Lender By ---------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as a Documentation Agent and an Initial Lender By --------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, as a Documentation Agent and an Initial Lender By --------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH, as an Initial Lender By -------------------------------- Name: Title: ABBEY NATIONAL TREASURY SERVICES PLC (U.S. BRANCH) By ------------------------------- Name: Title: By ------------------------------- Name: Title: SCHEDULE I COMMITMENTS AND APPLICABLE LENDING OFFICES
======================================================================================================================= Term A Term B Revolving Credit Swing Line Letter of Credit Name of Initial Lender Party Commitment Commitment Commitment Commitment Commitment/1/ - ----------------------------------------------------------------------------------------------------------------------- Credit Suisse First Boston, $33,962,264.15 $850,000,000.00 $26,037,735.85 $25,000,000.00 $38,548,000.00 Cayman Islands Branch 11 Madison Avenue New York, NY 10010-3629 - ----------------------------------------------------------------------------------------------------------------------- Bank of America, N.A. $33,962,264.15 $26,037,735.85 $11,452,000.00 100 North Tryon Street 15th Floor Charlotte, NC 28255 - ----------------------------------------------------------------------------------------------------------------------- The Bank of New York $22,641,509.43 $17,358,490.57 One Wall Street, 22nd Floor New York, NY 10286 ======================================================================================================================= The Bank of Nova Scotia $22,641,509.43 $17,358,490.57 Loan Accounting One Liberty Plaza, 24th Floor New York, NY 10006 =======================================================================================================================

=========================================================================================== Base Rate Eurodollar Lending Lending Name of Initial Lender Party Office Office - ------------------------------------------------------------------------------------------- Credit Suisse First Boston, 11 Madison Avenue 11 Madison Avenue Cayman Islands Branch New York, NY 10010-3629 New York, NY 10010-3629 11 Madison Avenue Contact: William Lutkins Contact: Nilsa Ware New York, NY Phone: (212) 325-9705 Phone: (212) 322-5094 10010-3629 Fax: (212) 325-8319 Fax: (212) 335-0593 - ------------------------------------------------------------------------------------------- Bank of America, N.A. Independence Centre, 15th Fl. Independence Centre, 15th Fl. 100 North Tryon Street NC1-001-15-04 NC1-001-15-04 15th Floor Charlotte, NC 28255 Charlotte, NC 28255 Charlotte, NC 28255 Attention: Elizabeth Garver Attention: Elizabeth Garver Phone: (704) 388-1107 Phone: (704) 388-1107 Fax: (704) 386-9923 Fax: (704) 386-9923 - ------------------------------------------------------------------------------------------- The Bank of New York The Bank of New York The Bank of New York One Wall Street, 22nd Floor One Wall Street, 22nd Floor One Wall Street, 22nd Floor New York, NY 10286 New York, NY 10286 New York, NY 10286 Contact: Zina Gregory Contact: Zina Gregory Phone: (212) 635-6732 Phone: (212) 635-6732 Fax: (212) 635-6397 Fax: (212) 635-6397 =========================================================================================== The Bank of Nova Scotia The Bank of Nova Scotia The Bank of Nova Scotia Loan Accounting Loan Accounting Loan Accounting One Liberty Plaza, 24th Floor One Liberty Plaza, 24th Floor One Liberty Plaza, 24th Floor New York, NY 10006 New York, NY 10006 New York, NY 10006 Contact: Ross Coomber Contact: Ross Coomber Phone: (212) 225-5400 Phone: (212) 225-5400 Fax: (212) 225-6464 Fax: (212) 225-6464 ===========================================================================================
- -------- /1/ Less the aggregate amount of Existing Letters of Credit pursuant to Section 2.01(e) in the amount of [$] as of the date hereof.
======================================================================================================================= Term A Term B Revolving Credit Swing Line Letter of Credit Name of Initial Lender Party Commitment Commitment Commitment Commitment Commitment/1/ - ----------------------------------------------------------------------------------------------------------------------- Wachovia Bank, $22,641,509.43 $17,358,490.57 National Association 301 S. College Street, 5th Floor Charlotte, NC 28288-0760 - ----------------------------------------------------------------------------------------------------------------------- Credit Lyonnais $8,490,566.04 $6,509,433.96 New York Branch 1301 Avenue of the Americas New York, NY 10019 - ----------------------------------------------------------------------------------------------------------------------- Abbey National Treasury $5,660,377.36 $4,339,622.64 Services plc (U.S. Branch) 400 Atlantic Street Stamford, CT 06901 ======================================================================================================================= TOTAL: $150,000,000.00 $850,000,000.00 $115,000,000.00 $25,000,000.00 $50,000,000.00

======================================================================================== Name of Initial Lender Party Base Rate Eurodollar Lending Lending Office Office - ---------------------------------------------------------------------------------------- Wachovia Bank, Wachovia Bank, Wachovia Bank, National Association National Association National Association 301 S. College Street, 301 S. College Street, 5th 301 S. College Street, 5th 5th Floor Floor Floor Charlotte, NC 28288-0760 Charlotte, NC 28288-0760 Charlotte, NC 28288-0760 Contact: Doug Davis Contact: Doug Davis Director Director Phone: (704) 715-2370 Phone: (704) 715-2370 Fax: (704) 374-4793 Fax: (704) 374-4793 Email: doug.davis@ Email: doug.davis@ wachovia.com wachovia.com - ---------------------------------------------------------------------------------------- Credit Lyonnais Credit Lyonnais Credit Lyonnais New York Branch New York Branch New York Branch 1301 Avenue of the Americas 1301 Avenue of the Americas 1301 Avenue of the Americas New York, NY 10019 New York, NY 10019 New York, NY 10019 Contact: Gener David, Contact: Gener David, Loan Administrator Loan Administrator Phone: (212) 261-7741 Phone: (212) 261-7741 Fax: (212) 459-3181 Fax: (212) 459-3181 Email: gener.david Email: gener.david @CLAmericas.com @CLAmericas.com - ---------------------------------------------------------------------------------------- Abbey National Treasury 400 Atlantic Street 400 Atlantic Street Services plc (U.S. Branch) Stamford, CT 06901 Stamford, CT 06901 400 Atlantic Street Contact: Hans J. Scholz Contact: Hans J. Scholz Stamford, CT 06901 Phone: (203) 355-7911 Phone: (203) 355-7911 Fax: (203) 355-8073 Fax: (203) 355-8073 Email: hans.scholz Email: hans.scholz @antsus.com @antsus.com ========================================================================================
- -------- /1/ Less the aggregate amount of Existing Letters of Credit pursuant to Section 2.01(e) in the amount of [$] as of the date hereof. EX-10.2 4 dex102.txt AMENDMENT NO. 1 TO THE CREDIT AGREEMENT Exhibit 10.2 AMENDMENT NO. 1 Dated as of May 9, 2002 To Credit Suisse First Boston, Cayman Islands Branch ("CSFB") as Administrative Agent (the "Administrative Agent") and the other banks and financial Institutions party to the Credit Agreement (collectively, the "Lenders") referred to below Ladies and Gentlemen: We refer to the Credit Agreement dated as of April 26, 2002, (the "Credit Agreement") among the undersigned and you. Capitalized terms not otherwise defined in this Amendment No. 1 have the same meanings as specified in the Credit Agreement. The Borrower has requested that, on the terms and conditions set forth herein, the Required Lenders amend the Credit Agreement as provided herein, and the parties hereto have agreed to amend the Credit Agreement as follows: (1) Section 2.01(a) of the Credit Agreement is hereby amended by (i) deleting the words "a single advance" and substituting therefor the words "not more than two advances", (ii) inserting the word "each" inside the parentheses immediately preceding the words "a Term A Advance", (iii) deleting the words "tenth Business Day after" and substituting therefor the words "the nine month anniversary of the Closing Date" and (iv) deleting the word "The" immediately preceding the words "Term A Borrowing" and substituting therefor the word "Each." (2) Section 2.01(b) of the Credit Agreement is hereby amended by deleting the words "on the same date as the Term A Advances" and by substituting therefor the words "at any time on or prior to the twentieth Business Day after the Closing Date." (3) Section 2.04(a) of the Credit Agreement is hereby amended by (i) deleting the reference to "(i)" immediately preceding the words "The Borrower" and (ii) inserting the words: "that if the initial Term A Borrowing is not made on or prior to June 30, 2002, then the first repayment of the Term A Advances shall be made on the last Business Day of the Fiscal Quarter in which the initial Term A Borrowing is made and the amount of each scheduled repayment of the Term A Facility referred to above required to be made prior to such date shall be added ratably to the amount of each scheduled repayment of the Term A Facility referred to above following such date; provided further," immediately following the words "provided, however,". (4) Section 2.05(b)(iv) of the Credit Agreement is hereby amended by (i) inserting the words "the earlier of" immediately following the words "permanently reduced on", (ii) deleting the words "Term A Advances" and substituting therefor the words "second Term A Borrowing or the nine 1 month anniversary of the Closing Date", and (iii) deleting the words "made on such date" and substituting therefor the words "theretofore made, including the Term A Advances, if any, made on such date." (5) Section 2.05(b)(v) of the Credit Agreement is hereby amended by (i) inserting the words "the earlier of" immediately following the words "permanently reduced on", (ii) deleting the words "Term B Advances" and substituting therefor the words "Term B Borrowing or the twentieth Business Day after the Closing Date", and (iii) inserting the phrase ", if any," immediately preceding the words "made on such date." (6) Section 2.08(a)(ii) of the Credit Agreement is hereby amended by (i) inserting the words "the earlier of" immediately following the words "Term A Lender until", (ii) deleting the words "Term A Advances, payable on such date" and by substituting therefor the words "second Term A Borrowing or the nine month anniversary of the Closing Date, payable quarterly commencing June 30, 2002, on the last Business Day of each Fiscal Quarter thereafter and on the earlier of the second Term A Borrowing or the nine month anniversary of the Closing Date", (iii) by deleting the percentage "0.50%" and by substituting therefor the percentage "1.75%", (iv) by inserting the word "unused" immediately preceding the words "amount of the respective Term A Lender's" and (v) by inserting the words "during such period" immediately following the words "Term A Commitment." This Amendment No. 1 shall become effective as of the date first written above, when, and only when, the Administrative Agent shall have received by 12:00 pm (Eastern Time) on or before May 9, 2002, (i) counterparts of this Amendment No. 1 by the undersigned and the Required Lenders, or as to any of such Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment No. 1, and (ii) the consent attached hereto executed by each Guarantor. This Amendment No. 1 shall be subject to Section 8.01 of the Credit Agreement. On and after the effectiveness of this Amendment No. 1, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment No. 1. The Credit Agreement and each of the other Loan Documents, as specifically amended by this Amendment No. 1, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment No. 1 shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. If you agree to the terms and provisions hereof, please evidence such agreement by executing and telecopying one signature page to Doreen Welch at CSFB (Telecopier No. (212) 325-8327) and returning at least three counterparts of this Amendment No. 1 to Natalie Allen at Shearman & Sterling, 555 California Street, San Francisco, CA 94104 (Telecopier No. (415) 616-1199). This Amendment No. 1 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. Delivery of an executed counterpart of a signature page to this Amendment No. 1 by telecopier shall be effective as delivery of a 2 manually executed counterpart of this Amendment No. 1. This Amendment No. 1 shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, DAVITA INC By:______________________________ Name: Title: 3 This Amendment No. 1 is agreed to as of the date first above written: CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH, as an Issuing Bank, as Swing Line Bank, as a Lender, as a Book Manager and as Administrative Agent By:______________________________ Name: Title: By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: BANK OF AMERICA, N.A., as Syndication Agent and a Lender By:______________________________ Name: Title: BANC OF AMERICA SECURITIES LLC, as a Book Manager By:______________________________ Name: Title: THE BANK OF NEW YORK, as a Documentation Agent and a Lender By:______________________________ Name: Title: THE BANK OF NOVA SCOTIA, as a Documentation Agent and a Lender By:______________________________ Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, as a Documentation Agent and a Lender By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By:______________________________ Name: Title: ABBEY NATIONAL TREASURY SERVICES PLC (U.S. BRANCH) By:______________________________ Name: Title: By:______________________________ Name: Title: ALLSTATE LIFE INSURANCE COMPANY By:______________________________ Name: Title: AIMCO CDO SERIES 2000-A By:______________________________ Name: Title: AIMCO CLO SERIES 2001-A By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager By:______________________________ Name: Title: AMMC CDO II, LIMITED By: American Money Management Corp., as Collateral Manager By:______________________________ Name: Title: AMERICAN EXPRESS CERTIFICATE COMPANY By: American Express Asset Management Group, Inc., as Collateral Manager By:______________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: CARLYLE HIGH YIELD PARTNERS, L.P. By:______________________________ Name: Title: CARLYLE HIGH YIELD PARTNERS II, LTD. By:______________________________ Name: Title: CARLYLE HIGH YIELD PARTNERS III, LTD. By:______________________________ Name: Title: CARLYLE HIGH YIELD PARTNERS IV, LTD. By:______________________________ Name: Title: CENTURION CDO II, LTD. By: American Express Asset Management Group, Inc., as Collateral Manager By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: CITADEL HILL 2000, LTD. By:______________________________ Name: Title: CLYDESDALE CLO 2001-1, LTD. By:______________________________ Name: Title: DENALI CAPITAL CLO I, LTD By: Denali Capital LLC, managing member of DC Funding Partners LLC, portfolio manager for DENALI CAPITAL CLO I, LTD. By:______________________________ Name: Title: DENALI CAPITAL CLO II, LTD By: Denali Capital LLC, managing member of DC Funding Partners LLC, portfolio manager for DENALI CAPITAL CLO II, LTD. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: DRESDNER BANK AG, NEW YORK AND CAYMAN ISLAND BRANCHES By:______________________________ Name: Title: DRYDEN HIGH YIELD CDO 2001-I By:______________________________ Name: Title: DRYDEN LEVERAGED LOAN CDO 2002-II By:______________________________ Name: Title: EAST WEST BANK By:______________________________ Name: Title: ELF FUNDING TRUST III By: New York Life Investment Management, LLC, as Attorney-in-fact By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: FLEET NATIONAL BANK By:______________________________ Name: Title: FOUR CORNERS CAPITAL MONDRIAN CDO I LTD. By: Four Corners Capital Management LLC, as Collateral Manager By:______________________________ Name: Title: FRANKLIN FLOATING RATE TRUST By:______________________________ Name: Title: FRANKLIN FLOATING RATE MASTER SERIES By:______________________________ Name: Title: FRANKLIN FLOATING RATE DAILY ACCESS By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: FRANKLIN CLO I, LIMITED By:______________________________ Name: Title: FRANKLIN CLO II, LIMITED By:______________________________ Name: Title: FRANKLIN CLO III, LIMITED By:______________________________ Name: Title: HAMILTON FLOATING RATE FUND, LLC By:______________________________ Name: Title: HARBOURVIEW CLO IV, LTD. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: IDS LIFE INSURANCE COMPANY By: American Express Asset Management Group, Inc., as Collateral Manager By:______________________________ Name: Title: IKB CAPITAL CORPORATION By:______________________________ Name: Title: JUPITER FUNDING TRUST By:______________________________ Name: Title: KZH CYPRESSTREE-1 LLC By:______________________________ Name: Title: KZH ING-2 LLC By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: KZH RIVERSIDE LLC By:______________________________ Name: Title: KZH STERLING LLC By:______________________________ Name: Title: KATONAH I, LTD. By:______________________________ Name: Title: KATONAH II, LTD. By:______________________________ Name: Title: KATONAH III, LTD. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: LCM I LIMITED PARTNERSHIP By: Lyon Capital Management, LLC, as Attorney in Fact By:______________________________ Name: Title: MORGAN STANLEY PRIME INCOME TRUST By:______________________________ Name: Title: MUIRFIELD TRADING LLC By:______________________________ Name: Title: NOMURA BOND & LOAN FUND By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: OAK HILL CREDIT PARTNERS I, LIMITED By: Oak Hill CLO Management I, LLC As Investment Manager By:______________________________ Name: Title: OAK HILL CREDIT PARTNERS II, LIMITED By: Oak Hill CLO Management II, LLC As Investment Manager By:______________________________ Name: Title: OAK HILL SECURITIES FUND, L.P. By: Oak Hill Securities GenPar, L.P. its General Partner By: Oak Hill Securities MGP, Inc., its General Partner By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: OAK HILL SECURITIES FUND II, L.P. By: Oak Hill Securities GenPar II, L.P. its General Partner By: Oak Hill Securities MGP II, Inc., its General Partner By:______________________________ Name: Title: OLYMPIC FUNDING TRUST, SERIES 1999-1 By:______________________________ Name: Title: OPPENHEIMER SENIOR FLOATING RATE FUND By:______________________________ Name: Title: SEQUILS-CENTURION V, LTD. By: American Express Asset Management Group, Inc., as Collateral Manager By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: PPM SHADOW CREEK FUNDING LLC By:______________________________ Name: Title: PPM SPYGLASS FUNDING TRUST By:______________________________ Name: Title: PACIFICA PARTNERS I, L.P. By: Imperial Credit Asset Management as Investment Manager By:______________________________ Name: Title: PROMETHEUS INVESTMENT FUNDING NO. 1 LTD. By: CPF Asset Advisors LLC, as Investment Manager By:______________________________ Name: Title: By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: PUTNAM DIVERSIFIED INCOME TRUST By:______________________________ Name: Title: PUTNAM MASTER INCOME TRUST By:______________________________ Name: Title: PUTNAM MASTER INTERMEDIATE INCOME TRUST By:______________________________ Name: Title: PUTNAM PREMIER INCOME TRUST By:______________________________ Name: Title: PUTNAM VARIABLE TRUST - PVT DIVERSIFIED INCOME FUND By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: ROSEMONT CLO, LTD. By: Deerfield Capital Management LLC, as Collateral Manager By:______________________________ Name: Title: SKM-LIBERTY VIEW CBO I LIMITED By:______________________________ Name: Title: THE BANK OF NOVA SCOTIA By:______________________________ Name: Title: SCUDDER FLOATING RATE FUND By:______________________________ Name: Title: SEABOARD CLO 2000 LTD. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: SEQUILS-CENTURION V, LTD. By: American Express Asset Management Group, Inc., as Collateral Manager By:______________________________ Name: Title: SEQUILS-CUMBERLAND I, LTD. By: Deerfield Capital Management, L.L.C., as Collateral Manager By:______________________________ Name: Title: SIERRA CLO I, LTD. By:______________________________ Name: Title: STANWICH LOAN FUNDING LLC By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: THE SUMITOMO TRUST AND BANKING CO., LTD., NEW YORK BRANCH By:______________________________ Name: Title: THERMOPYLAE FUNDING corp. By:______________________________ Name: Title: TORONTO DOMINION (NEW YORK), INC. By:______________________________ Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST By:______________________________ Name: Title: VAN KAMPEN SENIOR INCOME TRUST By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: VENTURE CDO 2002, LIMITED By:______________________________ Name: Title: WINGED FOOT FUNDING TRUST By:______________________________ Name: Title: ATHENA CDO, LIMITED By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: BEDFORD CDO, LIMITED By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: THE BANK OF NEW YORK By: BNY Capital Markets, Inc., as Agent By:______________________________ Name: Title: BRANT POINT II CBO 2000-1 LTD. By:______________________________ Name: Title: BRYN MAWR CLO, LTD. By:______________________________ Name: Title: CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM By: Pacific Investment Management Company LLC, as its Investment Advisor, acting through Investors Fiduciary Trust Company By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: CAPTIVA III FINANCE LTD. As advised by Pacific Investment Management Company LLC By:______________________________ Name: Title: CAPTIVA IV FINANCE LTD. As advised by Pacific Investment Management Company LLC By:______________________________ Name: Title: STANDARD BANK LONDON LIMITED By:______________________________ Name: Title: DELANO COMPANY By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: GALAXY CLO 1999 - I, LTD. By: SAI Investment Adviser Inc. its Collateral Manager By:______________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION By:______________________________ Name: Title: HAMILTON CDO, LTD. By:______________________________ Name: Title: HARBOUR TOWN FUNDING LLC By:______________________________ Name: Title: HARBOURVIEW CLO IV, LTD. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: INTERCONTINENTAL CDO S.A. By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: JISSEKIKUN FUNDING, LTD. By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: JUPITER FUNDING TRUST By:______________________________ Name: Title: KZH CNC LLC By:______________________________ Name: Title: KZH CRESCENT LLC By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: KZH CRESCENT-2 LLC By:______________________________ Name: Title: KZH CRESCENT-3 LLC By:______________________________ Name: Title: KZH CYPRESSTREE-1 LLC By:______________________________ Name: Title: KZH ING-2 LLC By:______________________________ Name: Title: KZH STERLING LLC By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: KZH RIVERSIDE LLC By:______________________________ Name: Title: KZH PONDVIEW LLC By:______________________________ Name: Title: KZH WATERSIDE LLC By:______________________________ Name: Title: KZH SOLEIL LLC By:______________________________ Name: Title: KZH SOLEIL-2 LLC By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: KZH CYPRESSTREE-1 LLC By:______________________________ Name: Title: KZH ING-2 LLC By:______________________________ Name: Title: KZH RIVERSIDE LLC By:______________________________ Name: Title: PIMCO HIGH YIELD FUND By: Pacific Investment Management Company LLC, As its Investment Advisor, acting through Investors Fiduciary Trust Company in the Nominee Name of IFTCO. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: RACE POINT CLO By:______________________________ Name: Title: ROYALTON COMPANY By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: SANKATY HIGH YIELD ASSET PARTNERS, L.P. By:______________________________ Name: Title: SANKATY HIGH YIELD PARTNERS II, L.P. By:______________________________ Name: Title: SANKATY HIGH YIELD PARTNERS III, L.P. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: SAWGRASS TRADING LLC By:______________________________ Name: Title: SEQUILS-MAGNUM, LTD. By: Pacific Investment Management Company LLC, as its Investment Advisor By:______________________________ Name: Title: STANDARD BANK LONDON LIMITED By:______________________________ Name: Title: STANFIELD ARBITRAGE CDO, LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: STANFIELD CLO, LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By:______________________________ Name: Title: STANFIELD QUATTRO CLO, LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By:______________________________ Name: Title: STANFIELD/RMF TRANSATLANTIC CDO, LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By:______________________________ Name: Title: SUNAMERICA LIFE INSURANCE COMPANY By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: SUNAMERICA SENIOR FLOATING RATE FUND INC. By: Stanfield Capital Partners LLC as its subadvisor By:______________________________ Name: Title: SUNAMERICA SENIOR FLOATING RATE FUND INC. By: Stanfield Capital Partners LLC as its subadvisor By:______________________________ Name: Title: TORONTO DOMINION (NEW YORK), INC. By:______________________________ Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: WINDSOR LOAN FUNDING, LIMITED By: Stanfield Capital Partners LLC as its Investment Manager By:______________________________ Name: Title: ARES LEVERAGED INVESTMENT FUND II, L.P. By: ARES Management II, L.P. its General Partner By:______________________________ Name: Title: NEW ALLIANCE GLOBAL CDO, LIMITED By: Alliance Capital Management, L.P., as Sub-advisor By: Alliance Capital Management Corporation, as General Partner By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: MONUMENT CAPITAL LIMITED By: Alliance Capital Management, L.P., as Investment Manager By: Alliance Capital Management Corporation, as General Partner By:______________________________ Name: Title: AMARA 2 FINANCE, LTD. By: INVESCO Senior Secured Management, Inc. as Subadviser By:______________________________ Name: Title: AMARA-I FINANCE, LTD. By: INVESCO Senior Secured Management, Inc. as Subadviser By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: CSAM FUNDING II By:______________________________ Name: Title: NUVEEN SENIOR INCOME FUND By: Nuveen Senior Loan Asset Management, Inc. By:______________________________ Name: Title: ARES VI CLO LTD. By: ARES CLO Management VI, L.P., Investment Manager By: ARES CLO GP VI, LLC, its Managing Member By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: ARES V CLO LTD. By: ARES CLO Management V, L.P., Investment Manager By: ARES CLO GP V, LLC, its Managing Member By:______________________________ Name: Title: ARES IV CLO LTD. By: ARES CLO Management IV, L.P., Investment Manager By: ARES CLO GP IV, LLC, its Managing Member By:______________________________ Name: Title: ARES III CLO LTD. By: ARES CLO Management LLC, Investment Manager By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: INVESCO CBO 2000-1 LTD. By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By:______________________________ Name: Title: CERES II FINANCE, LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent (Financial) By:______________________________ Name: Title: SEQUILS-LIBERTY, LTD. By: INVESCO Senior Secured Management, Inc. as Collateral Manager By:______________________________ Name: Title: INVESCO EUROPEAN CDO I S.A. By: INVESCO Senior Secured Management, Inc. as Collateral Manager By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: DIVERSIFIED CREDIT PORTFOLIO LTD. By: INVESCO Senior Secured Management, Inc. as Investment Advisor By:______________________________ Name: Title: AIM FLOATING RATE FUND By: INVESCO Senior Secured Management, Inc. as attorney in fact By:______________________________ Name: Title: OASIS COLLATERALIZED HIGH INCOME PORTFOLIO-1, LTD. By: INVESCO Senior Secured Management, Inc. as Subadviser By:______________________________ Name: Title: CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. as Investment Advisor By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: AVALON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By:______________________________ Name: Title: AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By:______________________________ Name: Title: AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent By:______________________________ Name: Title: FIRST DOMINION FUNDING III By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: FIRST DOMINION FUNDING II By:______________________________ Name: Title: FIRST DOMINION FUNDING I By:______________________________ Name: Title: ATRIUM CDO By:______________________________ Name: Title: SALOMON BROTHERS HOLDING COMPANY, INC. By:______________________________ Name: Title: BANK OF MONTREAL By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: NATIONWIDE LIFE INSURANCE COMPANY By:______________________________ Name: Title: NATIONWIDE MUTUAL INSURANCE COMPANY By:______________________________ Name: Title: ARCHIMEDES FUNDING III, LTD. By: ING Capital Advisors, LLC, as Collateral Manager By:______________________________ Name: Title: ARCHIMEDES FUNDING IV (CAYMAN), LTD. By: ING Capital Advisors, LLC, as Collateral Manager By:______________________________ Name: Title: GOLDENTREE HIGH YIELD OPPORTUNITIES I, L.P. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: GOLDENTREE HIGH YIELD OPPORTUNITIES II, L.P. By:______________________________ Name: Title: KZH ING-3 LLC By:______________________________ Name: Title: SEQUILS-ING I (HBDGM), LTD. By: ING Capital Advisors LLC, as Collateral Manager By:______________________________ Name: Title: ING-ORYX CLO, LTD. By: ING Capital Advisors LLC, as Collateral Manager By:______________________________ Name: Title: NORTHWOODS CAPITAL, LIMITED By: Angelo, Gordon & Co., L.P., as Collateral Manager By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: NORTHWOODS CAPITAL II, LIMITED By:______________________________ Name: Title: NORTHWOODS CAPITAL II, LIMITED By: Angelo, Gordon & Co., L.P., as Collateral Manager By:______________________________ Name: Title: NORTHWOODS CAPITAL III, LIMITED By:______________________________ Name: Title: NORTHWOODS CAPITAL III, LIMITED By: Angelo, Gordon & Co., L.P., as Collateral Manager By:______________________________ Name: Title: UNION BANK OF CALIFORNIA, N.A. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: SRF 2000 LLC By:______________________________ Name: Title: SRF TRADING, INC. By:______________________________ Name: Title: STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By:______________________________ Name: Title: BINGHAM CDO L.P. By:______________________________ Name: Title: MAGMA CDO LTD. By:______________________________ Name: Title: This Amendment No. 1 is agreed to as of the date first above written: NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE By:______________________________ Name: Title: BALLYROCK CDO I LIMITED By: BALLYROCK Investment Advisors LLC, as Collateral Manager By:______________________________ Name: Title: 161 FIDELITY ADVISOR SERIES II: FIDELITY ADVISOR FLOATING RATE HIGH INCOME FUND By:______________________________ Name: Title: EX-10.3 5 dex103.txt SECURITY AGREEMENT DATED APRIL 26,2002 Exhibit 10.3 SECURITY AGREEMENT Dated April 26, 2002 From The Grantors referred to herein as Grantors ----------- to CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH as Collateral Agent ------------------- Table of Contents Section Page - ------- ---- Section 1. Grant of Security .............................................................................. 2 Section 2. Security for Obligations ....................................................................... 7 Section 3. Grantors Remain Liable ......................................................................... 7 Section 4. Delivery and Control of Security Collateral .................................................... 8 Section 5. Maintaining the L/C Collateral Account ......................................................... 8 Section 6. Investing of Amounts in the L/C Collateral Account ............................................. 8 Section 7. Release of Amounts ............................................................................. 8 Section 8. Representations and Warranties ................................................................. 9 Section 9. Further Assurances ............................................................................. 12 Section 10. As to Equipment and Inventory .................................................................. 13 Section 11. Insurance ...................................................................................... 13 Section 12. Post-Closing Changes; Bailees; Collections on Receivables and Related Contracts ................ 14 Section 13. As to Intellectual Property Collateral ......................................................... 15 Section 14. Voting Rights; Dividends; Etc. ................................................................. 17 Section 15. As to the Assigned Agreements .................................................................. 18 Section 16. Transfers and Other Liens; Additional Shares ................................................... 19 Section 17. Collateral Agent Appointed Attorney-in-Fact .................................................... 19 Section 18. Collateral Agent May Perform ................................................................... 19 Section 19. The Collateral Agent's Duties .................................................................. 20 Section 20. Remedies ....................................................................................... 20 Section 21. Indemnity and Expenses ......................................................................... 22 Section 22. Amendments; Waivers; Additional Grantors; Etc. ................................................. 23 Section 23. Notices; Etc. .................................................................................. 23
i Section Page - ------- ---- Section 24. Continuing Security Interest; Assignments under the Credit Agreement ........................... 23 Section 25. Release; Termination ........................................................................... 24 Section 26. Security Interest Absolute ..................................................................... 25 Section 27. Execution in Counterparts ...................................................................... 26 Section 28. Governing Law .................................................................................. 26
Schedules - --------- Schedule I - Pledged Shares and Pledged Debt Schedule II - Location, Chief Executive Office, Place Where Agreements Are Maintained, Type Of Organization, Jurisdiction Of Organization And Organizational Identification Number Schedule III - Trade Names Schedule IV - Intellectual Property Collateral Schedule V - Assets Subject to Existing Contracts of Sale Exhibits - -------- Exhibit A - Form of Security Agreement Supplement Exhibit B - Form of Intellectual Property Security Agreement Exhibit C - Form of Intellectual Property Security Agreement Supplement Appendices - ---------- Appendix A Appendix B ii SECURITY AGREEMENT SECURITY AGREEMENT dated April 26, 2002 made by DAVITA INC., a Delaware corporation (the "Borrower"), the subsidiaries of the Borrower listed on the signature pages hereof and the Additional Grantors (as hereinafter defined) (the Borrower, the Persons so listed and the Additional Grantors being, collectively, the "Grantors"), to Credit Suisse First Boston, Cayman Islands Branch ("CSFB"), as collateral agent (together with any successor collateral agent appointed pursuant to Article VII of the Credit Agreement (as hereinafter defined), the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement). PRELIMINARY STATEMENTS. (1) The Borrower has entered into a Credit Agreement dated as of April 26, 2002 (said Agreement, as it may hereafter be amended, amended and restated, supplemented or otherwise modified from time to time, being the "Credit Agreement") with the Lender Parties and the Agents (each as defined therein). Each Grantor (other than the Borrower) has entered into a Subsidiary Guarantee dated April 26, 2002, pursuant to which such Grantor has guaranteed the Obligations of the Borrower under the Credit Agreement. Capitalized terms used herein without definition shall have the meanings assigned thereto in the Credit Agreement. (2) Pursuant to the Credit Agreement, the Borrower, from time to time, may enter into Hedge Agreements with counterparties that are Lender Parties at the time such Hedge Agreements are entered into (or Affiliates of such Lender Parties at such time) (all such Hedge Agreements being the "Secured Hedge Agreements"). (3) Pursuant to the Credit Agreement, the Grantors are entering into this Agreement in order to grant to the Collateral Agent for the ratable benefit of the Secured Parties a security interest in the Collateral (as hereinafter defined). (4) Each Grantor is the owner of the shares (the "Initial Pledged Shares") of stock or other interests set forth opposite such Grantor's name on and as otherwise described in Part I of Schedule I hereto and issued by the corporations or other entities named therein and of the indebtedness (the "Initial Pledged Debt") set forth opposite such Grantor's name on and as otherwise described in Part II of Schedule I hereto and issued by the obligors named therein. (5) The Borrower has opened a collateral deposit account, Account No. ____ (the "L/C Collateral Account"), with the Collateral Agent at The Bank of New York, in the name of the Collateral Agent and under the sole control and dominion of the Collateral Agent and subject to the terms of this Agreement. (6) It is a condition precedent to the making of Advances and the issuance of Letters of Credit by the Lender Parties under the Credit Agreement and the entry of the Hedge Banks into the Secured Hedge Agreements that the Grantors shall have granted the assignment and security interest and made the pledge and assignment contemplated by this Agreement. (7) Each Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Loan Documents. (8) Terms defined in the Credit Agreement and not otherwise defined in this Agreement are used in this Agreement as defined in the Credit Agreement. Further, unless otherwise defined in this Agreement or in the Credit Agreement, terms defined in Article 8 or 9 of the UCC (as defined below) are used in this Agreement as such terms are defined in such Article 8 or 9. "UCC" means the Uniform Commercial Code as in effect, from time to time, in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, "UCC" means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority. NOW, THEREFORE, in consideration of the premises and in order to induce the Lender Parties to make Advances and issue Letters of Credit under the Credit Agreement and to induce the Hedge Banks to enter into Secured Hedge Agreements from time to time, each Grantor hereby agrees with the Collateral Agent for the ratable benefit of the Secured Parties as follows: Section 1. Grant of Security. Each Grantor hereby grants to the Collateral ----------------- Agent for the ratable benefit of the Secured Parties, a security interest in such Grantor's right, title and interest in and to the following, in each case, as to each type of property described below, whether now owned or hereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the "Collateral"): (a) all equipment in all of its forms, all fixtures and all parts thereof and all accessions thereto (any and all such equipment, fixtures, parts and accessions being the "Equipment"); (b) all inventory in all of its forms and all accessions thereto and products thereof and documents therefor (any and all such inventory, accessions, products and documents being the "Inventory"); (c) all accounts, chattel paper, instruments, general intangibles (other than general intangibles consisting of Security Collateral, Intellectual Property Collateral or Agreement Collateral which are included as "Collateral" in the applicable provisions of this Section 1) and other obligations of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance, and all rights now or hereafter existing in and to all security agreements, leases and other contracts securing or otherwise relating to any such accounts, chattel paper, instruments, general intangibles or obligations (any and all such accounts, chattel paper, instruments, general intangibles and obligations, to the extent not referred to in clause (d), (e) or (f) below, being the "Receivables", and any and all such security agreements, leases and other contracts being the "Related Contracts"). "Receivables" shall include, but not be limited to, any accounts, contract rights, notes, drafts and other obligations or rights to payment of every kind or description now or any time hereafter arising, directly or indirectly, out of the provision of Dialysis Services and/or the provision of Ancillary Services specifically including, but not limited to, all accounts receivable and rights to payment through federal, state or local governmental 2 programs, including without limitation, all Governmental Health Receivables, all other third-party payer programs and health care insurance receivables and other private pay receivables. As used herein, (i) "Dialysis Services" means hemodialysis services and peritoneal dialysis services, hemoperfusion, plasmapheresis, continuous arteriovenous hemofiltration and bio-medical services related to the foregoing; (ii) "Ancillary Services" means services relating to the needs of patients with "End Stage Renal Disease" and ancillary to the provision of Dialysis Services, including, but not limited to, the administration of erythropoietin, intradialytic parenteral nutrition, bone densitometry studies, EKGs, nerve conduction studies, Doppler Flow Testing, blood transfusions, pharmacy and laboratory services, technical services with respect to equipment used in connection with the provision of Dialysis Services and management services with respect to the provision of Dialysis Services; (iii) "Governmental Health Receivables" means Medicaid Receivables, Medicare Receivables or VA Receivables, (iv) "Medicaid Receivable" means any Receivable with respect to which the obligor is a state governmental authority (or agent thereof) obligated to pay, pursuant to federal or state Medicaid program statutes or regulations, for services rendered to eligible beneficiaries thereunder; (v) "Medicare Receivable" means any Receivable with respect to which the obligor is a federal governmental authority (or agent thereof) obligated to pay, pursuant to federal Medicare Program statutes or regulations, for services rendered to eligible beneficiaries thereunder and (vi) "VA Receivable" means any Receivable with respect to which the obligor is the Veterans' Administration or any successor thereto (or any agent thereof); (d) the following (the "Security Collateral"): (i) the Initial Pledged Shares and the certificates, if any, representing the Initial Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Shares; (ii) the Initial Pledged Debt and the instruments, if any, evidencing the Initial Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Initial Pledged Debt; (iii) all additional shares of stock from time to time acquired by such Grantor in any manner (such shares, together with the Initial Pledged Shares, being the "Pledged Shares"), and the certificates, if any, representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; provided, that if the issuer of any of such Pledged Shares is a controlled foreign corporation (used hereinafter as such term is defined in Section 975(a) or a successor provision of the Internal Revenue Code), the Pledged Shares shall not include any shares of stock of such issuer in excess of the number of shares of such issuer possessing up to but not exceeding 65% of the voting power of all classes of capital stock entitled to vote of such issuer, and all dividends, cash, warrants, rights, instruments and other property or 3 proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; (iv) all additional indebtedness from time to time owed to such Grantor (such indebtedness, together with the Initial Pledged Debt, being the "Pledged Debt") and the instruments, if any, evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (v) all other investment property in which such Grantor has now (other than investment property set forth opposite such Grantor's name on and otherwise described in Part III of Schedule I hereto), or acquires from time to time hereafter, any right, title or interest in any manner, and the certificates or instruments, if any, representing or evidencing such investment property, and all dividends, interest, distributions, value, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such investment property; (e) each of the agreements to which such Grantor is now or may hereafter become a party, in each case as such agreements may be amended, amended and restated, supplemented or otherwise modified from time to time (collectively, the "Assigned Agreements"), including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due under or pursuant to the Assigned Agreements, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) claims of such Grantor for damages arising out of or for breach of or default under the Assigned Agreements and (iv) the right of such Grantor to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder (all such Collateral being the "Agreement Collateral"); (f) the following (collectively, the "Account Collateral"): (i) the L/C Collateral Account, all financial assets from time to time credited to the L/C Collateral Account (including, without limitation, all Cash Equivalents from time to time credited to the L/C Collateral Account), and all dividends, interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such financial assets; (ii) all other deposit accounts of such Grantor from time to time, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts; (iii) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time delivered to or otherwise possessed by the Collateral Agent for or on behalf of such Grantor, including, without limitation, those delivered or possessed in substitution for or in addition to any or all of the then existing Account Collateral; and 4 (iv) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral; and (g) the following (collectively, the "Intellectual Property Collateral"): (i) all United States, international and foreign patents, patent applications and statutory invention registrations, including, without limitation, the patents and patent applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by supplements to this Agreement, each such supplement being in substantially the form of Exhibit C hereto (an "IP Security Agreement Supplement"), executed and delivered by such Grantor to the Collateral Agent from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, all inventions therein, all rights therein provided by international treaties or conventions and all improvements thereto, and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the "Patents"); (ii) all trademarks (including, without limitation, service marks), certification marks, collective marks, trade dress, logos, domain names, product configurations, trade names, business names, corporate names and other source identifiers, whether or not registered, whether currently in use or not, including, without limitation, all common law rights and registrations and applications for registration thereof, including, without limitation, the trademark registrations and trademark applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), and all other marks registered in the U.S. Patent and Trademark Office or in any office or agency of any State or Territory of the United States or any foreign country (but excluding any United States intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security interest therein impairs the validity or enforceability of such intent-to-use trademark applications under applicable federal law), and all rights therein provided by international treaties or conventions, all reissues, extensions and renewals of any of the foregoing, together in each case with the goodwill of the business connected therewith and symbolized thereby, and all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the "Trademarks"); (iii) all copyrights, copyright applications, copyright registrations and like protections in each work of authorship, whether statutory or common law, whether published or unpublished, any renewals or extensions thereof, all 5 copyrights of works based on, incorporated in, derived from, or relating to works covered by such copyrights, including, without limitation, the copyright registrations and copyright applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), together with all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the "Copyrights"); (iv) all confidential and proprietary information, including, without limitation, know-how, trade secrets, manufacturing and production processes and techniques, inventions, research and development information, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information (the "Trade Secrets"); (v) all computer software programs and databases (including, without limitation, source code, object code and all related applications and data files), firmware, and documentation and materials relating thereto, and all rights with respect to the foregoing, together with any and all options, warranties, service contracts, program services, test rights, maintenance rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing (the "Computer Software"); (vi) all agreements, permits, authorizations and franchises, whether with respect to the Patents, Trademarks, Copyrights, Trade Secrets or Computer Software, or with respect to the patents, trademarks, copyrights, trade secrets, computer software or other proprietary right of any other Person in which a Grantor is a party or a beneficiary, including, without limitation, the license agreements set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), and all income, royalties and other payments now or hereafter due and/or payable with respect thereto, subject, in each case, to the terms of such license agreements, permits, authorizations and franchises, (the "Licenses"); and (vii) any and all claims for damages and injunctive relief for past, present and future infringement, dilution, misappropriation, misuse or breach with respect to the Patents, Trademarks, Copyrights, Trade Secrets, Computer Software or Licenses, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and (h) all proceeds of any and all of the Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) through (g) of this Section 1 and this clause (h)) and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Collateral Agent is the loss payee thereof), or any 6 indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral and (ii) cash. Notwithstanding anything herein to the contrary, in no event shall the Collateral include, and no Grantor shall be deemed to have granted a security interest in or pledged the assets subject to existing contracts of sale specified in Schedule V or (ii) any of such Grantor's rights or interests in any license, contract, or agreement to which such Grantor is a party or any Security Collateral (other than stock issued by wholly owned Subsidiaries of the Borrower) owned by such Grantor or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract, or agreement to which such Grantor is a party or any Security Collateral (other than stock issued by wholly owned Subsidiaries of the Borrower) owned by such Grantor (other than to the extent that any such term would be rendered ineffective pursuant to Section 9-406(d) of the UCC or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and such Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. In the event that any asset of a Grantor is excluded from the Collateral by virtue of clause (ii) of the foregoing paragraph, upon request of the Collateral Agent such Grantor agrees to use all reasonable efforts to obtain all requisite consents to enable such Grantor to provide a security interest in such asset pursuant hereto as promptly as practicable. Section 2. Security for Obligations. This Agreement secures, in the case of ------------------------ each Grantor, the payment of all Obligations of such Grantor now or hereafter existing under the Loan Documents and the Secured Hedge Agreements, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, fees, premiums, penalties, indemnifications, contract causes of action, costs, expenses or otherwise (all such Obligations being the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures, as to each Grantor, the payment of all amounts that constitute part of the Secured Obligations and would be owed by such Grantor to any Secured Party under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving a Loan Party. Section 3. Grantors Remain Liable. Anything herein to the contrary ---------------------- notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in such Grantor's Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Collateral Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Loan Document, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 7 Section 4. Delivery and Control of Security Collateral. (a) All ------------------------------------------- certificates or instruments representing or evidencing Security Collateral shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time in its discretion and without notice to any Grantor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Security Collateral, subject only to the revocable rights specified in Section 14(a). In addition, so long as no Default shall have occurred and be continuing, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Security Collateral for certificates or instruments of smaller or larger denominations. (b) With respect to any Security Collateral in which any Grantor has any right, title or interest and that constitutes an uncertificated security, at the request of the Collateral Agent such Grantor will cause the issuer thereof either (i) to register the Collateral Agent as the registered owner of such security or (ii) to agree in an authenticated record with such Grantor and the Collateral Agent that such issuer will comply with instructions with respect to such security originated by the Collateral Agent without further consent of such Grantor, such authenticated record to be in form and substance satisfactory to the Collateral Agent. Section 5. Maintaining the L/C Collateral Account. So long as any Advance -------------------------------------- or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Commitment under the Credit Agreement the Borrower will maintain the L/C Collateral Account with the Collateral Agent. It shall be a term and condition of the L/C Collateral Account, notwithstanding any term or condition to the contrary in any other agreement relating to the L/C Collateral Account, and except as otherwise provided by the provisions of Sections 7 and 20, that no amount (including interest on Cash Equivalents credited thereto) will be paid or released to or for the account of, or withdrawn by or for the account of, the Borrower or any other Person from the L/C Collateral Account. Section 6. Investing of Amounts in the L/C Collateral Account. The -------------------------------------------------- Collateral Agent will, subject to the provisions of Sections 7 and 20, (a) invest amounts received with respect to the L/C Collateral Account in such Cash Equivalents credited to the L/C Collateral Account as the Borrower may select and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash Equivalents credited to the L/C Collateral Account as the Borrower may select. Interest and proceeds that are not invested or reinvested in Cash Equivalents as provided above shall be deposited and held in a deposit account with the Collateral Agent and under the sole control and dominion of the Collateral Agent, such deposit account to be deemed to constitute part of the L/C Collateral Account. In addition, the Collateral Agent shall have the right to exchange such Cash Equivalents for similar Cash Equivalents of smaller or larger determinations, or for other Cash Equivalents, credited to the L/C Collateral Account. Section 7. Release of Amounts. So long as no Default shall have occurred ------------------ and be continuing and there are no unpaid Obligations under the Loan Documents, the Collateral 8 Agent will pay and release to the Borrower or at its order such amount, if any, as is then on deposit in the L/C Collateral Account to the extent permitted to be released under the terms of the Credit Agreement. Section 8. Representations and Warranties. Each Grantor represents and ------------------------------ warrants as follows: (a) Such Grantor's exact legal name, as defined in Section 9-503(a) of the UCC, is correctly set forth in Schedule II hereto (as such Schedule may be updated as provided herein). Such Grantor is located (within the meaning of Section 9-307 of the UCC) and has its chief executive office and the office in which it maintains the original copies of each Assigned Agreement and Related Contract to which such Grantor is a party and all originals of all chattel paper that evidence Receivables of such Grantor, in the states or jurisdictions set forth in Schedule II hereto. Such Grantor has not previously changed its name, location, chief executive office, place where it maintains its agreements, type of organization, jurisdiction of organization or organizational identification number from those set forth in Schedule II hereto except as disclosed in Schedule II hereto. (b) All Security Collateral consisting of certificated securities and instruments have been delivered to the Collateral Agent. None of the Receivables or Agreement Collateral is evidenced by any chattel paper, a promissory note or other instrument that has not been delivered to the Collateral Agent. (c) Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for Liens permitted under Section 5.02(a) of the Credit Agreement and the security interest created under this Agreement. No effective financing statement or other instrument similar in effect covering all or any part of such Collateral or listing such Grantor or any trade name of such Grantor as debtor is on file in any recording office, except such as may have been filed in favor of the Collateral Agent relating to the Loan Documents, in favor of the collateral agent pursuant to the security agreement in connection with the Existing Credit Agreement (which filings will be terminated as soon as practicable after the date hereof) or in connection with Permitted Liens. Such Grantor has only the trade names listed on Schedule III hereto as domain names and marks. (d) The Pledged Shares pledged by such Grantor hereunder have been duly authorized and validly issued and, in the case of corporate issuers, are fully paid and non-assessable. The Pledged Debt evidenced by one or more promissory notes (which notes have been delivered to the Collateral Agent) and pledged by such Grantor hereunder has been duly authorized, authenticated or issued and delivered, is the legal, valid and binding obligation of the issuers thereof and is not in default. (e) The Initial Pledged Shares pledged by such Grantor constitute the percentage of the issued and outstanding Equity Interests of the issuers thereof indicated on Schedule I hereto. The Initial Pledged Debt constitutes all of the outstanding 9 indebtedness owed to such Grantor by the issuers thereof and is outstanding in the principal amount indicated on Schedule I hereto. (f) All of the investment property owned by such Grantor as of the Closing Date is listed on Schedule I hereto or Schedule 4.01(r) of the Credit Agreement. (g) Upon the making of the filings and other actions necessary to perfect the security interest in the Collateral of such Grantor created under this Agreement, this Agreement will create in favor of the Collateral Agent for the benefit of the Secured Parties a valid perfected first priority security interest in the Collateral of such Grantor (subject to Permitted Liens to the extent such Liens have priority as a matter of law to the security interests created hereunder), securing the payment of the Secured Obligations. (h) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the grant by such Grantor of the assignment, pledge and security interest granted hereunder or for the execution, delivery or performance of this Agreement by such Grantor, (ii) the perfection or maintenance of the pledge and security interest created hereunder on such of the Collateral located in the United States in which a Lien may be perfected by the filing of financing statements, the recordation of security agreements with the U.S. Patent and Trademark Office or the U.S. Copyright Office or the delivery of Collateral (including the first priority nature of such pledge or security interest), except for the filing of financing and continuation statements under the Uniform Commercial Code, the recordation of the Intellectual Property Security Agreements referred to in Section 14(f) with the U.S. Patent and Trademark Office and the U.S. Copyright Office (in the case of copyrights, limited to copyrights that are recorded in the U.S. Copyright Office) and the actions described in Section 4 with respect to Security Collateral, or (iii) for the exercise by the Collateral Agent of its voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with the exercise of the rights of a secured creditor by laws affecting such rights generally, or the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally. (i) As to itself and its Intellectual Property Collateral: (i) To such Grantor's knowledge, use of such Intellectual Property Collateral in Grantor's business as currently conducted or contemplated to be conducted does not infringe upon, conflict with, misappropriate, dilute, misuse or otherwise violate the intellectual property rights of any third party. (ii) (A) With respect to Collateral owned by such Grantor, such Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral and (B) with respect to Collateral consisting of licenses of Intellectual Property in favor of such Grantor, such Grantor has the valid right to use the Collateral, subject to the terms of the applicable License. 10 (iii) The Intellectual Property Collateral set forth on Schedule IV hereto includes all of the patents, patent applications, trademark registrations and applications, copyright registrations and applications and Licenses owned by such Grantor. (iv) The Intellectual Property Collateral is subsisting, and has not been adjudged invalid or unenforceable in whole or part, and to the best of such Grantor's knowledge, is valid and enforceable. Such Grantor is not aware of any uses of any item of Intellectual Property Collateral that could be expected to lead to such item becoming invalid or unenforceable. (v) Such Grantor has made or performed all filings, recordings and other acts and has paid all required fees and taxes to maintain and protect its interest in such items of Intellectual Property Collateral in full force and effect in such jurisdictions, in each case, as such Grantor deems necessary in its reasonable commercial judgment, and to protect and maintain its interest therein. (vi) No action, suit, investigation, litigation or proceeding has been asserted or is pending against such Grantor or naming such Grantor as a party or, to such Grantor's knowledge, threatened against such Grantor (i) based upon or challenging or seeking to deny or restrict the use by such Grantor of any of the Intellectual Property Collateral, or (ii) alleging that the Grantor's rights in or use of the Intellectual Property Collateral or that any services provided by, processes used by, or products manufactured or sold by, such Grantor infringes upon, dilutes, violates, misuses upon or misappropriates any patent, trademark, copyright or any other proprietary right of any third party. To such Grantor's knowledge, no Person is engaging in any activity that infringes upon, dilutes, violates, misuses or misappropriates the Intellectual Property Collateral or upon the rights of such Grantor therein. Except as set forth on Schedule IV hereto, such Grantor has not granted any license, release, covenant not to sue, non-assertion assurance, or other right to any Person with respect to any part of the Intellectual Property Collateral. The consummation of the Transaction will not result in the termination or impairment of any of the Intellectual Property Collateral in a manner that would constitute a Material Adverse Effect. (vii) With respect to each License: (A) such License is valid and binding and in full force and effect and will not cease to be valid and binding and in full force and effect on terms identical to those currently in effect as a result of the rights and interest granted herein, nor will the grant of such rights and interest constitute a breach or default under such License or otherwise give the licensor or licensee a right to terminate such License; (B) except as set forth on Schedule IV hereto, such Grantor has not received any notice of termination or cancellation under such License; (C) except as set forth on Schedule IV hereto, such Grantor has not received any notice of a breach or default under such License, which breach or default has not been cured; (D) such Grantor has not granted to any other third party any rights, adverse or otherwise, under such License; and (E) neither such Grantor nor to such Grantor's knowledge, any other party to such 11 License is in breach or default thereof in any material respect, and no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under such License. (viii) No Grantor or Intellectual Property Collateral is subject to any outstanding covenant, settlement, decree, order, injunction, judgment or ruling restricting the use of any Intellectual Property Collateral or that would impair the validity or enforceability of such Intellectual Property Collateral. Each Grantor, any time after the date hereof, shall have the right, upon 10 days' notice to the Collateral Agent, to amend any of the Schedules referred to in this Section 8. Section 9. Further Assurances. (a) Each Grantor agrees that from time to ------------------ time, at the expense of such Grantor, such Grantor will promptly execute and deliver, or otherwise authenticate, all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted by such Grantor hereunder or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral of such Grantor. Without limiting the generality of the foregoing, each Grantor will promptly with respect to Collateral of such Grantor: (i) at the request of the Collateral Agent, mark conspicuously each of its records pertaining to such Collateral with a legend, in form and substance satisfactory to the Collateral Agent, indicating that Collateral is subject to the security interest granted hereby; (ii) if any such Collateral shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Collateral Agent hereunder such note or instrument or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Collateral Agent; (iii) execute or authenticate and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Collateral Agent may reasonably request, in order to perfect and preserve the security interest granted or purported to be granted by such Grantor hereunder; (iv) deliver and pledge to the Collateral Agent for the benefit of the Secured Parties certificates representing Security Collateral that constitutes certificated securities, accompanied by undated stock or bond powers executed in blank; (v) at the request of the Collateral Agent, take all action to ensure that the Collateral Agent's security interest is noted on any certificate of ownership related to any Collateral evidenced by a certificate of ownership; (vi) at the request of the Collateral Agent, cause the Collateral Agent to be the beneficiary under all letters of credit that constitute Collateral, with the exclusive right to make all draws under such letters of credit, and with all rights of a transferee under Section 5-114(e) of the UCC; and (vii) deliver to the Collateral Agent evidence that all other action that the Collateral Agent may deem reasonably necessary or desirable in order to perfect and protect the security interest created by such Grantor under this Agreement has been taken. (b) Each Grantor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, including, without limitation, one or more financing statements indicating that such financing statements cover the assets or personal property (or words of similar effect) of such Grantor constituting Collateral, in each case without the signature of such Grantor. A photocopy or other reproduction of this 12 Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (c) Each Grantor will furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral of such Grantor and such other reports in connection with such Collateral as the Collateral Agent may reasonably request, all in reasonable detail. Section 10. As to Equipment and Inventory. (a) Each Grantor will keep the ----------------------------- Equipment and Inventory of such Grantor (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 8(a) or, except in circumstances governed by Section 5.01(j) of the Credit Agreement, upon 30 days' prior written notice to the Collateral Agent, at such other places in a jurisdiction where all action required by Section 9 shall have been taken with respect to such Equipment and Inventory (and, upon the taking of such action in such jurisdiction, Schedule II hereto shall be automatically amended to include such other places). In any case governed by Section 5.01(j) of the Credit Agreement, such Grantor will comply with the provisions of such section. (b) In all cases subject to its rights to sell or dispose of obsolete, damaged or worn-out items, or items that are no longer useful, as provided in Section 5.02(e)(iv) of the Credit Agreement, each Grantor will cause the Equipment of such Grantor to be maintained and preserved in the good condition, repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage to any of such Equipment as soon as practicable after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. (c) Each Grantor will pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including, without limitation, claims for labor, materials and supplies) against, the Equipment and Inventory of such Grantor, except to the extent payment thereof is not required by Section 5.01(b) of the Credit Agreement. Section 11. Insurance. (a) Each Grantor will, at its own expense, maintain --------- insurance with respect to the Equipment and Inventory of such Grantor in such amounts, against such risks, in such form and with such insurers, as required under Section 5.01(d) of the Credit Agreement. Each policy of each Grantor for liability insurance shall provide for all losses to be paid on behalf of the Collateral Agent and such Grantor as their interests may appear, and each policy for property damage insurance shall provide for all losses to be paid directly to the Collateral Agent during the continuance of a Default. Each such policy shall in addition (i) name such Grantor and the Collateral Agent as insured parties thereunder (without any representation or warranty by or obligation upon the Collateral Agent) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Collateral Agent notwithstanding any action, inaction or breach of representation or warranty by such Grantor, (iii) provide that there shall be no recourse against the Collateral Agent for payment of premiums or other amounts with respect thereto and (iv) provide that at least 10 days' prior written notice of cancellation or of lapse shall be given to the Collateral Agent by the insurer. Each Grantor will, if so requested by the Collateral Agent, deliver to the Collateral Agent original or duplicate 13 policies of such insurance and, as often as the Collateral Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, each Grantor will, at the request of the Collateral Agent, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 9 and cause the insurers to acknowledge notice of such assignment. (b) Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 11 may be paid directly to the Person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (c) of this Section 11 is not applicable, the applicable Grantor will make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory, and any proceeds of insurance properly received by or released to such Grantor shall be used by such Grantor, except as otherwise required or permitted hereunder or under the Credit Agreement, to pay, or as reimbursement for, the costs of such repairs or replacements. (c) So long as no Default shall have occurred and be continuing, all insurance payments received by the Collateral Agent in connection with any loss, damage or destruction of any Inventory or Equipment will be released by the Collateral Agent to the applicable Grantor for the repair, replacement or restoration thereof, subject to such terms and conditions with respect to the release thereof as the Collateral Agent may reasonably require. To the extent that (i) the amount of any such insurance payments exceeds the cost of any such repair, replacement or restoration, or (ii) such insurance payments are not otherwise required by the applicable Grantor to complete any such repair, replacement or restoration required hereunder, the Collateral Agent will release the amount thereof to such Grantor except during the continuance of any Default and during which period the Collateral Agent may hold or continue to hold such amount as additional security for the Secured Obligations of such Grantor. During the continuance of any Default, all insurance payments in respect of such Equipment or Inventory shall be paid to the Collateral Agent and shall, in the Collateral Agent's sole discretion, (i) be released to the applicable Grantor to be applied as set forth in the first sentence of this subsection (c) or (ii) be held as additional Collateral hereunder or applied as specified in Section 20(b). Section 12. Post-Closing Changes; Bailees; Collections of Receivables and ------------------------------------------------------------- Related Contracts. (a) No Grantor will change its name, type of organization, - ----------------- jurisdiction of organization, organizational identification number or location from those set forth in Section 8(a) of this Agreement without first giving at least 30 days' prior written notice to the Collateral Agent and taking all action required by the Collateral Agent for the purpose of perfecting or protecting the security interest granted by this Agreement (and, upon the taking of such action in such jurisdiction, Schedule II hereto shall be automatically amended to include such other information). No Grantor will become bound by a security agreement in respect of any of the Collateral authenticated by another Person (other than a Grantor) (determined as provided in Section 9-203(d) of the UCC) without giving the Collateral Agent 30 days' prior written notice thereof and taking all action required by the Collateral Agent to ensure that the perfection and first priority nature of the Collateral Agent's security interest in the Collateral will be maintained. Each Grantor will hold and preserve its records relating to the Collateral and will permit representatives of the Collateral Agent at any time during normal business hours to inspect and make abstracts from such records and other documents. If the Grantor does not have 14 an organizational identification number and later obtains one, it will forthwith notify the Collateral Agent of such organizational identification number. (b) Except as otherwise provided in this subsection (b), each Grantor will continue to collect, at its own expense, all amounts due or to become due such Grantor under the Receivables and the Related Contracts. In connection with such collections, such Grantor may take (and during the continuance of an Event of Default, at the Collateral Agent's direction, will take) such action as such Grantor or the Collateral Agent may deem necessary or advisable to enforce collection of the Receivables and the Related Contracts; provided, however, that the Collateral Agent shall have the right at any time, upon the occurrence and during the continuance of an Event of Default and upon written notice to such Grantor of its intention to do so, to notify the Obligors under any Receivables or Related Contracts of the assignment of such Receivables or Related Contracts to the Collateral Agent and to direct such Obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Collateral Agent and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables or Related Contracts, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done, and to otherwise exercise all rights with respect to such Receivables and Related Contracts, including without limitation those set forth in Section 9-607 of the UCC. After receipt by any Grantor of the notice from the Collateral Agent referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including instruments) received by such Grantor in respect of the Receivables and the Related Contracts of such Grantor shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary endorsement) to be deposited in the Collateral Account and either, as the Collateral Agent may in its sole discretion determine, (A) released to such Grantor or (B) applied as provided in Section 20(b) and (ii) such Grantor will not adjust, settle or compromise the amount or payment of any Receivable or amount due on any Related Contract, release wholly or partly any Obligor thereof, or allow any credit or discount thereon. No Grantor will permit or consent to the subordination of its right to payment under any of the Receivables or the Related Contracts to any other indebtedness or obligations of the Obligor thereof. Section 13. As to Intellectual Property Collateral. (a) With respect to -------------------------------------- each item of its Intellectual Property Collateral, each Grantor agrees, unless and until each Grantor, in its reasonable commercial judgment, decides otherwise, to take, at its expense, all necessary steps, including, without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authority, to (i) maintain the validity and enforceability of each such item of Intellectual Property Collateral and maintain each such item of Intellectual Property Collateral in full force and effect, and (ii) pursue the registration and maintenance of each patent, trademark, or copyright registration or application, now or hereafter included in the Intellectual Property Collateral of such Grantor, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the U.S. Copyright Office or other governmental authorities, the filing of applications for renewal or extension, the filing of affidavits under Sections 8 and 15 of the U.S. 15 Trademark Act, the filing of divisional, continuation, continuation-in-part, reissue and renewal applications or extensions, the payment of maintenance fees and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings. No Grantor shall, without the written consent of the Collateral Agent upon or after an Event of Default, discontinue use of or otherwise abandon any Intellectual Property Collateral, or abandon any right to file an application for letters patent, trademark, or copyright, unless such Grantor shall have previously determined that such use or the pursuit or maintenance of such Intellectual Property Collateral is no longer desirable in the conduct of such Grantor's business and that the loss thereof would not be reasonably likely to have a Material Adverse Effect. In the case of any material Intellectual Property Collateral, such Grantor will give prompt notice of any such abandonment to the Collateral Agent. (b) Each Grantor agrees promptly to notify the Collateral Agent if such Grantor learns (i) that any item of the Intellectual Property Collateral may have become abandoned, placed in the public domain, invalid or unenforceable, or of any adverse determination or development regarding such Grantor's ownership of any of the Intellectual Property Collateral or its right to register the same or to keep and maintain and enforce the same, or (ii) of any adverse determination or the institution of any proceeding (including, without limitation, the institution of any proceeding in the U.S. Patent and Trademark Office or any court) regarding any item of the Intellectual Property Collateral, if in any such case, such development would be reasonably likely to have a Material Adverse Effect. (c) In the event that any Grantor becomes aware that any item of the Intellectual Property Collateral is being infringed or misappropriated by a third party, such Grantor shall promptly notify the Collateral Agent and shall take such actions, at its expense, as such Grantor or the Collateral Agent deems reasonable and appropriate under the circumstances to protect such Intellectual Property Collateral, including, without limitation, suing for infringement or misappropriation and for an injunction against such infringement or misappropriation, if in any such case, such development would be reasonably likely to have a Material Adverse Effect. (d) Each Grantor shall take all steps which it deems reasonable and appropriate under the circumstances to preserve and protect each item of its Intellectual Property Collateral, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks, consistent with the quality of the products and services as of the date hereof, and taking all steps necessary to ensure that all licensed users of any of the Trademarks use such consistent standards of quality. (e) With respect to its Intellectual Property Collateral, each Grantor agrees to execute an agreement, in substantially the form set forth in Exhibit B hereto (an "Intellectual Property Security Agreement"), for recording the security interest granted hereunder to the Collateral Agent in such Intellectual Property Collateral with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such Intellectual Property Collateral. (f) Each Grantor agrees that, should it obtain an ownership interest in any material item of the type set forth in Section 1(g) which is not on the date hereof a part of the 16 Intellectual Property Collateral (the "After-Acquired Intellectual Property"), (i) the provisions of Section 1 shall automatically apply thereto, (ii) any such After-Acquired Intellectual Property and, in the case of trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect thereto, (iii) such Grantor shall give prompt written notice thereof to the Collateral Agent in accordance herewith and (iv) such Grantor shall execute and deliver to the Collateral Agent an IP Security Agreement Supplement covering such After-Acquired Intellectual Property as "Additional Collateral" thereunder and as defined therein, and shall record such IP Security Agreement Supplement with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such After-Acquired Intellectual Property. Section 14. Voting Rights; Dividends; Etc. (a) So long as no Default shall ------------------------------ have occurred and be continuing: (i) Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Security Collateral of such Grantor or any part thereof for any purpose; provided however, that such Grantor will not exercise or refrain from exercising any such right if such action would have a material adverse effect on the value of the Security Collateral or any part thereof. (ii) Each Grantor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of the Security Collateral of such Grantor if and to the extent that the payment thereof is not otherwise prohibited by the terms of the Loan Documents; provided, however, that any and all (A) dividends, interest and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Security Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Security Collateral (other than in respect of any Subsidiary of the Borrower as provided in Section 5.02(e)(iii) of the Credit Agreement) in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Security Collateral (other than in respect of any Subsidiary of the Borrower as provided in Section 5.02(e)(iii) of the Credit Agreement) shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Security Collateral and shall, if received by such Grantor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of such Grantor and be forthwith delivered to the Collateral Agent as Security Collateral in the same form as so received (with any necessary endorsement). 17 (iii) The Collateral Agent will execute and deliver (or cause to be executed and delivered) to each Grantor all such proxies and other instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of a Default: (i) All rights of each Grantor (x) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 14(a)(i) shall, upon notice to such Grantor by the Collateral Agent, cease and (y) to receive the dividends, interest and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 14(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Security Collateral such dividends, interest and other distributions; and (ii) All dividends, interest and other distributions that are received by any Grantor contrary to the provisions of paragraph (i) of this Section 14(b) shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Collateral Agent as Security Collateral in the same form as so received (with any necessary endorsement). Section 15. As to the Assigned Agreements(i). (b) Each Grantor will at its -------------------------------- expense and from time to time: (i) furnish to the Collateral Agent such information, reports or other documents regarding the Assigned Agreements and such other Collateral of such Grantor as the Collateral Agent may reasonably request, and (ii) upon request of the Collateral Agent make to each other party to any Assigned Agreement to which it is a party such demands and requests for information and reports or for action as such Grantor is entitled to make thereunder. (c) Each Grantor agrees after the occurrence and during the continuance of an Event of Default, not to: (i) cancel or terminate any Assigned Agreement to which it is a party or consent to or accept any cancellation or termination thereof; (ii) amend, amend and restate, supplement or otherwise modify any such Assigned Agreement or give any consent, waiver or approval thereunder; (iii) waive any default under or breach of any such Assigned Agreement; or (iv) take any other action in connection with any such Assigned Agreement that would impair the value of the interests or rights of such Grantor thereunder or that would impair the interests or rights of any Secured Party. 18 (d) Each Grantor hereby consents on its behalf and on behalf of its Subsidiaries to the assignment and pledge to the Collateral Agent for benefit of the Secured Parties of each Assigned Agreement to which it is a party by any other Grantor hereunder. Section 16. Transfers and Other Liens; Additional Shares. (a) Each Grantor -------------------------------------------- agrees that it will not (i) sell, assign or otherwise dispose of, or grant any option with respect to, any of the Collateral, other than sales, assignments and other dispositions of Collateral, and options relating to Collateral, permitted under the terms of the Credit Agreement, or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral of such Grantor except for the pledge, assignment and security interest created under this Agreement and Liens permitted under the Credit Agreement. (b) Each Grantor agrees that it will (i) cause each issuer of the Pledged Shares pledged by such Grantor not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities. Section 17. Collateral Agent Appointed Attorney-in-Fact. Each Grantor ------------------------------------------- hereby irrevocably appoints the Collateral Agent such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to execute any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to obtain and adjust insurance required to be paid to the Collateral Agent pursuant to Section 11, (b) to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (c) to receive, indorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) or (b) above, and (d) to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce compliance with the terms and conditions of any Assigned Agreement or the rights of the Collateral Agent with respect to any of the Collateral; provided however, that the Collateral Agent shall not exercise any rights referred to above unless an Event of Default has occurred and is continuing. Section 18. Collateral Agent May Perform. If any Grantor fails to perform ---------------------------- any agreement contained herein, within the time provided or allowed, the Collateral Agent may, but without any obligation to do so and without notice, itself perform, or cause performance of, such 19 agreement, and the expense of the Collateral Agent incurred in connection therewith shall be payable by such Grantor under Section 21(b). Section 19. The Collateral Agent's Duties. (a) The powers conferred on the ----------------------------- Collateral Agent hereunder are solely to protect the Secured Parties' interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property. (b) Anything contained herein to the contrary notwithstanding, the Collateral Agent may from time to time, when the Collateral Agent deems it to be necessary, appoint one or more subagents (each a "Subagent") for the Collateral Agent hereunder with respect to all or any part of the Collateral. In the event that the Collateral Agent so appoints any Subagent with respect to any Collateral, (i) the assignment and pledge of such Collateral and the security interest granted in such Collateral by each Grantor hereunder shall be deemed for purposes of this Security Agreement to have been made to such Subagent, in addition to the Collateral Agent, for the ratable benefit of the Secured Parties, as security for the Secured Obligations of such Grantor, (ii) such Subagent shall automatically be vested, in addition to the Collateral Agent, with all rights, powers, privileges, interests and remedies of the Collateral Agent hereunder with respect to such Collateral, and (iii) the term "Collateral Agent," when used herein in relation to any rights, powers, privileges, interests and remedies of the Collateral Agent with respect to such Collateral, shall include such Subagent; provided, however, that no such Subagent shall be authorized to take any action with respect to any such Collateral unless and except to the extent expressly authorized in writing by the Collateral Agent. Section 20. Remedies. If any Event of Default shall have occurred and be -------- continuing: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the N.Y. Uniform Commercial Code (whether or not the N.Y. Uniform Commercial Code applies to the affected Collateral) and also may: (i) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place and time to be designated by the Collateral Agent that is reasonably convenient to both parties; (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable; (iii) occupy any premises owned or leased by any of the Grantors where the Collateral or any 20 part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation; and (iv) exercise any and all rights and remedies of any of the Grantors under or in connection with the Collateral, including, without limitation, (A) any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Assigned Agreements, the Receivables and the Related Contracts and the other Collateral, (B) withdraw, or cause or direct the withdrawal, of all funds with respect to the L/C Collateral Account, and (C) exercise all other rights and remedies with respect to the Assigned Agreements, the Receivables, the Related Contracts and the other Collateral, including, without limitation, those set forth in Section 9-607 of the UCC. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Any cash held by or on behalf of the Collateral Agent and all cash proceeds received by or on behalf of the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 21) in whole or in part by the Collateral Agent for the ratable benefit of the Secured Parties against, all or any part of the Secured Obligations, in the following manner: (i) first, to the Agents for any amounts owing to the Agents pursuant to Section 8.04 of the Credit Agreement or otherwise under the Loan Documents, ratably in accordance with such respective amounts then owing to the Agents; and (ii) second, ratably (A) paid to the Lender Parties and the Hedge Banks, respectively, for any amounts then owing to them, in their capacities as such, under the Loan Documents ratably in accordance with such respective amounts then owing to such Lender Parties and the Hedge Banks, provided that, for purposes of this Section 20, the amount owing to any such Hedge Bank pursuant to any Secured Hedge Agreement to which it is a party (other than any amount therefore accrued and unpaid) shall be deemed to be equal to the Agreement Value therefor and (B) deposited as Collateral in the L/C Collateral Account up to an amount equal to 100% of the aggregate Available Amount of all outstanding Letters of Credit, provided that in the event that any such Letter of Credit is drawn, the Collateral Agent shall pay to the Issuing Bank that issued such Letter of Credit the amount held in the L/C Collateral Account in respect of such Letter of Credit, provided further that, to the extent that any such Letter of Credit shall expire or terminate undrawn and as a result thereof the amount of the Collateral in the L/C Collateral Account shall exceed the aggregate Available 21 Amount of all then outstanding Letters of Credit, such excess amount of such Collateral shall be applied in accordance with the order of priority set out in this Section 20(b). Any surplus of such cash or cash proceeds held by or on the behalf of the Collateral Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the applicable Grantor or to whomsoever may be lawfully entitled to receive such surplus. (c) All payments received by any Grantor under or in connection with any Assigned Agreement or otherwise in respect of the Collateral shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary endorsement). (d) The Collateral Agent may, without notice to any Grantor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Secured Obligations against any funds held in the L/C Collateral Account or in any other deposit account. (e) In the event of any sale or other disposition of any of the Intellectual Property Collateral of any Grantor, the goodwill of the business connected with and symbolized by any Trademarks subject to such sale or other disposition shall be included therein, and such Grantor shall supply to the Collateral Agent or its designee such Grantor's know-how and expertise, and documents and things relating to any Intellectual Property Collateral subject to such sale or other disposition, and such Grantor's customer lists and other records and documents relating to such Intellectual Property Collateral and to the manufacture, distribution, advertising and sale of products and services of such Grantor. Section 21. Indemnity and Expenses. (a) Each Grantor agrees to indemnify, ---------------------- defend and save and hold harmless each Secured Party and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. (b) Each Grantor will upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of its counsel and of any experts and agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral of such Grantor, (iii) the exercise or enforcement of any of the rights of the Collateral Agent or the other Secured 22 Parties hereunder or (iv) the failure by such Grantor to perform or observe any of the provisions hereof. Section 22. Amendments; Waivers; Additional Grantors; Etc. (a) No amendment ---------------------------------------------- or waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent, and, in the case of amendments, the Grantors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Collateral Agent or any other Secured Party to exercise, and no delay in exercising any right hereunder, 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. (b) Upon the execution and delivery by any Person of a security agreement supplement in substantially the form of Exhibit A hereto (each a "Security Agreement Supplement"), (i) such Person shall be referred to as an "Additional Grantor" and shall be and become a Grantor hereunder and each reference in this Agreement and the other Loan Documents to "Grantor" shall also mean and be a reference to such Additional Grantor, and (ii) the supplemental Schedules I through V attached to each Security Agreement Supplement shall be incorporated into and become a part of and supplement Schedules I through V, respectively, hereto, and the Collateral Agent may attach such supplemental schedules to such Schedules; and each reference to such Schedules shall mean and be a reference to such Schedules as supplemented pursuant to each Security Agreement Supplement. Section 23. Notices; Etc. All notices and other communications provided for ------------- hereunder shall be in writing (including telecopier communication) and mailed, telecopied, or delivered to, in the case of the Borrower or the Collateral Agent, addressed to it at its address specified in the Credit Agreement and, in the case of each Grantor other than the Borrower, addressed to it at the Borrower's address; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and other communications shall, be effective three Business Days after deposit in the mails, or when telecopied or delivered, respectively, addressed as aforesaid; except that notices and other communications to the Collateral Agent shall not be effective until received by the Collateral Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Security Agreement Supplement or Schedule hereto shall be effective as delivery of an original executed counterpart thereof. Section 24. Continuing Security Interest; Assignments under the Credit ---------------------------------------------------------- Agreement. This Agreement shall create a continuing security interest in the - --------- Collateral and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of the Secured Obligations (other than inchoate reimbursement or indemnification Obligations), (ii) the Termination Date and (iii) the termination or expiration of all Letters of Credit and all Secured Hedge Agreements, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender Party may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without 23 limitation, all or any portion of its Commitments, the Advances owing to it and the Note or Notes, if any, held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender Party herein or otherwise, in each case as provided in Section 8.07 of the Credit Agreement. Section 25. Release; Termination. (a) Upon any sale, lease, transfer or -------------------- other disposition of any item of Collateral of any Grantor in accordance with the terms of the Loan Documents, the Collateral Agent will, at such Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence the release of such item of Collateral from the security interest granted hereby; provided, however, that (i) in the case of a transaction effected under Section 5.02(e)(vi) or (vii) of the Credit Agreement, at the time of such request and such release no Default shall have occurred and be continuing, (ii) such Grantor shall have delivered to the Collateral Agent, at least six Business Days prior to the date of the proposed release, a written request for release describing the item of Collateral and the terms of the sale, lease, transfer or other disposition in reasonable detail, including, without limitation, the price thereof and any expenses in connection therewith, together with a form of release for execution by the Collateral Agent and a certificate of such Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Collateral Agent may request and (iii) the proceeds of any such sale, lease, transfer or other disposition required to be applied, or any payment to be made in connection therewith, in accordance with Section 2.06 of the Credit Agreement shall, to the extent so required, be paid or made to, or in accordance with the instructions of, the Collateral Agent when and as required under Section 2.06 of the Credit Agreement. (b) Upon the sale of any Equity Interests in any Grantor in accordance with the provisions of Section 5.02(m)(iii) of the Credit Agreement, the Collateral Agent will, at such Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence the release of all items of Collateral owned by such Grantor or in which such Grantor has an interest from the security interest granted hereby; provided, however, that (i) at the time of such request and such release no Default shall have occurred and be continuing and (ii) such Grantor shall have delivered to the Collateral Agent, at least six Business Days prior to the date of the proposed release, a written request describing the items of Collateral and together with a form of release for execution by the Collateral Agent and a certificate of such Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Collateral Agent may request. (c) In connection with the granting of a Lien permitted by Section 5.02(a)(iv) of the Credit Agreement in any real estate or equipment owned by a Grantor, the Collateral Agent shall, at such Grantor's request if required by the lender or lessor providing Debt to be secured by such Lien, at such Grantor's expense, either (i) subordinate the security interest granted hereby in the applicable item or items of Collateral owned by such Grantor to the Debt to be secured by such Lien on terms reasonably acceptable to the lender or lessor providing such Debt, or (ii) if such lender or lessor is not willing to accept a subordination of the security interest granted hereby, execute and deliver such documents as such Grantor shall reasonably request to evidence the release of such item or items of Collateral from the security interest granted hereby; provided, however, that such Grantor shall have delivered to the Collateral Agent, at least six Business Days prior to the date of the proposed subordination or release, a 24 written request describing the items of Collateral and together with a form of subordination or release for execution by the Collateral Agent and a certificate of such Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Collateral Agent may request. (d) Upon the latest of (i) the payment in full in cash of the Secured Obligations (other than inchoate indemnification and reimbursement Obligations), (ii) the Termination Date, (iii) the termination or expiration of all Letters of Credit, and (iv) the expiration or termination of all Secured Hedge Agreements, the pledge, assignment and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the applicable Grantor. Upon any such termination, the Collateral Agent will, at the applicable Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. Section 26. Security Interest Absolute. The obligations of each Grantor -------------------------- under this Agreement are independent of the Secured Obligations or any other Obligations of any other Loan Party under or in respect of the Loan Documents, and a separate action or actions may be brought and prosecuted against each Grantor to enforce this Agreement, irrespective of whether any action is brought against such Grantor or any other Loan Party or whether such Grantor or any other Loan Party is joined in any such action or actions. All rights of the Collateral Agent and the other Secured Parties and the pledge and security interest hereunder, and all obligations of each Grantor hereunder, shall be irrevocable, absolute and unconditional irrespective of, and each Grantor hereby irrevocably waives (to the maximum extent permitted by applicable law) any defenses it may now have or may hereafter acquire in any way relating to, any or all of the following: (a) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations or any other Obligations of any other Loan Party under or in respect of the Loan Documents or any other amendment or waiver of or any consent to any departure from any Loan Document, including, without limitation, any increase in the Secured Obligations resulting from the extension of additional credit to any Loan Party or any of its Subsidiaries or otherwise; (c) any taking, exchange, release or non-perfection of any Collateral or any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; (d) any manner of application of any Collateral or any other collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any Collateral or any other collateral for all or any of the Secured Obligations or any other Obligations of any other Loan Party under or in respect of the Loan Documents or any other assets of any Loan Party or any of its Subsidiaries; 25 (e) any change, restructuring or termination of the corporate structure or existence of any Loan Party or any of its Subsidiaries; (f) any failure of any Secured Party to disclose to any Loan Party any information relating to the business, condition (financial or otherwise), operations, performance, assets, nature of assets, liabilities or prospects of any other Loan Party now or hereafter known to such Secured Party (each Grantor waiving any duty on the part of the Secured Parties to disclose such information); (g) the failure of any other Person to execute this Agreement or any other Collateral Document, guaranty or agreement or the release or reduction of liability of any Grantor or other grantor or surety with respect to the Secured Obligations; or (h) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by any Secured Party that might otherwise constitute a defense available to, or a discharge of, such Grantor or any other Grantor or a third party grantor of a security interest. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or must otherwise be returned by any Secured Party or by any other Person upon the insolvency, bankruptcy or reorganization of any Loan Party or otherwise, all as though such payment had not been made. Section 27. Execution in Counterparts. This Agreement may be executed in ------------------------- any number of 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. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. Section 28. Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of New York. 26 IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. DAVITA INC. By ------------------------------------------- Name: Guy Seay Title: Vice President S-1 By -------------------------------------------- Name: Guy Seay Title: Vice President on behalf of each of the entities listed on Appendix A attached hereto S-2 TOTAL RENAL CARE, INC., on behalf of each of the entities listed on Appendix B attached hereto By -------------------------------------------- Name: Guy Seay Title: Vice President S-3 TRC WEST, INC. By -------------------------------------------- Name: Guy Seay Title: Vice President S-4 Appendix A to the Security Agreement Carroll County Dialysis Facility, Inc. Continental Dialysis Centers, Inc. Continental Dialysis Center of Springfield-Fairfax, Inc. Dialysis Specialists of Dallas, Inc. East End Dialysis Center, Inc. Elberton Dialysis Facility, Inc. Flamingo Park Kidney Center, Inc. Lincoln Park Dialysis Services, Inc. Mason-Dixon Dialysis Facilities, Inc. Open Access Sonography, Inc. Peninsula Dialysis Center, Inc. Renal Treatment Centers, Inc. Renal Treatment Centers - California, Inc. Renal Treatment Centers - Hawaii, Inc. Renal Treatment Centers - Illinois, Inc. Renal Treatment Centers - Mid-Atlantic,Inc. Renal Treatment Centers - Northeast, Inc. Renal Treatment Centers - West, Inc. RTC Holdings, Inc. RTC - Texas Acquisition, Inc. RTC TN, Inc. Total Acute Kidney Care, Inc. Total Renal Care, Inc. Total Renal Care of Colorado, Inc. Total Renal Care of Puerto Rico, Inc. Total Renal Laboratories, Inc. Total Renal Research, Inc. Total Renal Support Services, Inc. TRC of New York, Inc. Tri-City Dialysis Center, Inc. Appendix B to the Security Agreement Beverly Hills Dialysis Partnership DaVita - West, LLC Houston Kidney Center/Total Renal Care Integrated Service Network Limited Partnership Nephrology Medical Associates of Georgia, LLC Renal Treatment Centers - Southeast, LP Total Renal Care/Peralta Renal Center Partnership Total Renal Care/Piedmont Dialysis Partnership Total Renal Care Texas Limited Partnership Total Renal Care of Utah, L.L.C. TRC - Indiana, LLC Schedule I to the Security Agreement PLEDGED SHARES AND PLEDGED DEBT Part I ================================================================================================================================= Percentage Stock of Certificate Number Outstanding Grantor Issuer Class of Stock Par Value No(s) of Shares Shares ================ ============== ======================= ================== ==================== ============== ================== - ---------------- -------------- ----------------------- ------------------ -------------------- -------------- ------------------ - ---------------- -------------- ----------------------- ------------------ -------------------- -------------- ------------------ - ---------------- -------------- ----------------------- ------------------ -------------------- -------------- ------------------ - ---------------- -------------- ----------------------- ------------------ -------------------- -------------- ------------------ - ---------------- -------------- ----------------------- ------------------ -------------------- -------------- ------------------ - ---------------- -------------- ----------------------- ------------------ -------------------- -------------- ------------------ ================ ============== ======================= ================== ==================== ============== ==================
Part II =================================================================================================================== Outstanding Debt Description of Final Principal Grantor Issuer Debt Debt Certificate No(s). Maturity Amount ================ ============== ======================= =========================== ============== ================== - ---------------- -------------- ----------------------- --------------------------- -------------- ------------------ - ---------------- -------------- ----------------------- --------------------------- -------------- ------------------ - ---------------- -------------- ----------------------- --------------------------- -------------- ------------------ - ---------------- -------------- ----------------------- --------------------------- -------------- ------------------ - ---------------- -------------- ----------------------- --------------------------- -------------- ------------------ - ---------------- -------------- ----------------------- --------------------------- -------------- ------------------ ================ ============== ======================= =========================== ============== ==================
Sch. I - Page 1 Schedule II to the Security Agreement LOCATION, CHIEF EXECUTIVE OFFICE, PLACE WHERE AGREEMENTS ARE MAINTAINED, TYPE OF ORGANIZATION, JURISDICTION OF ORGANIZATION AND ORGANIZATIONAL IDENTIFICATION NUMBER Chief Place Where Executive Agreements are Type of Jurisdiction Organizational Grantor Location Office Maintained Organization of Organization I.D. No. ------- -------- ---------- ------------- ------------ --------------- --------------
Sch. III - Page 1 Schedule III to the Security Agreement TRADE NAMES Sch. III - Page 1 Schedule IV to the Security Agreement INTELLECTUAL PROPERTY COLLATERAL I. PATENTS Patent ------ Grantor Titles Country Patent No. Applic. No. Filing Date Issue Date ------- ------ ------- ---------- ----------- ----------- ---------- II. DOMAIN NAMES AND TRADEMARKS Domain Applic. Filing ------ ------- ------ Grantor Name/Mark Country Mark Reg. No. No. Date Issue Date ------- ---------- ------- ---- -------- --- ---- ---------- III. COPYRIGHTS Title of Filing Issue -------- ------ ----- Grantor Work Country Title Reg. No. Applic. No. Date Date ------- ---- ------- ----- -------- ----------- ---- ---- IV. LICENSES Grantor Licenses ------- --------
Sch. IV - Page 1 Schedule V to the Security Agreement ASSETS SUBJECT TO EXISTING CONTRACTS OF SALE Sch. V - Page 1 Exhibit A to the Security Agreement FORM OF SECURITY AGREEMENT SUPPLEMENT [Date of Security Agreement Supplement] Credit Suisse First Boston, Cayman Islands Branch as the Collateral Agent for the Secured Parties referred to in the Credit Agreement referred to below ---------------------------------- ---------------------------------- Attn: ----------------------- DaVita Inc. ----------- Ladies and Gentlemen: Reference is made to (i) the Credit Agreement dated as of April 26, 2002 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among DaVita Inc., a Delaware corporation, as the Borrower, the Lender Parties party thereto, Credit Suisse First Boston, Cayman Islands Branch, as collateral agent (together with any successor collateral agent appointed pursuant to Article VII of the Credit Agreement, the "Collateral Agent"), and as administrative agent for the Lender Parties, and (ii) the Security Agreement dated April 26, 2002 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement") made by the Grantors from time to time party thereto in favor of the Collateral Agent for the Secured Parties. Terms defined in the Credit Agreement or the Security Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement or the Security Agreement. Section 1. Grant of Security. The undersigned hereby grants to the ----------------- Collateral Agent for the ratable benefit of the Secured Parties, a security interest in, all of its right, title and interest in and to all of the Collateral of the undersigned, whether now owned or hereafter acquired by the undersigned, wherever located and whether now or hereafter existing or arising, including, without limitation, the property and assets of the undersigned set forth on the attached supplemental schedules to the Schedules to the Security Agreement. Exh. A - Page 1 Section 2. Security for Obligations. The grant of a security interest in, ------------------------ the Collateral by the undersigned under this Security Agreement Supplement and the Security Agreement secures the payment of all Obligations of the undersigned now or hereafter existing under or in respect of the Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise. [Without limiting the generality of the foregoing, this Security Agreement Supplement and the Security Agreement secures the payment of all amounts that constitute part of the Secured Obligations and that would be owed by the undersigned to any Secured Party under the Loan Documents but for the fact that such Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving a Loan Party.]/1/ Section 3. Supplements to Security Agreement Schedules. The undersigned has ------------------------------------------- attached hereto supplemental Schedules I through V to Schedules I through V, respectively, to the Security Agreement, and the undersigned hereby certifies, as of the date first above written, that such supplemental schedules have been prepared by the undersigned in substantially the form of the equivalent Schedules to the Security Agreement and are complete and correct in all material respects. Section 4. Representations and Warranties. The undersigned hereby makes ------------------------------ each representation and warranty set forth in Section 8 of the Security Agreement (as supplemented by the attached supplemental schedules) to the same extent as each other Grantor. Section 5. Obligations Under the Security Agreement. The undersigned hereby ---------------------------------------- agrees, as of the date first above written, to be bound as a Grantor by all of the terms and provisions of the Security Agreement to the same extent as each of the other Grantors. The undersigned further agrees, as of the date first above written, that each reference in the Security Agreement to an "Additional Grantor" or a "Grantor" shall also mean and be a reference to the undersigned. Section 6. Governing Law. This Security Agreement Supplement shall be ------------- governed by, and construed in accordance with, the laws of the State of New York. - -------- 1 Include this sentence only if the Additional Grantor delivering this Security Agreement Supplement will not be required under the Loan Documents to become a Guarantor. Also, in that case, the first sentence of this Section 2 should be revised to reflect that this pledge and grant secures the payment of all Obligations of each Loan Party. Exh. A - Page 2 Very truly yours, [NAME OF ADDITIONAL GRANTOR] By ---------------------------------------- Title: Address for notices: ----------------------- ----------------------- ----------------------- Exh. A - Page 3 Exhibit B to the Security Agreement FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT This INTELLECTUAL PROPERTY SECURITY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, the "IP Security Agreement") dated April 26, 2002, is made by the Persons listed on the signature pages hereof (collectively, the "Grantors") in favor of Credit Suisse First Boston, Cayman Islands Branch ("CSFB"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). WHEREAS, DaVita Inc., a Delaware corporation, has entered into a Credit Agreement dated as of April 26, 2002 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), with CSFB as Administrative Agent and as Collateral Agent, and the Lender Parties party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. WHEREAS, as a condition precedent to the making of Advances and the issuance of Letters of Credit by the Lender Parties under the Credit Agreement and the entry into Secured Hedge Agreements by the Hedge Banks from time to time, each Grantor has executed and delivered that certain Security Agreement dated April 26, 2002 made by the Grantors to the Collateral Agent (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement"). WHEREAS, under the terms of the Security Agreement, Grantors have granted to the Collateral Agent, for the ratable benefit of the Secured Parties, a security interest in, among other property, certain intellectual property of the Grantors to the Collateral Agent for the ratable benefit of the Secured Parties, and have agreed as a condition thereof to execute this IP Security Agreement covering such intellectual property for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as follows: SECTION 1. Grant of Security. Each Grantor hereby grants to the Collateral ----------------- Agent for the ratable benefit of the Secured Parties a security interest in and to all of such Grantor's right, title and interest in and to the following (the "Collateral"): (i) the United States, international, and foreign patents, patent applications and patent licenses set forth in Schedule A hereto (as such Schedule A may be supplemented from time to time by supplements to the Security Agreement and this IP Security Agreement, each such supplement being in substantially the form of Exhibit C to the Security Agreement (an "IP Security Exh. B - Page 1 Agreement Supplement") executed and delivered by such Grantor to the Collateral Agent from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions (the "Patents"); (ii) the United States and foreign trademark and service mark registrations, applications, and licenses set forth in Schedule B hereto (but excluding any United States intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security interest therein impairs the validity or enforceability of such intent-to-use trademark applications under applicable federal law), together with the goodwill symbolized thereby and renewals and extensions of the foregoing, and all rights therein provided by international treaties or conventions (as such Schedule B may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time) (the "Trademarks"); (iii) all copyrights, whether registered or unregistered, including, without limitation, the United States and foreign copyright registrations and applications and copyright licenses set forth in Schedule C hereto (as such Schedule C may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time) (the "Copyrights"); (iv) any and all claims for damages for past, present and future infringement, misappropriation, violation, misuse or breach with respect to any of the foregoing, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and (v) any and all proceeds of the foregoing. SECTION 2. Security for Obligations. The pledge and assignment of, and the ------------------------ grant of a security interest in, the Collateral by each Grantor under this IP Security Agreement secures the payment of all Obligations of such Grantor now or hereafter existing under or in respect of the Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise. Without limiting the generality of the foregoing, this IP Security Agreement secures, as to each Grantor, the payment of all amounts that constitute part of the Secured Obligations and that would be owed by such Grantor to any Secured Party under the Loan Documents but for the fact that such Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving a Loan Party. SECTION 3. Recordation. Each Grantor authorizes and requests that the ----------- Register of Copyrights, the Commissioner of Patents and Trademarks and any other applicable government officer record this IP Security Agreement. Exh. B - Page 2 SECTION 4. Execution in Counterparts. This Agreement may be executed in any ------------------------- number of 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. SECTION 5. Grants, Rights and Remedies. This IP Security Agreement has been --------------------------- entered into in conjunction with the provisions of the Security Agreement. Each Grantor does hereby acknowledge and confirm that the grant of the security interest hereunder to, and the rights and remedies of, the Collateral Agent with respect to the Collateral are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated herein by reference as if fully set forth herein. SECTION 6. Governing Law. This IP Security Agreement shall be governed by, ------------- and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. DAVITA INC. By ------------------------------------------ Name: Title: Address for Notices: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- [NAME OF GRANTOR] By ------------------------------------------- Name: Title: Address for Notices: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- Exh. B - Page 3 [NAME OF GRANTOR] By ------------------------------------------ Name: Title: Address for Notices: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- [NAME OF GRANTOR] By ------------------------------------------ Name: Title: Address for Notices: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- [ETC.] [ADD ACKNOWLEDGMENT FORM IF NEEDED] Exh. B - Page 4 Exhibit C to the Security Agreement FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT This INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT (this "IP Security Agreement Supplement") dated April 26, 2002, is made by the Person listed on the signature page hereof (the "Grantor") in favor of Credit Suisse First Boston, Cayman Islands Branch ("CSFB"), as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). WHEREAS, DaVita Inc., a Delaware corporation, has entered into a Credit Agreement dated as of April 26, 2002 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), with CSFB, as Administrative Agent, and as Collateral Agent, and the Lender Parties party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. WHEREAS, pursuant to the Credit Agreement, the Grantor and certain other Persons have executed and delivered that certain Security Agreement dated April 26, 2002 made by the Grantor and such other Persons to the Collateral Agent (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement"). To create a short form version of the Security Agreement covering certain intellectual property of the Grantor and such other Persons for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities, the Grantor and such other Persons have executed and delivered that certain Intellectual Property Security Agreement made by the Grantor and such other Persons to the Collateral Agent dated April 26, 2002 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "IP Security Agreement"). WHEREAS, under the terms of the Security Agreement and the IP Security Agreement, the Grantor has granted to the Collateral Agent for the ratable benefit of the Secured Parties, a security interest in the Additional Collateral (as defined in Section 1 below) of the Grantor to the Collateral Agent for the ratable benefit of the Secured Parties and has agreed as a condition thereof to execute this IP Security Agreement Supplement for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees as follows: SECTION 1. Confirmation of Grant of Security. The Grantor hereby --------------------------------- acknowledges and confirms the grant of a security interest to the Collateral Agent for the ratable benefit of the Secured Parties under the Security Agreement and the IP Security Agreement in and to all of the Grantor's right, title and interest in and to the following (the "Additional Collateral"): Exh. C - Page 1 (i) The United States, international, and foreign patents, patent applications, and patent licenses set forth in Schedule A hereto, together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions (the "Patents"); (ii) The United States and foreign trademark and service mark registrations, applications, and licenses set forth in Schedule B hereto (but excluding any United States intent-to-use trademark application to the extent that, and solely during the period in which, the grant of a security interest therein impairs the validity or enforceability of such intent-to-use trademark applications under applicable federal law), together with the goodwill symbolized thereby and renewals and extensions of the foregoing, and all rights therein provided by international treaties or conventions (the "Trademarks"); (iii) all copyrights, whether registered or unregistered, including, without limitation, the United States and foreign copyright registrations and applications and copyright licenses set forth in Schedule C hereto (the "Copyrights"); (iv) any and all claims for damages for past, present and future infringement, misappropriation, violation, misuse or breach with respect to any of the foregoing, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and (v) any and all proceeds of the foregoing. SECTION 2. Supplement to Security Agreement and IP Security Agreement. Schedule IV to the Security Agreement and Schedules A, B and C to the IP Security Agreement are each, effective as of the date hereof, hereby supplemented to add to such Schedules the Additional Collateral. SECTION 3. Recordation. The Grantor authorizes and requests that the ----------- Register of Copyrights, the Commissioner of Patents and Trademarks and any other applicable government officer to record this IP Security Agreement Supplement. SECTION 4. Governing Law. This IP Security Agreement Supplement shall be -------------- governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [NAME OF GRANTOR] By ------------------------------------------ Name: Title: Address for Notices: ------------------------------------------ Exh. C - Page 2 EX-10.4 6 dex104.txt SUBSIDIARY GUARANTEE DATED APRIL 26, 2002 Exhibit 10.4 - -------------------------------------------------------------------------------- SUBSIDIARY GUARANTEE Dated April 26, 2002 made by EACH OF THE SUBSIDIARIES OF DAVITA INC. LISTED ON THE SIGNATURE PAGES HEREOF, as Guarantors, -------------- in favor of THE LENDER PARTIES REFERRED TO IN THE CREDIT AGREEMENT REFERRED TO HEREIN - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ---- SECTION 1. Guarantee; Limitation of Liability ............................ 1 SECTION 2. Guarantee Absolute ............................................ 2 SECTION 3. Waivers and Acknowledgments ................................... 4 SECTION 4. Subrogation ................................................... 4 SECTION 5. Payments Free and Clear of Taxes, Etc ......................... 5 SECTION 6. Representations and Warranties ................................ 7 SECTION 7. Confirmation of Certain Provisions of the Finance Documents ... 8 SECTION 8. Amendments; Supplements, Etc .................................. 8 SECTION 9. Notices, Etc .................................................. 9 SECTION 10. No Waiver; Remedies ........................................... 9 SECTION 11. Right of Setoff ............................................... 9 SECTION 12. Indemnification ............................................... 10 SECTION 13. Continuing Guarantee; Assignments under the Credit Agreement .. 10 SECTION 14. Release of Guarantors ......................................... 11 SECTION 15. Execution in Counterparts ..................................... 11 SECTION 16. Governing Law; Jurisdiction; Etc. ............................. 11 SECTION 17. WAIVER OF JURY TRIAL .......................................... 1
EXHIBIT ------- Exhibit A - Form of Guarantee Supplement APPENDICES ---------- Appendix A Appendix B SUBSIDIARY GUARANTEE GUARANTEE dated April 26, 2002 made by each of the Persons listed on the signature pages hereto (together with each of the Additional Guarantors (as defined in Section 8(b)), the "Guarantors") in favor of the Guaranteed Parties (as defined below). PRELIMINARY STATEMENTS (1) DaVita Inc., a Delaware corporation (the "Borrower"), has entered into a Credit Agreement dated as of May 3, 2001 (as amended) with the banks, financial institutions and other institutional lenders party thereto, Bank of America, N.A. ("BofA") as administrative agent for the lender parties thereunder (the "Existing Credit Agreement"). (2) The Borrower proposes to terminate the Existing Credit Agreement with advances made pursuant to a Credit Agreement dated as of April 26, 2002 (as further amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among the Borrower, the banks, financial institutions and other institutional lenders from time to time party thereto, BofA, as the Syndication Agent, Credit Suisse First Boston, Cayman Islands Branch ("CSFB") and Banc of America Securities LLC ("BAS"), as the Book Managers, The Bank of New York, The Bank of Nova Scotia and Wachovia Bank, National Association, as Documentation Agents, and CSFB as the administrative agent (together with any successor thereto appointed pursuant to Article VII of the Credit Agreement, the "Administrative Agent") for the Lender Parties thereunder. Capitalized terms not otherwise defined in this Guarantee shall have the same meanings as specified therefor in the Credit Agreement. Each of the Guarantors may receive, directly or indirectly, a portion of the proceeds of the Advances under the Credit Agreement and will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. (3) The Borrower may from time to time hereafter enter into Hedge Agreements with the Hedge Banks to the extent such Hedge Agreements are expressly permitted under Section 5.02(b)(iii) of the Credit Agreement (collectively the "Guaranteed Hedge Agreements"). (4) It is a condition precedent to the effectiveness of the Credit Agreement that each of the Guarantors shall have executed and delivered this Guarantee. Collectively, the Administrative Agent, the Lender Parties and the Hedge Banks are referred to in this Guarantee as the "Guaranteed Parties" and the Loan Documents and the Guaranteed Hedge Agreements are collectively referred to as the "Finance Documents." NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Advances, the Issuing Bank to issue Letters of Credit from time to time under the Credit Agreement and the Hedge Banks to enter into the Hedge Agreements, each of the Guarantors hereby agrees as follows: SECTION 1. Guarantee; Limitation of Liability. (a) Each of the Guarantors ---------------------------------- jointly and severally hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise, of all of the Obligations of the Borrower now or hereafter existing under or in respect of the Finance Documents (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, premium, fees, indemnification payments, contract causes of action, costs, expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and agrees to pay any and all 2 expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or any of the Guaranteed Parties in enforcing any rights under this Guarantee. Without limiting the generality of the foregoing, each of the Guarantors' liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by any of the other Loan Parties to the Administrative Agent or any of the Guaranteed Parties under or in respect of the Finance Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such other Loan Party. (a) Each of the Guarantors, and by its acceptance of this Guarantee, the Administrative Agent and each of the Guaranteed Parties, hereby confirm that it is the intention of all such Persons that this Guarantee and the Obligations of each of the Guarantors hereunder not constitute a fraudulent transfer or conveyance for purposes of the United States Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state Requirements of Law covering the protection of creditors' rights or the relief of debtors to the extent applicable to this Guarantee and the Obligations of each of the Guarantors hereunder. To effectuate the foregoing intention, each of the Guarantors, the Administrative Agent and each of the Guaranteed Parties hereby irrevocably agree that the Guaranteed Obligations and all of the other liabilities of each of the Guarantors under this Guarantee shall be limited to the maximum amount as will, after giving effect to such maximum amount and all of the other contingent and fixed liabilities of such Guarantor that are relevant under such Requirements of Law, and after giving effect to any collections from, any rights to receive contributions from, or any payments made by or on behalf of, any of the other Guarantors in respect of the Obligations of such other Guarantor under this Guarantee, result in the Guaranteed Obligations and all of the other liabilities of each of the Guarantors under this Guarantee not constituting a fraudulent transfer or conveyance. (b) Each of the Guarantors hereby unconditionally and irrevocably agrees that, in the event any payment shall be required to be made to the Guaranteed Parties under this Guarantee or any other guarantee, such Guarantor will contribute, to the fullest extent permitted by applicable law, such amounts to each of the other Guarantors and each other guarantor as would maximize the aggregate amount paid to the Guaranteed Parties under or in respect of the Finance Documents. SECTION 2. Guarantee Absolute. (a) Each of the Guarantors jointly and ----------------- severally guarantees that all of the Guaranteed Obligations will be paid strictly in accordance with the terms of the Finance Documents, regardless of any Requirements of Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any of the Guaranteed Parties with respect thereto. The Obligations of each of the Guarantors under this Guarantee are independent of the Guaranteed Obligations or any other Obligations of any of the other Loan Parties under or in respect of the Finance Documents, and a separate action or actions may be brought and prosecuted against each of the Guarantors to enforce this Guarantee, irrespective of whether any action is brought against any of the other Loan Parties or whether any of the other Loan Parties is joined in any such action or actions. The liability of each of the Guarantors under this Guarantee shall be absolute, unconditional and irrevocable irrespective of, and each of the Guarantors hereby irrevocably waives any defenses it may now have or may hereafter acquire in any way relating to, any and all of the following: (i) any lack of validity or enforceability of any of the Finance Documents or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other Obligations of any of the other Loan Parties under or in respect of the Finance Documents, or any other amendment or waiver of or any consent to departure from any of the Finance Documents (including, without limitation, any 3 increase in the Guaranteed Obligations resulting from the extension of additional credit to any of the Loan Parties or any of their respective Subsidiaries or otherwise); (iii) any taking, exchange, release or nonperfection of any collateral, or any taking, release or amendment or waiver of, or consent to departure from, any other guarantee, for all or any of the Guaranteed Obligations; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any of the property and assets of any of the other Loan Parties or any of their respective Subsidiaries for all or any of the Guaranteed Obligations or any other Obligations of any of the Loan Parties under or in respect of the Finance Documents; (v) any change, restructuring or termination of the legal structure or existence of any of the other Loan Parties or any of their respective Subsidiaries; (vi) any failure of any of the Guaranteed Parties to disclose to any of the Loan Parties any information relating to the business, condition (financial or otherwise), operations, liabilities (actual or contingent), properties or prospects of any of the other Loan Parties now or hereafter known to such Guaranteed Party; (vii) the failure of any other Person to execute this Guarantee or any other guarantee or agreement or the release or reduction of liability of any of the other Guarantors or any other guarantor or surety with respect to the Guaranteed Obligations; or (viii) any other circumstance (including, without limitation, any statute of limitations or any existence of or reliance on any representation by the Administrative Agent or any of the Guaranteed Parties) that might otherwise constitute a defense available to, or a discharge of, such Guarantor, any of the other Loan Parties or any other guarantor or surety. This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Administrative Agent or any of the Guaranteed Parties or by any other Person upon the insolvency, bankruptcy or reorganization of any of the Loan Parties or otherwise, all as though such payment had not been made, and each of the Guarantors hereby unconditionally and irrevocably agrees that it will jointly and severally indemnify the Administrative Agent and each of the Guaranteed Parties, upon demand, for all of the costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or such Guaranteed Party in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, a fraudulent transfer or a similar payment under any bankruptcy, insolvency or similar Requirements of Law. (b) Each of the Guarantors hereby further agrees that, as between such Guarantor, on the one hand, and the Administrative Agent and the Guaranteed Parties, on the other hand, (i) the Guaranteed Obligations of such Guarantor may be declared to be forthwith due and payable as provided in Section 6.01 of the Credit Agreement (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 6.01 of the Credit Agreement) for all purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such declaration in respect of the Obligations of any of the Loan Parties guaranteed hereunder (or preventing such Guaranteed Obligations from becoming automatically due and payable) as against any other Person and (ii) in the event of any declaration of acceleration of such Guaranteed Obligations (or such Guaranteed 4 Obligations being deemed to have become automatically due and payable) as provided in Section 6.01 of the Credit Agreement, such Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by such Guarantor for all purposes of this Guarantee. SECTION 3. Waivers and Acknowledgments. (a) Each of the Guarantors hereby --------------------------- unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, protest, dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guarantee, and any requirement that the Administrative Agent or any of the Guaranteed Parties protect, secure, perfect or insure any Lien or any property or assets subject thereto or exhaust any right or take any action against any of the other Loan Parties or any other Person or any Collateral. (b) Each of the Guarantors hereby waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by the Administrative Agent or the Guaranteed Parties which in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of such Guarantor or any other rights of such Guarantor to proceed against any of the other Loan Parties, any other guarantor or any other Person or any Collateral and (ii) any defense based on any right of setoff or counterclaim against or in respect of the Obligations of such Guarantor under this Guarantee. (c) Each of the Guarantors hereby unconditionally and irrevocably waives any duty on the part of the Administrative Agent or any of the Guaranteed Parties to disclose to such Guarantor any matter, fact or thing relating to the business, condition (financial or otherwise), operations, liabilities (actual or contingent), properties or prospects of any of the other Loan Parties or any of their respective Subsidiaries or the property and assets thereof now or hereafter known by the Administrative Agent or such Guaranteed Party. (d) Each of the Guarantors hereby unconditionally waives any right to revoke this Guarantee, and acknowledges that this Guarantee is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. (e) Each of the Guarantors acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Finance Documents and that the waivers set forth in Section 2 and in this Section 3 are knowingly made in contemplation of such benefits. SECTION 4. Subrogation. Each of the Guarantors hereby unconditionally and ----------- irrevocably agrees not to exercise any rights that it may now have or may hereafter acquire against any of the other Loan Parties or any other insider guarantor that arise from the existence, payment, performance or enforcement of the Obligations of such Guarantor under or in respect of this Guarantee or any of the other Finance Documents, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any of the Guaranteed Parties against such other Loan Party or any other insider guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute, common law or any other Requirements of Law, including, without limitation, the right to take or receive from such other Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by set off or in any other manner, payment or security on account of such claim, remedy or right, unless and until such time as all of the Guaranteed Obligations and all of the other amounts payable under this Guarantee shall have been paid in full in cash, all of the Letters of Credit shall have expired or been fully drawn, terminated or cancelled, all of the Guaranteed Hedge Agreements shall have expired or been terminated and all Commitments shall have expired or been terminated. If any amount shall be paid to any of the Guarantors in violation of the immediately preceding sentence at any time prior to the latest 5 of (a) the payment in full in cash of all of the Guaranteed Obligations and all of the other amounts payable under this Guarantee (other than in choate reimbursement or indemnification Obligations), (b) the full drawing, expiration, termination or cancellation of all of the Letters of Credit, (c) the expiration or termination of all of the Guaranteed Hedge Agreements and (d) the Termination Date for all of the Facilities, such amount shall be received and held in trust for the benefit of the Administrative Agent and the Guaranteed Parties, shall be segregated from the other property and funds of such Guarantor and shall be delivered forthwith to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guaranteed Obligations and the other amounts payable under this Guarantee, whether matured or unmatured, in accordance with the terms of the Finance Documents, or to be held in escrow (in an account to be established at CSFB, in the name and under the control of the Administrative Agent and on terms, including the rate of interest payable with respect to the credit balance of such account from time to time, substantially the same as CSFB's standard terms applicable to escrow accounts maintained with it) for any of the Guaranteed Obligations or the other amounts payable under this Guarantee thereafter arising. If (i) any of the Guarantors shall pay to the Administrative Agent all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations (other than inchoate indemnification and reimbursement Obligations) and the of the other amounts payable under this Guarantee shall have been paid in full in cash, (iii) all of the Letters of Credit shall have expired or been fully drawn, terminated or cancelled, (iv) all of the Guaranteed Hedge Agreements shall have expired or been terminated and (v) the Termination Date for all of the Facilities shall have occurred, the Administrative Agent and Guaranteed Parties will, at such Guarantor's request and expense, execute and deliver to such Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer or subrogation to such Guarantor of an interest in the Guaranteed Obligations resulting from the payment made by such Guarantor under this Guarantee. SECTION 5. Payments Free and Clear of Taxes, Etc. (a) Any and all payments -------------------------------------- by any of the Guarantors under or in respect of this Guarantee or any of the other Finance Documents to which such Guarantor is a party shall be made, in accordance with Section 2.13 of the Credit Agreement, free and clear of and without deduction for any and all present or future Taxes. If any of the Guarantors shall be required by applicable Requirements of Law to deduct any Taxes from or in respect of any sum payable under or in respect of this Guarantee or any of the other Finance Documents to which such Guarantor is a party to any of the Agents or any of the Guaranteed Parties, (i) the sum payable by such Guarantor shall be increased as may be necessary so that after such Guarantor and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 5) such Agent or such Guaranteed Party, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Guarantor shall make such deductions and (iii) such Guarantor shall pay the full amount deducted to the relevant taxation authority or other Governmental Authority in accordance with the applicable Requirements of Law. (b) In addition, each of the Guarantors hereby agrees to pay on a joint and several basis any present or future Other Taxes. (c) Each of the Guarantors shall jointly and severally indemnify each of the Agents and each of the Guaranteed Parties for, and hold each of them harmless against, the full amount of Taxes and Other Taxes, and the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 5, imposed on or paid by such Agent or such Guaranteed Party, as the case may be, and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. The indemnity by each of the Guarantors provided for in this subsection (c) shall apply and be made whether or not the Taxes or Other Taxes for which indemnification hereunder is sought have been correctly or legally asserted; provided, however, that such Agent or such Guaranteed Party seeking such indemnification shall take all reasonable actions (consistent with its internal policy and 6 legal and regulatory restrictions) requested by any of the Guarantors to assist the Guarantors in recovering the amounts paid thereby pursuant to this subsection (c) from the relevant taxation authority or other Governmental Authority. Amounts payable by any of the Guarantors under the indemnity set forth in this subsection (c) shall be paid within 30 days from the date on which the applicable Agent or Guaranteed Party, as the case may be, makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Guarantor making such payment (or on whose behalf such payment was made) shall furnish to the Administrative Agent, at its address referred to in Section 9, the original or a certified copy of a receipt evidencing payment thereof, to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Administrative Agent. In the case of any payment under or in respect of this Guarantee or any of the other Finance Documents by or on behalf of any of the Guarantors through an account or branch outside the United States, or on behalf of such Guarantor by a payor that is not a United States person, if such Guarantor determines that no Taxes are payable in respect thereof, such Guarantor shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at its address referred to in Section 9, an opinion of counsel reasonably acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e) of this Section 5, the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each of the Guaranteed Parties organized under the laws of a jurisdiction outside the United States shall, (x) on or prior to the date of its execution and delivery of the Credit Agreement in the case of each of the Initial Lenders, the Swing Line Bank and the Initial Issuing Bank, (y) on the date of the Assignment and Acceptance pursuant to which it becomes a Lender Party, in the case of each of the other Lender Parties and (z) in the case of the Hedge Banks, on the date of each Guaranteed Hedge Agreement to which it becomes party, and from time to time thereafter as reasonably requested in writing by any of the Guarantors or the Administrative Agent (but only so long thereafter as such Lender Party remains lawfully able to do so), provide each of such Guarantor and the Administrative Agent with two original Internal Revenue Service forms W-8BEN, W-8ECI or W-8IMY or, in the case of any of the Guaranteed Parties that is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest", form W-8BEN (and, if such Guaranteed Party delivers a form W-8BEN, a certificate representing that such Guaranteed Party is not (i) a "bank" for purposes of Section 881(c) of the Internal Revenue Code, (ii) a ten-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of any of the Guarantors or (iii) a controlled foreign corporation related to any of the Guarantors (within the meaning of Section 864(d)(4) of the Internal Revenue Code), as appropriate), or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to the Credit Agreement or the other Finance Documents or, in the case of a Guaranteed Party delivering a form W-8BEN, certifying that such Guaranteed Party is a foreign corporation, partnership, estate or trust. If the forms referred to above in this subsection (e) that are provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate shall be considered excluded from Taxes solely for the periods governed by such form. However, if, on the date of the Assignment and Assumption pursuant to which a Lender Party becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) of this Section 2.13 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent (and only to such extent), the term "Taxes" shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to such Lender Party assignee on such date. If any of the forms, 7 certificates or other documents referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, W-8ECI or W-8IMY (or the related certificate described above), that a Lender Party reasonably considers to be confidential, such Lender Party shall give notice thereof to the Borrower and the Administrative Agent and shall not be obligated to include in such form, certificate or document such confidential information. None of the Lender Parties shall be entitled to payment pursuant to subsection (a) or (c) of this Section 5 with respect to any additional Taxes that result solely and directly from a change in either of the Applicable Lending Offices of such Lender Party (other than any such additional Taxes that are imposed as a result of a change in the applicable Requirements of Law, or in the interpretation of application thereof, occurring after the date of such change), unless such change is made pursuant to the terms of Section 2.10(e) or 2.13(g) of the Credit Agreement or as a result of a request therefor by the Borrower or any of the Guarantors. (f) For any period with respect to which any of the Lender Parties has failed to provide any of the Guarantors, following such Guarantor's request therefor pursuant to subsection (e) of this Section 5, with the appropriate form, certificate or other document described in subsection (e) of this Section 5 (other than if such failure is due to a change in the applicable Requirements of Law, or in the interpretation or application thereof, occurring after the date on which a form, certificate or other document originally was required to be provided or if such form otherwise is not required under subsection (e) of this Section 5), such Guaranteed Party shall not be entitled to indemnification under subsection (a) or (c) of this Section 5 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should any of the Guaranteed Parties become subject to Taxes because of its failure to deliver a form, certificate or other document required hereunder, each of the Guarantors shall take such steps as such Guaranteed Party shall reasonably request to assist such Guaranteed Party in recovering such Taxes. SECTION 6. Representations and Warranties. Each of the Guarantors hereby ------------------------------ represents and warrants as follows: (a) Such Guarantor (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified and in good standing as a foreign business enterprise in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where failure to be so qualified or licensed would not have a Material Adverse Effect, and (iii) has all requisite power and authority (including, without limitation, all Governmental Authorizations) to enter into the Finance Documents to which it is a party and to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) The execution, delivery and performance by each Guarantor of each Loan Document to which it is or is to be a party, and the consummation of the Transaction, are within such Guarantor's corporate, partnership or limited liability company powers, have been duly authorized by all necessary action, and do not (i) contravene such Guarantor's Constitutive Documents, (ii) violate any Requirements of Law, (iii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any material contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting such Guarantor or any of its properties or (iv) except for the Liens created under the Finance Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of such Guarantor. No Guarantor is in violation of any such Requirements of Law or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which would be reasonably likely to have a Material Adverse Effect. 8 (c) No Governmental Authorization, and no other authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Guarantor of this Guarantee or any other Loan Document to which it is or is to be a party, or for the consummation of the Transaction, (ii) the grant by any Guarantor of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (iv) the exercise by any Agent or any Guaranteed Party of its rights under the Finance Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the filings and recordations required to perfect the security interests granted under the Collateral Documents to which such Grantor is a party. (d) This Guarantee has been duly executed and delivered by each Guarantor and is the legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms. (e) There are no conditions precedent to the effectiveness of this Guarantee that have not been satisfied or waived. (f) Such Guarantor has, independently and without reliance upon the Administrative Agent or any of the Guaranteed Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Guarantee and all of the other Finance Documents to which it is a party, and such Guarantor has established adequate means of obtaining from each of the other Loan Parties on a continuing basis information pertaining to, and is now and on a continuing basis will be completely familiar with, the business, condition (financial or otherwise), operations, liabilities (actual or contingent), properties or prospects of each of the other Loan Parties. SECTION 7. Confirmation of Certain Provisions of the Finance Documents. ----------------------------------------------------------- Each of the Guarantors hereby confirms to the Administrative Agent and the Guaranteed Parties that each of the representations and warranties set forth in the Finance Documents that is made by such Guarantor or on behalf of such Guarantor by the Borrower is correct in all material respects. Each of the Guarantors hereby confirms and agrees that, so long as any of the Advances or any of the other Obligations of any Loan Party under or in respect of any of the Finance Documents shall remain unpaid, any of the Letters of Credit shall remain outstanding or any of the Lender Parties shall have any Commitment under the Credit Agreement or any of the Guaranteed Hedge Agreements shall remain in effect, such Guarantor will perform and observe, and cause each of its Subsidiaries to perform and observe, all of the terms, covenants and agreements set forth in the Finance Documents on its part to be performed or observed or that the Borrower has agreed to cause such Guarantor to perform or observe. SECTION 8. Amendments; Supplements, Etc. (a) No amendment or waiver of any ----------------------------- provision of this Guarantee, nor consent to any departure by any of the Guarantors therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders and, in the case of amendments, by the Guarantors, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lender Parties required to take such action, affect the rights or duties of the Administrative Agent under this Guarantee. (b) Upon the execution and delivery by any Person of a supplement to this Guarantee (whether pursuant to Section 5.01(j) of the Credit Agreement or otherwise), in each case in substantially the form of Exhibit A hereto or otherwise in form and substance reasonably satisfactory to the Lender Parties (each a "Guarantee Supplement"), such Person shall be referred to as an "Additional Guarantor" 9 and shall be and become a Guarantor as if such Person had originally been party hereto in such capacity, and each reference in this Guarantee to an "Additional Guarantor" or a "Guarantor" shall also mean and be a reference to such Additional Guarantor and each reference in any of the other Finance Documents to a "Guarantor" or a "Loan Party" shall also mean and be a reference to such Additional Guarantor. SECTION 9. Notices, Etc. All notices and other communications provided for ------------- hereunder shall be in writing (including telecopy communication) and mailed, telecopied or delivered: (a) if to any of the Guarantors, at the address of the Borrower set forth in Section 8.02 of the Credit Agreement; and (b) if to the Administrative Agent, at its address set forth in Section 8.02 of the Credit Agreement; (c) if to any of the Hedge Banks, at its address set forth in the Guaranteed Hedge Agreement to which it is party (a copy of which Guaranteed Hedge Agreement shall have been provided to the Administrative Agent); or (d) as to any of the Guarantors or the Administrative Agent, at such other address as shall be designated by such party in a written notice to each of the other Guarantors and Guaranteed Parties and, as to each of the other parties, at such other address as shall be designated by such party in a written notice to each of the Guarantors and the Administrative Agent. Notwithstanding any of the other provisions of this Guarantee or any of the other Finance Documents to which any of the Guarantors is a party, any notice to the Guarantors or to any of them required to be made under this Guarantee that is delivered to the Borrower in accordance with Section 8.02 of the Credit Agreement shall constitute effective notice to the Guarantors or to any such Guarantor. All such notices and communications shall, be effective three Business Days after deposit in the mail or upon transmission by telecopier or delivery, respectively, addressed as aforesaid. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Guarantee shall be effective as delivery of an originally executed counterpart thereof. SECTION 10. No Waiver; Remedies. No failure on the part of the -------------------- Administrative Agent or any of the Lender Parties to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof or consent thereto; nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by applicable law. SECTION 11. Right of Setoff. Upon (a) the occurrence and during the --------------- continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 of the Credit Agreement to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01 of the Credit Agreement, each of the Guaranteed Parties and each of their respective affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and otherwise 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 Guaranteed Party or such affiliate to or for the credit or the account of any of the Guarantors against any and all of the Obligations of the Guarantors now or hereafter existing under this Guarantee, if any, held by such Guaranteed Party, irrespective of whether such Guaranteed Party shall have made any demand under this Guarantee and although such obligations may be unmatured. Each of the Guaranteed Parties hereby agrees to notify the applicable Guarantor promptly after any such setoff and application 10 shall be made by such Guaranteed Party or any of its affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each of the Guaranteed Parties and each of their respective affiliates under this Section 11 are in addition to any other rights and remedies (including, without limitation, any other rights of setoff) that such Guaranteed Party and its affiliates may have. SECTION 12. Indemnification. (a) Without limiting any of the other --------------- Obligations of the Guarantors or any of the other remedies of the Guaranteed Parties under this Guarantee, each of the Guarantors hereby agrees to indemnify and hold harmless the Administrative Agent and each of the Guaranteed Parties from, and hold each of them harmless against, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel), joint or several, that may be incurred by or asserted or awarded against the Administrative Agent or such Guaranteed Party in connection with or by reason of the failure of any of the Guaranteed Obligations to be the legal, valid and binding obligations of any of the Loan Parties intended to be obligated therefor, enforceable against such Loan Party in accordance with its terms. (b) Each of the Guarantors hereby also severally agrees that none of the Administrative Agent or any of the Guaranteed Parties or any of their respective affiliates or any of their respective officers, directors, employers, agents, representatives or advisors (each an "Indemnified Party") shall have any liability (whether direct or indirect, in contract, tort or otherwise) to any of the Guarantors or any of their respective Affiliates or their respective officers, directors, stockholders, partners, members, employees, agents, representatives or advisors, except to the extent, in the case of any such Indemnified Party, that such claim is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. Each of the Guarantors hereby severally agrees not to assert any claim against any of the Indemnified Parties on any theory of liability, for special, indirect, consequential or punitive damages, arising out of or otherwise relating to the Transaction (or any aspect thereof), the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Finance Documents or any of the other transactions contemplated thereby. (c) Without prejudice to the survival of any other agreement of any of the Guarantors under this Guarantee or any of the other Finance Documents, the agreements and obligations of each of the Guarantors contained in Section 1(a) (with respect to enforcement expenses), the last sentence of Section 2(a), Section 5 and this Section 12 shall survive the payment in full of the Guaranteed Obligations and all of the other amounts payable under this Guarantee. SECTION 13. Continuing Guarantee; Assignments under the Credit Agreement. ------------------------------------------------------------ This Guarantee is a continuing guarantee and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all of the Guaranteed Obligations and all other amounts payable under this Guarantee (other than inchoate indemnification and reimbursement Obligations), (ii) the full drawing, expiration, termination or cancellation of all of the Letters of Credit, (iii) the expiration or termination of all of the Guaranteed Hedge Agreements and (iv) the Termination Date, (b) be binding upon each of the Guarantors, their respective successors and assigns and (c) inure to the benefit of, and be enforceable by, the Administrative Agent and the Guaranteed Parties and their respective successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any of the Lender Parties may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to such Lender Party under this Guarantee or otherwise, in each case as provided in Section 8.07 of the Credit Agreement. None of the Guarantors shall, subject to Section 14, have the right to assign its rights hereunder or any interest herein without the prior written consent of all of the Lender Parties. 11 SECTION 14. Release of Guarantors. If any of the Guarantors shall cease to --------------------- be a wholly owned Subsidiary of the Borrower in accordance with the terms of the Credit Agreement and the other Finance Documents (including, without limitation, in connection with a transaction permitted under Section 5.02(d), 5.02(e) or 5.02(m)(iii) of the Credit Agreement), such Guarantor shall, automatically and without any further action on the part of any of the other Loan Parties or the Administrative Agent or any of the Guaranteed Parties, and upon notice to the Administrative Agent and the Hedge Banks, be fully released and discharged from all its Obligations under or in respect of the Finance Documents to which such Guarantor is a party and, upon the request of the Borrower, the Administrative Agent shall, at the Borrower's sole expense, execute such documents and take such other action as is reasonably requested by the Borrower to evidence the release and discharge of such Guarantor from all such Obligations under or in respect of the Finance Documents. SECTION 15. Execution in Counterparts. This Guarantee 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. Delivery of an executed counterpart of a signature page to this Guarantee by telecopier shall be effective as delivery of an originally executed counterpart of this Guarantee. SECTION 16. Governing Law; Jurisdiction; Etc. (a) This Guarantee shall be --------------------------------- governed by, and construed in accordance with, the laws of the State of New York. (b) Each of the Guarantors hereby irrevocably and unconditionally submits, for itself and its property and assets, to the nonexclusive jurisdiction of any New York state court or any federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee or any of the other Finance Documents to which it is a party, or for recognition or enforcement of any judgment in respect thereof, and each of the Guarantors hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the fullest extent permitted by applicable law, in any such federal court. Each of the Guarantors hereby irrevocably consents to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to such party, at its address specified in Section 9, or by any other method permitted by applicable law. Each of the Guarantors hereby 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 applicable law. Nothing in this Guarantee shall affect any right that any of the Guarantors, the Administrative Agent or any of the Guaranteed Parties may otherwise have to bring any action or proceeding relating to this Guarantee or any of the other Finance Documents in the courts of any jurisdiction. (c) Each of the Guarantors irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Guarantee or any of the other Finance Documents to which it is a party in any New York state court or federal court. Each of the Guarantors hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 12 [the remainder of this page intentionally left blank] SECTION 17. WAIVER OF JURY TRIAL. EACH OF THE GUARANTORS BY THEIR EXECUTION -------------------- HEREOF AND EACH OF THE GUARANTEED PARTIES BY THEIR ACCEPTANCE OF THIS GUARANTEE IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTEE, ANY OF THE OTHER FINANCE DOCUMENTS, THE ADVANCES, THE LETTERS OF CREDIT OR THE ACTIONS OF THE ADMINISTRATIVE AGENT OR ANY GUARANTEED PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. IN WITNESS WHEREOF, each of the Guarantors has caused this Guarantee to be duly executed and delivered by its officer thereunto duly authorized, as of the date first above written. DAVITA INC. By ------------------------------------------ Name: Guy Seay Title: Vice President S-1 By ------------------------------------------ Name: Guy Seay Title: Vice President on behalf of each of the entities listed on Appendix A attached hereto S-2 TOTAL RENAL CARE, INC., on behalf of each of the entities listed on Appendix B attached hereto By ------------------------------------------- Name: Guy Seay Title: Vice President S-3 TRC WEST, INC. By ------------------------------------------- Name: Guy Seay Title: Vice President S-4 Appendix A to the Subsidiary Guarantee Carroll County Dialysis Facility, Inc. Continental Dialysis Centers, Inc. Continental Dialysis Center of Springfield-Fairfax, Inc. Dialysis Specialists of Dallas, Inc. East End Dialysis Center, Inc. Elberton Dialysis Facility, Inc. Flamingo Park Kidney Center, Inc. Lincoln Park Dialysis Services, Inc. Mason-Dixon Dialysis Facilities, Inc. Open Access Sonography, Inc. Peninsula Dialysis Center, Inc. Renal Treatment Centers, Inc. Renal Treatment Centers - California, Inc. Renal Treatment Centers - Hawaii, Inc. Renal Treatment Centers - Illinois, Inc. Renal Treatment Centers - Mid-Atlantic,Inc. Renal Treatment Centers - Northeast, Inc. Renal Treatment Centers - West, Inc. RTC Holdings, Inc. RTC - Texas Acquisition, Inc. RTC TN, Inc. Total Acute Kidney Care, Inc. Total Renal Care, Inc. Total Renal Care of Colorado, Inc. Total Renal Care of Puerto Rico, Inc. Total Renal Laboratories, Inc. Total Renal Research, Inc. Total Renal Support Services, Inc. TRC of New York, Inc. Tri-City Dialysis Center, Inc. Appendix B to the Subsidiary Guarantee Beverly Hills Dialysis Partnership DaVita - West, LLC Houston Kidney Center/Total Renal Care Integrated Service Network Limited Partnership Nephrology Medical Associates of Georgia, LLC Renal Treatment Centers - Southeast, LP Total Renal Care/Peralta Renal Center Partnership Total Renal Care/Piedmont Dialysis Partnership Total Renal Care Texas Limited Partnership Total Renal Care of Utah, L.L.C. TRC - Indiana, LLC EXHIBIT A TO THE SUBSIDIARY GUARANTEE FORM OF GUARANTEE SUPPLEMENT [Date of Guarantee Supplement] Credit Suisse First Boston (as the Administrative Agent under the Credit Agreement referred to below) Eleven Madison Avenue New York, New York 10010 Attention: Credit Agreement dated as of April 26, 2002 (as in effect on the date hereof, the "Credit Agreement") among DaVita Inc. with the banks, financial institutions and other institutional lenders from time to time party thereto, Credit Suisse First Boston, Cayman Islands Branch ("CSFB"), as the Swing Line Bank thereunder, Bank of America, N.A. ("BofA"), as the Syndication Agent therefor, CSFB and Banc of America Securities LLC, as the Joint Lead Arrangers and Joint Book Managers therefor, The Bank of New York, The Bank of Nova Scotia and Wachovia Bank, National Association, as Documentation Agents therefor, and CSFB as the Administrative Agent for the Lender Parties thereunder Ladies and Gentlemen: Reference is made to the above-captioned Credit Agreement and to the Subsidiary Guarantee referred to therein (such Subsidiary Guarantee, as in effect on the date hereof and as it may be further amended, supplemented or otherwise modified hereafter from time to time, the "Guarantee"). Capitalized terms not otherwise defined in this Guarantee Supplement shall have the same meanings as specified therefor in the Credit Agreement or the Guarantee. SECTION 1. Guarantee; Limitation of Liability. (a) The undersigned hereby ---------------------------------- unconditionally and irrevocably guarantees on a joint and several basis with the other Guarantors the punctual payment when due, whether at scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise, of all of the Obligations of the Borrower now or hereafter existing under or in respect of the Finance Documents (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, premium, fees, indemnification payments, contract causes of action, costs, expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or any of the Guaranteed Parties in enforcing any rights under this Guarantee Supplement or the Guarantee, on the terms and subject to the limitations set forth in the Guarantee, as if it were an original party thereto. Without limiting the generality of the foregoing, the undersigned's liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by any of the other Loan Parties to the Administrative Agent or any of the Guaranteed Parties under or in respect of the Finance Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such other Loan Party. (b) The undersigned, and by their acceptance of this Guarantee Supplement, the Administrative Agent and each of the Guaranteed Parties, hereby confirm that it is the intention of all such Persons that this Guarantee Supplement, the Guarantee and the Obligations of the undersigned hereunder and thereunder not constitute a fraudulent transfer or conveyance for purposes of the United States Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state Requirements of Law covering the protection of creditors' rights or the relief of debtors to the extent applicable to this Guarantee Supplement, the Guarantee and the Obligations of the undersigned hereunder and thereunder. To effectuate the foregoing intention, the undersigned, the Administrative Agent and each of the Guaranteed Parties hereby irrevocably agree that the Guaranteed Obligations and all of the other liabilities of the undersigned under this Guarantee Supplement and the Guarantee shall be limited to the maximum amount as will, after giving effect to such maximum amount and all of the other contingent and fixed liabilities of the undersigned that are relevant under such Requirements of Law, and after giving effect to any collections from, any rights to receive contributions from, or any payments made by or on behalf of, any of the other Guarantors in respect of the Obligations of such other Guarantor under the Guarantee, result in the Guaranteed Obligations and all of the other liabilities of the undersigned under this Guarantee Supplement and the Guarantee not constituting a fraudulent transfer or conveyance. (c) The undersigned hereby unconditionally and irrevocably agrees that, in the event any payment shall be required to be made to the Guaranteed Parties under this Guarantee Supplement, the Guarantee or any other guarantee, the undersigned will contribute, to the fullest extent permitted by applicable law, such amounts to each of the other Guarantors and each other guarantor so as to maximize the aggregate amount paid to the Guaranteed Parties under or in respect of the Finance Documents. SECTION 2. Obligations Under the Guarantee. The undersigned hereby agrees, ------------------------------- as of the date first above written, to be bound as a Guarantor by all of the terms and conditions of the Guarantee to the same extent as each of the other Guarantors. The undersigned further agrees, as of the date first above written, that each reference in the Guarantee to an "Additional Guarantor" or a "Guarantor" shall also mean and be a reference to the undersigned, and each reference in any other Loan Document to a "Guarantor" or a "Loan Party" shall also mean and be a reference to the undersigned. SECTION 3. Governing Law; Jurisdiction; Etc. (a) This Guarantee Supplement --------------------------------- shall be governed by, and construed in accordance with, the laws of the State of New York. (b) The undersigned hereby irrevocably and unconditionally submits, for itself and its property and assets, to the nonexclusive jurisdiction of any New York state court or any federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee Supplement, the Guarantee or any of the other Finance Documents to which it is a party, or for recognition or enforcement of any judgment in respect thereof, and the undersigned hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the fullest extent permitted by applicable law, in any such federal court. The undersigned hereby irrevocably consents to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to such party, at its address set forth below its name on the signature page to this Guarantee Supplement, or by any other method permitted by applicable law. The undersigned hereby 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 applicable law. Nothing in this Guarantee Supplement or the Guarantee shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Guarantee Supplement, the Guarantee or any of the other Finance Documents in the courts of any jurisdiction. (c) The undersigned irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Guarantee Supplement or any of the other Finance Documents to which it is a party in any New York state court or federal court. The undersigned hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 4. WAIVER OF JURY TRIAL. THE UNDERSIGNED IRREVOCABLY WAIVES ALL -------------------- RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTEE SUPPLEMENT, THE GUARANTEE, ANY OF THE OTHER FINANCE DOCUMENTS, ANY DOCUMENTS DELIVERED PURSUANT TO THE FINANCE DOCUMENTS, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF ANY OF THE ADMINISTRATIVE AGENT OR ANY OF THE OTHER GUARANTEED PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. Very truly yours, [NAME OF ADDITIONAL GUARANTOR] By ----------------------------------------- Name: Title: Address: EX-10.6 7 dex106.htm EMPLOYMENT AGREEMENT DATED 04/01/2001 Prepared by R.R. Donnelley Financial -- Employment Agreement dated 04/01/2001

Exhibit 10.6

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is entered into effective April 1, 2001 (the “Effective Date”), by and between DaVita Inc. (“Employer”) and Richard K. Whitney (“Employee”).

In consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the parties hereto, intending to be legally bound hereby, agree as follows:

Section 1.  Employment and Duties.    Employer hereby employs Employee to serve as Chief Financial Officer. Employee accepts such employment on the terms and conditions set forth in this Agreement. Employee shall perform the duties of Chief Financial Officer of the Employer and shall perform such other duties as may be assigned from time to time by the Chief Executive Officer. Employee agrees to devote substantially all of his time, energy, and ability to the business of Employer on a full-time basis. Employee shall at all times observe and abide by the Employer’s policies and procedures as in effect from time to time.

Section 2.  Compensation.    In consideration of the services to be performed by Employee hereunder, Employee shall receive the following compensation and benefits:

2.1  Base Salary.    Employee shall be paid a base salary of $300,000.00 per annum, less standard withholdings and authorized deductions. Employee shall be paid consistent with Employer’s payroll schedule. The Base Salary will be reviewed each year during Employer’s annual salary review. Employer, in its sole discretion, may increase the Base Salary as a result of any such review.

2.2  Benefits.    Employee and/or his family, as the case may be, shall be eligible for participation in and shall receive all benefits under Employer’s health and welfare benefit plans (including, without limitation, medical, prescription, dental, disability, and life insurance) under the same terms and conditions applicable to most executives at similar levels of compensation and responsibility.

2.3  Bonus.

(a)  Employee shall be eligible to receive a discretionary performance bonus (the “Bonus”), payable in a manner consistent with Employer’s practices and procedures. The amount of the bonus, if any, will be decided by the Chief Executive Officer and/or the Board of Directors or the Compensation Committee of the Board in his/its sole discretion.

(b)  Employee must be employed by Employer (or an affiliate) on the date any Bonus is paid to be eligible to receive such Bonus and, if Employee is not employed by Employer (or an affiliate) on the date any Bonus is paid for any reason whatsoever, Employee shall not be entitled to receive such Bonus, provided, however, that in the event Employee dies or is terminated by Employer by reason of Disability (as defined below), Employee (or his estate) shall be entitled to receive, at such time as bonuses for such year are otherwise paid by Employer, a pro rated Bonus for that portion of any year prior to such termination (or for the whole year and a portion of a year if such termination occurs after December 31 of any year and prior to the date on which the Bonus for such year is paid) regardless of whether Employee is employed on the date such Bonus is paid; and provided further, that, in the event Employee is terminated without Material Cause (as defined below) or resigns following Constructive Discharge (as defined below) at any time, Employee shall be entitled to receive a Bonus for the year in which such termination occurs equal to the normal Bonus, if any, which he received for the immediately preceding calendar year multiplied by two (2), which Bonus shall be payable within five (5) business days after the effective date of such termination. In determining the amount of any Bonus under this section, Employer shall not take into consideration the amount of any bonus given as a result of the completion of any acquisition, sale, or other such deal.

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2.4  Vacation.    Employee shall have vacation, subject to the approval of the Chief Executive Officer.

2.5  Indemnification.    Employer agrees to indemnify Employee against and in respect of any and all claims, actions, or demands, in accordance with all applicable laws. Employer also agrees to reimburse Employee in accordance with Employer’s reimbursement policies for travel and entertainment expenses, as well as other business-related expenses, incurred in the performance of his duties hereunder.

2.6  Changes to Benefit Plans.    Employer reserves the right to modify, suspend, or discontinue any and all of its health and welfare benefit plans, practices, policies, and programs at any time without recourse by Employee so long as such action is taken generally with respect to all other similarly-situated peer executives and does not single out Employee.

Section 3.  Provisions Relating to Termination of Employment.

3.1  Employment Is At-Will.    Employee’s employment with Employer is “at will” and is terminable by Employer or by Employee at any time and for any reason or no reason, subject to the notice requirements set forth below.

3.2  Termination for Material Cause.    Employer may terminate Employee’s employment for Material Cause (as defined below) upon at least thirty (30) days’ advance written notice specifying in detail the cause for the termination and the intended termination date. Upon termination for Material Cause, Employee shall (i) be entitled to receive the Base Salary and benefits as set forth in Section 2.1 and Section 2.2, respectively, through the effective date of such termination and (ii) not be entitled to receive any other compensation, benefits, or payments of any kind, except as otherwise required by law or by the terms of any benefit or retirement plan (including any stock option agreement) or other arrangement that would, by its terms, apply.

3.3  Other Termination.    Employer may terminate the employment of Employee for any reason or for no reason at any time upon at least thirty (30) days’ advance written notice. If Employer terminates the employment of Employee for reasons other than for Material Cause or Disability, or if Employee resigns within ninety (90) days following Constructive Discharge (as defined below), Employee shall (i) be entitled to receive the Base Salary and benefits as set forth in Section 2.1 and Section 2.2, respectively, through the effective date of such termination, (ii) be entitled to receive the Bonus provided for in Section 2.3(b), (iii) be entitled to receive a lump-sum payment equal to the Base Salary in effect as of the date of such termination; (iv) be entitled to continue to receive during the one-year period following the effective date of such termination (the “Severance Period”) the employee health insurance benefits set forth in Section 2.2 (to the extent Employee can continue to receive such benefits under Employer’s health insurance policies and programs in effect at the effective time of such termination through the exercise of his rights under COBRA, Employee shall elect to receive COBRA benefits, and Employer shall pay Employee’s insurance premiums for COBRA coverage during the Severance Period; provided, however, to the extent such benefits cannot be provided under such policies and programs, Employer shall purchase for Employee reasonably equivalent health insurance benefits during the Severance Period; Employer’s obligation to provide this benefit is subject to the limitation set forth below and subject to the limitation set forth in Section 2.6); and (v) not be entitled to receive any other compensation, benefits, or payments of any kind, except as otherwise required by law or by the terms of any benefit or retirement plan (including any stock option agreement) or other arrangement that would, by its terms, apply. The foregoing notwithstanding, in the event Employee accepts employment (as an employee or as an independent contractor) with another employer during the Severance Period, (x) Employee shall immediately notify Employer of such employment and (y) Employer’s obligation to continue to provide certain health insurance benefits pursuant to clause (iv) of the immediately preceding sentence shall terminate.

3.4.  Voluntary Resignation.    Employee may resign from Employer at any time upon at least thirty (30) days’ advance written notice. If Employee resigns from Employer other than within ninety (90) days following Constructive Discharge, Employee shall (i) be entitled to receive the Base Salary and benefits as set

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forth in Section 2.1 and Section 2.2, respectively, through the effective date of such termination and (ii) not be entitled to receive any other compensation, benefits, or payments of any kind, except as otherwise required by law or by the terms of any benefit or retirement plan (including any stock option agreement) or other arrangement that would, by its terms, apply. In the event Employee resigns from Employer at any time, Employer shall have the right to make such resignation effective as of any date before the expiration of the required notice period.

3.5  Death.    In the event of Employee’s death, Employee’s estate shall (i) be entitled to receive the Base Salary and benefits as set forth in Section 2.1 and Section 2.2, respectively, through the date of Employee’s death, (ii) be entitled to receive the Bonus provided for in Section 2.3(b) pro rated through the date of Employee’s death, and (iii) not be entitled to receive any other compensation, benefits, or payments of any kind, except as otherwise required by law or by the terms of any benefit or retirement plan or other arrangement that would, by its terms, apply.

3.6  Disability.    Upon thirty (30) days’ advance notice (which notice may be given before the completion of the periods described herein), Employer may terminate Employee’s employment for Disability (as defined below), provided that either (i) immediately upon the effective date of such termination, Employee shall be eligible to receive full disability benefits under the disability insurance, if any, provided to Employee by Employer or (ii) Employer shall continue to pay the Base Salary to Employee until the first to occur of (A) full disability benefits are received or (B) one (1) year from the effective date of such termination.

3.7  Definitions.    For the purposes of this Section 3, the following terms shall have the meanings indicated:

(a)  “Change of Control” shall mean (i) any transaction or series of transactions in which any person or group (within the meaning of Rule 13d-5 under the Exchange Act and Sections 13(d) and 14(d) of the Exchange Act) becomes the direct or indirect “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), by way of a stock issuance, tender offer, merger, consolidation, other business combination or otherwise, of greater than 40% of the total voting power (on a fully diluted basis as if all convertible securities had been converted and all warrants and options had been exercised) entitled to vote in the election of directors of Employer (including any transaction in which Employer becomes a wholly-owned or majority-owned subsidiary of another corporation), (ii) any merger or consolidation or reorganization in which Employer does not survive, (iii) any merger or consolidation in which Employer survives, but the shares of Employer’s Common Stock outstanding immediately prior to such merger or consolidation represent 40% or less of the voting power of Employer after such merger or consolidation, and (iv) any transaction in which more than 40% of Employer’s assets are sold. However, despite the occurrence of any of the above-described events, a Change of Control will not have occurred if Kent Thiry remains the Chief Executive Officer of Employer for at least one (1) year after the Change of Control or becomes the Chief Executive Officer of the surviving company with which Employer has merged or consolidated and remains in that position for at least one (1) year after the Change of Control.

(b)  “Constructive Discharge” shall mean the occurrence of any of the following events after the date of a Change of Control without Employee’s express written consent: (i) the scope of Employee’s authority, duties and responsibilities are materially diminished or are not (A) in the same area of operations, (B) in the same general level of seniority, or (C) of the same general nature as Employee’s authority, duties, and responsibilities with Employer immediately before such Change of Control; (ii) the failure by Employer to provide Employee with office accommodations and assistance substantially equivalent to the accommodations and assistance provided to Employee immediately before such Change of Control; (iii) the principal office to which Employee is required to report is changed to a location that is more than twenty (20) miles from the principal office to which Employee is required to report immediately before such Change of Control; (iv) Employee reports to anyone other than the Chief Executive Officer or Kent Thiry; or (v) a reduction by Employer in Employee’s Base Salary, bonus arrangement, or other material benefits as in effect on the date of such Change of Control.

(c)  “Disability” shall mean the inability, for a period of six (6) months, to adequately perform Employee’s regular duties, with or without reasonable accommodation, due to a physical or mental illness, condition, or disability.

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(d)  “Material Cause” shall mean any of the following: (i) conviction of a felony; (ii) the adjudication by a court of competent jurisdiction that Employee has committed any act of fraud or dishonesty resulting or intended to result directly or indirectly in personal enrichment at the expense of Employer; (iii) repeated failure or refusal by Employee to follow policies or directives reasonably established by the Chief Executive Officer of Employer or his designee that goes uncorrected for a period of thirty (30) consecutive days after written notice has been provided to Employee; (iv) a material breach of this Agreement that goes uncorrected for a period of (30) consecutive days after written notice has been provided to Employee; (v) an act of unlawful discrimination, including sexual harassment; (vi) a violation of the duty of loyalty or of any fiduciary duty; or (vii) exclusion of Employee from participating in any federal health care program.

3.8  Notice of Termination.    Any purported termination of Employee’s employment by Employer or by Employee shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 6 hereof. A “Notice of Termination” shall mean a written notice that indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee’s employment.

3.9  Effect of Termination.    Upon termination, this Agreement shall be of no further force and effect and neither party shall have any further right or obligation hereunder; provided, however, that no termination shall modify or affect the rights and obligations of the parties that have accrued prior to termination; and provided further, that the rights and obligations of the parties under Section 3, Section 4, Section 5, and Section 6 shall survive termination of this Agreement.

Section 4.  Certain Covenants of Executive.

4.1  Confidential Information.

(a)  Employee acknowledges and agrees that: (i) in the course of his employment by Employer, it will or may be necessary for Employee to create, use, or have access to (A) technical, business, or customer information, materials, or data relating to Employer’s present or planned business that has not been released to the public with Employer’s authorization, including, but not limited to, confidential information, materials, or proprietary data belonging to Employer or relating to Employer’s affairs (collectively, “Confidential Information”) and (B) information and materials that concern Employer’s business that come into Employer’s possession by reason of employment with Employer (collectively, “Business Related Information”); (ii) all Confidential Information and Business Related Information are the property of Employer; (iii) the use, misappropriation, or disclosure of any Confidential Information or Business Related Information would constitute a breach of trust and could cause serious and irreparable injury to Employer; and (iv) it is essential to the protection of Employer’s goodwill and maintenance of Employer’s competitive position that all Confidential Information and Business Related Information be kept confidential and that Employee not disclose any Confidential Information or Business Related Information to others or use Confidential Information or Business Related Information to Employee’s own advantage or the advantage of others.

(b) In recognition of the acknowledgment contained in Section 4.1(a) above, Employee agrees that, during the term of this Agreement and thereafter until the Confidential Information and/or Business Related Information becomes publicly available (other than through a breach by Employee), Employee shall: (i) hold and safeguard all Confidential Information and Business Related Information in trust for Employer, its successors, and assigns; (ii) not appropriate or disclose or make available to anyone for use outside of Employer’s organization at any time, either during employment with Employer or subsequent to the termination of employment with Employer for any reason, any Confidential Information and Business Related Information, whether or not developed by Employee, except as required in the performance of Employee’s duties to Employer; (iii) keep in strictest confidence any Confidential Information or Business Related Information; and (iv) not disclose or divulge, or allow to be disclosed or divulged by any person within Employee’s control, to any person, firm, or corporation, or use directly or indirectly, for Employee’s own benefit or the benefit of others, any Confidential Information or Business Related Information.

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(c)  Employee agrees that all lists, materials, records, books, data, plans, files, reports, correspondence, and other documents (“Employer material”) used or prepared by, or made available to, Employee shall be and remain property of Employer. Upon termination of employment, Employee shall immediately return all Employer material to Employer, and Employee shall not make or retain any copies or extracts thereof.

4.2.  Competition.    Employee agrees that during the term of this Agreement and for a period of two (2) years after the termination of his employment with Employer for any reason, he shall not: (i) be an officer, director, consultant, partner, owner, stockholder, employee, creditor, agent, trustee, independent contractor, or advisor of any individual, partnership, limited liability company, corporation, independent practice association, management services organization, or any other entity (collectively, “Person”) that either is in the business of or, directly or indirectly, derives any material economic benefit from providing, arranging, offering, managing, or subcontracting dialysis services or renal care services; or (ii) directly or indirectly, own, manage, control, operate, invest in, acquire an interest in, or otherwise engage in, act for, or act on behalf of any Person (other than Employer and its subsidiaries and affiliates) engaged in any activity in the United States in which Employer or any of its subsidiaries or affiliates had conducted any business during Employee’s employment hereunder—or in those countries outside the United States in which Employer or any of its subsidiaries or affiliates has conducted any business after the date of this Agreement—where such activity is similar to or competitive with the activities carried on by Employer or any of its subsidiaries or affiliates. As used herein, the term “dialysis services” or “renal care services” includes, but shall not be limited to, all dialysis services and nephrology-related services provided by Employer at any time during the period of Employee’s employment, including, but not limited to, hemodialysis, acute dialysis, apheresis services, peritoneal dialysis of any type, staff-assisted hemodialysis, home hemodialysis, dialysis-related laboratory and pharmacy services, access-related services, Method II dialysis supplies and services, nephrology practice management, or renal physician/center network management, and any other services or treatment for persons diagnosed as having end stage renal disease (“ESRD”) or pre-end stage renal disease, including any dialysis services provided in an acute hospital. The term “ESRD” shall have the same meaning as set forth in Title 42, Code of Federal Regulations 405.2101 et seq. or any successor thereto. Employee acknowledges that the nature of Employer’s activities is such that competitive activities could be conducted effectively regardless of the geographic distance between Employer’s place of business and the place of any competitive business. Notwithstanding anything herein to the contrary, such activities shall not include the ownership of 1% or less of the issued and outstanding stock, which is purchased in the open market, of a public company that conducts business that is similar to or competitive with the business carried on by the Employer or any of its subsidiaries or affiliates.

Employee acknowledges and agrees that the geographical limitations and duration of this covenant not to compete is reasonable. In particular, Employee agrees that his position is national in scope and that he will have an impact on every location where Employer currently conducts and will conduct business. Therefore, Employee acknowledges and agrees that, like his position, this covenant cannot be limited to any particular geographic region.

4.3  Solicitation of Employees.    Employee promises and agrees that he will not, for a period of two (2) years after the termination of his employment, directly or indirectly, solicit any of Employer’s employees to work for any business, individual, partnership, firm, corporation, or other entity that is then in competition with Employer’s business or any subsidiary or affiliate of Employer. Employee also agrees that during his employment and for a period of two (2) years after the termination of his employment, directly or indirectly, that he will not hire any of Employer’s employees to work (as an employee or an independent contractor) for any business, individual, partnership, firm, corporation, or other entity that is then in competition with Employer’s business or any subsidiary or affiliate of Employer. In addition, Employee agrees that during his employment and for a period of two (2) years after the termination of his employment, directly or indirectly, that he will not take any action that may reasonably result in any of Employer’s employees going to work (as an employee or an independent contractor) for any business, individual, partnership, firm, corporation, or other entity that is then in competition with Employer’s business or any subsidiary or affiliate of Employer. In addition, Employee promises and agrees that he will not, for a period of one (1) year after the termination of his employment, directly or

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indirectly, solicit, encourage, hire, or induce, or take any action that may reasonably result in, any of Employer’s employees to work for any business, individual, partnership, firm, corporation, or other entity that is not in competition with Employer.

4.4  Other solicitation.    Employee promises and agrees that during the term of this Agreement and for a period of two (2) years after the termination of his employment for any reason, he shall not, directly or indirectly: (i) induce, or take any action that may result in, any patient or customer of Employer, either individually or collectively, to patronize any competing dialysis facility; (ii) request or advise any patient, customer, or supplier of Employer to withdraw, curtail, or cancel such person’s business with Employer; (iii) enter into any contract the purpose or result of which would benefit Employee if any patient or customer of Employer were to withdraw, curtail, or cancel such person’s business with Employer; (iv) solicit, induce, encourage, or take any action that may result in any physician (or former physician) affiliated with Employer to curtail or terminate such person’s affiliation or contractual relationship with Employer; (v) disclose to any Person the names or addresses of any patient or customer of Employer or of any physician (or former physician) affiliated with Employer; or (vi) disparage Employer or any of its agents, employees, or affiliated physicians in any fashion.

4.5  Enforcement.    In the event that any part of this Section 4 shall be held unenforceable or invalid, the remaining parts hereof shall nevertheless continue to be valid and enforceable as though the invalid portions had not been a part hereof. In the event that the area, period of restriction, activity, or subject established in accordance with this Section 4 shall be deemed to exceed the maximum area, period of restriction, activity, or subject that a court of competent jurisdiction deems enforceable, such area, period of restriction, activity, or subject shall, for the purpose of Section 4, be reduced to the extent necessary to render them enforceable.

4.6  Equitable Relief.    Employee agrees that any violation by Employee of any covenant in Section 4 will or would cause Employer to suffer irreparable injury, the exact amount of which will be difficult to ascertain. For that reason, Employee agrees that Employer shall be entitled, as a matter of right, to a temporary, preliminary, and/or permanent injunction and/or other injunctive relief, ex parte or otherwise, from any court of competent jurisdiction, restraining any further violations by Employee. Such injunctive relief shall be in addition to and in no way limit any and all other remedies Employer shall have in law and equity for the enforcement of such covenants and provisions. Employee consents and stipulates to the entry of such injunctive relief in such a court prohibiting him from any further violation of the covenants and provisions of Section 4.

Section 5.  Excess Parachute Payment.    In the event that any payment or benefit received or to be received by Employee in connection with a change of control (as that term is defined under Section 280G of the Internal Revenue Code of 1986 (the “Code”)), whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement by Employer, any predecessor or successor to Employer or any corporation affiliated (within the meaning of Section 1504 of the Code) with Employer or which becomes so affiliated pursuant to the transactions resulting in a change of control (collectively all such payments are hereinafter referred to as the “Total Payments”), is deemed to be an “Excess Parachute Payment” (in whole or in part) to Employee within the meaning of Section 280G of the Code, as in effect at such time, no change shall be made to the Total Payments to be made in connection with the change of control, except that, in addition to all other amounts to be paid to Employee by Employer hereunder, Employer shall, within thirty (30) days of the date on which any Excess Parachute Payment is made, pay to Employee, in addition to any other payment, coverage or benefit due and owing hereunder, an amount determined by (i) multiplying the rate of excise tax then imposed by Code Section 4999 by the amount of the “Excess Parachute Payment” received by Employee (determined without regard to any payments made to Employee pursuant to this Section 5) and (ii) dividing the product so obtained by the amount obtained by subtracting (A) the aggregate local, state and Federal income tax rates (including the value of the loss of itemized deductions under Section 68 of the Code) applicable to the receipt by Employee of the “Excess Parachute Payment” (taking into account the deductibility for Federal income tax purposes of the payment of state and local income taxes thereon) from (B) the amount obtained by subtracting from 1.00 the rate of excise tax then imposed by Section 4999 of the Code. It is Employer’s intention that Employee’s net after-tax position be identical to that which would have obtained had Sections 280G and 4999 not been part of the Code. For

6

purposes of implementing this Section 5, (i) no portion, if any, of the Total Payments, the receipt or enjoyment of which Employee shall have effectively waived in writing prior to the date of payment of the Total Payments, shall be taken into account, and (ii) the value of any non-cash benefit or any deferred cash payment included in the Total Payments shall be determined by Employer’s independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

The calculation of the excess parachute payment is as follows: X = Y ÷ (1 – (A + B + C)), where X is the total dollar amount of the Tax Gross-Up Payment, Y is the total Excise Tax imposed with respect to such change in control benefit, A is the Excise Tax rate in effect at the time, B is the highest combined marginal federal income and applicable state income tax rate in effect, after taking into account the deductibility of state income taxes against federal income taxes to the extent allowable, for the calendar year in which the Tax Gross-Up Payment is made, and C is the applicable Hospital Insurance (Medicare) Tax Rate in effect for the calendar year in which the Tax Gross-Up Payment is made.

Section 6.  Miscellaneous.

6.1  Mediation of Disputes Concerning Employment.    In the event of any dispute concerning Employee’s employment by Employer, whether or not relating to this Agreement, Employee and Employer shall first attempt to resolve such dispute through mediation as provided in this Section 6.1 before instituting any action or other proceedings with respect thereto; provided, however, that neither party shall be required to utilize such mediation procedures to the extent that equitable relief is being sought by a party in the good faith belief that an immediate remedy is required to avoid irreparable injury to such party. Except as otherwise provided in the proviso to the immediately preceding sentence, in the event that either party desires to institute litigation or other legal proceedings to resolve a dispute concerning Employee’s employment by Employer, such party shall first give written notice to the other party setting forth in detail the nature of the dispute and the facts which such party believes supports such party’s position in such dispute. The parties shall then promptly (and, in any event, within ten (10) business days of the giving of notice of a dispute) engage the services of an impartial, experienced employment mediator (the “Mediator”) under the auspices of JAMS/Endispute (or such other mediation service as the parties may mutually select) in Los Angeles County, California. If the parties cannot mutually agree on the selection of a Mediator, JAMS/Endispute shall select a Mediator within ten (10) business days after being advised of the parties’ inability to select a Mediator. Once the Mediator is selected, the parties shall promptly schedule a mediation session with the Mediator for a date which is not later than forty-five (45) days after the date of the selection of the Mediator. The Mediator shall conduct a one-day mediation session, attended by both parties and their counsel, in an attempt to informally resolve the dispute. By oral or written agreement of both parties, follow–up or additional mediation sessions may be scheduled, but neither party shall be required to participate in more than one day of mediation. Neither party shall be required to submit briefs or position papers to the Mediator, but both parties shall have the right to do so, subject to such rules and procedures as the Mediator may establish in his or her sole discretion. Except as otherwise agreed by the parties, all written submissions to the Mediator shall remain confidential as between the submitting party and the Mediator. The mediation process shall be treated as a settlement negotiation and no evidence introduced in the mediation process may be used in any way by either party or any other person in connection with any subsequent litigation or other legal proceedings (except to the extent independently obtained through discovery in such litigation or proceedings) and the disclosure of any privileged information to the Mediator shall not operate as a waiver of privilege with respect to such information. Each party shall bear all of its own costs, attorneys’ fees and expenses related to preparing for and attending any mediation conducted under this Agreement. The fees and expenses of the Mediator and the mediation service used, if any, shall be borne equally by Employer and Employee.

6.2  Arbitration.    Except as provided below and in Section 4, any controversy or claim arising out of, relating to, or in any way connected with this Agreement, any alleged breach thereof, or Employee’s employment, which was not resolved through the use of the mediation procedure set forth in Section 6.1, shall be settled by arbitration in accordance with the rules of the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Without limiting the general nature of the foregoing, such

7

claims include, but are not limited to: wage and benefit claims; contract claims; tort claims; defamation claims; claims for employment discrimination (statutory or nonstatutory) based on age, race, sex, national origin, color, religion, disability (perceived, actual, or record of), medical condition, sexual orientation, and marital status; claims for harassment; and claims for a violation of federal, state, local, or other government law, constitution, statute, regulation, or ordinance. The arbitrator shall apply the appropriate federal or state law, shall have the authority to interpret this Agreement (but does not have the power to amend, change, delete, or add any terms), and shall have the power to determine the appropriate legal or equitable remedy, if any. The arbitrator’s decision, which must be in writing, will be final and binding, and the arbitrator’s award may be entered in any court having jurisdiction thereof. The arbitration will be held in a mutually agreeable location in Southern California. The arbitrator shall apply California law.

6.3  Entire Agreement; Amendment.    This Agreement and the separate Stock Option Agreement(s) represents the entire understanding of the parties hereto with respect to the employment of Employee and supersedes all prior agreements with respect thereto. This Agreement may not be altered or amended except in writing executed by both parties hereto.

6.4  Assignment; Benefit.    This Agreement is personal and may not be assigned by Employee. This Agreement may be assigned by Employer and shall inure to the benefit of and be binding upon the successors and assigns of Employer.

6.5  Applicable Law.    This Agreement shall be governed by the laws of the State of California, without regard to the principles of conflicts of laws.

6.6  Notice.    Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to Employer at its principal office and to Employee at Employee’s principal residence as shown in Employer’s personnel records, provided that all notices to Employer shall be directed to the attention of the Chief Executive Officer with a copy to the General Counsel of Employer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

6.7  Construction.    Each party has cooperated in the drafting and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

6.8  Execution.    This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Photographic or facsimile copies of such signed counterparts may be used in lieu of the originals for any purpose.

6.9  Legal Counsel.    Employee and Employer recognize that this is a legally binding contract and acknowledge and agree that they have had the opportunity to consult with legal counsel of their choice.

6.10  Waiver.    The waiver by any party of a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any other or subsequent breach of such or any provision.

6.11  Invalidity of Provision.    In the event that any provision of this Agreement is determined to be illegal, invalid, or void for any reason, the remaining provisions hereof shall continue in full force and effect.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date and year first written above.

DAVITA  INC.

EMPLOYEE

By:

By:

Kent J. Thiry

Chief Executive Officer

Chairman of the Board

Richard K. Whitney

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EX-12.1 8 dex121.htm RATIO OF EARNINGS TO FIXED CHARGES Prepared by R.R. Donnelley Financial -- Ratio of earnings to fixed charges

EXHIBIT 12.1

DAVITA INC.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. Earnings for this purpose is defined as pretax income from continuing operations adjusted by adding fixed charges other than interest capitalized during the period. Fixed charges is defined as the total of interest expense, amortization of financing costs, and the estimated interest component of rental expense on operating leases.


Three months ended March 31, 2002


Year ended December 31,


2001


2000


1999


1998


1997


(dollars in thousands)

Earnings adjusted for fixed charges:


Income (loss) before income taxes, extraordinary items and cumulative effect of a change in accounting principle

$

61,978

$

240,938

$

44,935

$

(181,826

)

$

48,641

$

81,178

Add:


Interest expense and amortization of financing costs


15,805


72,438


116,637


110,797



84,003


29,082

Interest portion of rental expense


4,950


18,116


17,140


17,501



12,992


8,196















20,755


90,554


133,777


128,298



96,995


37,278













Earnings (loss) before income taxes, extraordinary items, cumulative effect of a change in accounting principle and fixed charges

$

82,000

$

331,492

$

178,712

$

(53,528

)

$

145,636

$

118,456













Fixed charges:


Interest expense and amortization of financing costs


15,805


72,438


116,637


110,797



84,003


29,082

Capitalized interest


319


751


1,125


709



804


685

Interest portion of rental expense


4,950


18,116


17,140


17,501



12,992


8,196













Total fixed charges


21,074

$

91,305

$

134,902

$

129,007


$

97,799

$

37,963













Ratio of earnings to fixed charges


3.93


3.63


1.32


(a

)


1.49


3.12













(a)

Due to the Company’s loss in 1999, the ratio coverage was less than 1:1. The Company would have had to generate additional earnings of $182,535 to achieve a coverage of 1:1.

~~-----END PRIVACY-ENHANCED MESSAGE-----~~

DAVITA INC.		EMPLOYEE

By:		By:
	Kent J. Thiry Chief Executive Officer Chairman of the Board		Richard K. Whitney

	Three months ended March 31, 2002		Year ended December 31,
	Three months ended March 31, 2002		2001		2000		1999			1998		1997
	(dollars in thousands)
Earnings adjusted for fixed charges:
Income (loss) before income taxes, extraordinary items and cumulative effect of a change in accounting principle	$	61,978	$	240,938	$	44,935	$	(181,826	)	$	48,641	$	81,178
Add:
Interest expense and amortization of financing costs		15,805		72,438		116,637		110,797			84,003		29,082
Interest portion of rental expense		4,950		18,116		17,140		17,501			12,992		8,196

		20,755		90,554		133,777		128,298			96,995		37,278

Earnings (loss) before income taxes, extraordinary items, cumulative effect of a change in accounting principle and fixed charges	$	82,000	$	331,492	$	178,712	$	(53,528	)	$	145,636	$	118,456

Fixed charges:
Interest expense and amortization of financing costs		15,805		72,438		116,637		110,797			84,003		29,082
Capitalized interest		319		751		1,125		709			804		685
Interest portion of rental expense		4,950		18,116		17,140		17,501			12,992		8,196

Total fixed charges		21,074	$	91,305	$	134,902	$	129,007		$	97,799	$	37,963

Ratio of earnings to fixed charges		3.93		3.63		1.32		(a	)		1.49		3.12