Exhibit 10.7
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT is made and dated as of
December 14, 1999 (the "Third Amendment") among SIERRA HEALTH SERVICES, INC.
(the "Company"), the Banks party to the Credit Agreement referred to below, and
BANK OF AMERICA, N.A., a national banking association, as Administrative Agent
(the "Agent"), and amends that certain Credit Agreement dated as of October 30,
1998, as amended by that certain First Amendment dated as of November 23, 1998
and that certain Second Amendment to Credit Agreement dated as of January 15,
1999 (as further amended or modified from time to time, the "Credit Agreement").
RECITALS
WHEREAS, the Company has requested the Agent and the Banks to amend
certain provisions of the Credit Agreement, and the Agent and the Banks are
willing to do so, on the terms and conditions specified herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in the
Credit Agreement unless otherwise defined herein.
2. Amendment. The Credit Agreement is hereby amended as follows:
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2.1 Amendments to Section 1.01.
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(a) The definition of the term "Applicable Commitment Fee
Rate" in Section 1.01 of the Credit Agreement is hereby amended by adding the
following clause to the end of the first sentence following the chart set forth
therein: ", and from December 10, 1999 through the delivery of the Compliance
Certificate for the fiscal quarter ending September 30, 2000, the Applicable
Commitment Fee Rate shall be Level 6."
(b) The definition of the term "Applicable Margin" in Section
1.01 of the Credit Agreement is hereby amended by adding the following clause to
the end of the first sentence following the chart set forth therein: ", and from
December 10, 1999 until the delivery of the Compliance Certificate for the
fiscal quarter ending September 30, 2000, the Applicable Margin shall be Level
6."
(c) The definition of the term "Sierra Adjusted EBITDA" in
Section 1.01 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
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"Sierra Adjusted EBITDA" means, for any period, the
net income of the Company and its consolidated Subsidiaries
(other than, for the fiscal quarters ending on December 31,
1998, March 31, 1999, June 30, 1999 and September 30, 1999,
HMO Texas and PMAT) plus, to the extent deducted in
determining net income, total book taxes, Interest Expense,
depreciation and amortization expenses and solely for the
final fiscal quarter of 1998 and the first three fiscal
quarters of 1999, the Specified Charges set forth on Schedule
1.01 and, in addition to the foregoing, all of the charges set
forth in clauses (ii), (iii) and (iv) of the definition of the
term "Specified Charges", minus any non-cash extraordinary
gains. Sierra Adjusted EBITDA shall be calculated as of the
last day of the most recently ended fiscal quarter of the
Company for the period of four consecutive full fiscal
quarters then ended (the "Measurement Period"), and such
calculation shall include, on a pro forma basis, the
Consolidated Adjusted EBITDA of any Person (other than
Kaiser-Texas) acquired by the Company pursuant to an
Acquisition during the Measurement Period, as if such
Acquisition had occurred on the first day of the Measurement
Period.
(d) The definition of the term "Specified Charges" in Section
1.01 of the Credit Agreement is hereby amended and restated in its entirety to
read as follows:
"Specified Charges" means (i) those charges set forth
in Schedule 1.01 hereof, (ii) up to $13,200,000 of one-time
charges prior to taxes incurred by the Company in the first
fiscal quarter of 1999, (iii) up to $47,000,000 of one-time
charges (after adjustment for $2,000,000 of gains on a sale of
pharmacy assets) incurred by the Company in the fourth quarter
of 1999 ; provided, however that not more than $21,000,000 of
such charges shall be attributable to premium deficiency
reserves for Kaiser Texas and such charges for Kaiser Texas
shall be applied only to the operations of Kaiser Texas in the
year 2000 and to corporate- related support services provided
by the Company for Kaiser Texas in the year 2000; and provided
further that not more than $10,000,000 of such charges shall
be used to strengthen CII's reserves, and (iv) up to
$8,000,000 of charges incurred by the Company in connection
with a bid for the TRICARE Region 6 MCS contract during the
period from March 1, 2000 through June 30, 2001; provided,
however, that not more than $500,000 of such charges may be
incurred during the period from March 1, 2000 through March
31, 2000 and that not more than $2,500,000 of such charges may
be incurred during any fiscal quarter thereafter.
2.2 Amendment to Section 7.02. Subsection (b) of Section 7.02 of the Credit
Agreement is hereby amended by adding the following immediately prior to the end
thereof:
"plus, for each reporting period ending in the year 2000, a
certificate from a Responsible Officer of the Company, showing
the application of any charges taken by the Company for
premium deficiency reserves for Kaiser Texas during such
period;"
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2.3 Amendment to Section 8.01. Subsection (h) of Section 8.01
of the Credit Agreement is hereby amended by deleting the figure "$100,000,000"
and replacing it with the figure "$50,000,000".
2.4 Amendment to Section 8.08. Subsection (e) of Section 8.08 of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
"(e) Guarantees by the Company of (i) leases by its Subsidiaries of office
and medical space and (ii) the obligations of Health Plan of Nevada, Inc. and
Sierra Health and Life Insurance Company, Inc. under their insurance policies
issued to clients of J&H Xxxxx & XxXxxxxx, Inc.; and"
2.5 Amendments to Section 8.10. Clauses (ii) and (iii) of
Section 8.10 of the Credit Agreement are hereby amended and restated to read in
their entirety as follows:
(ii) in the case of purchases or redemptions of the
Convertible Debt only, such purchases or redemptions are
funded by CII from internally generated funds and not from
funds advanced by the Company or any Subsidiary of the Company
and the aggregate amount expended by CII in connection
therewith does not exceed $10,000,000 during the period from
December 10, 1999 through December 31, 2000, it being
understood that no other Restricted Payments shall be made
from December 10, 1999 through December 31, 2000;
(iii) commencing January 1, 2001, if the Company's
Leverage Ratio as of December 31, 2000 or as of the end of any
fiscal quarter thereafter shall be less than 2.75 to 1.00,
after giving effect to such Restricted Payment, the aggregate
amount of all such Restricted Payments made in any fiscal year
does not exceed $15,000,000, it being understood that until
the Company's Leverage Ratio shall be less than 2.75 to 1.00,
except for the purchases or redemptions permitted under clause
(ii) above, no Restricted Payments shall be made; and
(iv) after giving effect to such Restricted Payment,
the aggregate amount of all Restricted Payments after the
Closing Date does not exceed $50,000,000;
2.6 Amendment to Section 8.14.
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(a) Subsection (a) of Section 8.14 of the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
(a) permit its Leverage Ratio at the end of any
fiscal quarter set forth below to exceed the ratio set forth
below opposite such date:
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For the Quarter Ended: Ratio
December 31, 1998 3.75 to 1.00
March 31, 1999 3.50 to 1.00
June 30, 1999 3.25 to 1.00
December 31, 1999 3.25 to 1.00
March 31, 2000 3.25 to 1.00
June 30, 2000 3.00 to 1.00
September 30, 2000 3.00 to 1.00
December 31, 2000 2.75 to 1.00
Thereafter 2.50 to 1.00
(b) Subsection (c) of Section 8.14 of the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
(c) permit its Fixed Charges Coverage Ratio at the
end of any fiscal quarter set forth below to be less than the
ratio set forth below opposite such date:
For the Quarter Ended: Ratio
December 31, 1998 1.50 to 1.00
March 31, 1999 1.50 to 1.00
June 30, 1999 1.50 to 1.00
December 31, 1999 1.50 to 1.00
March 31, 2000 1.75 to 1.00
June 30, 2000 2.00 to 1.00
September 30, 2000 2.00 to 1.00
December 31, 2000 2.00 to 1.00
March 31, 2001 2.25 to 1.00
June 30, 2001 2.50 to 1.00
September 30, 2001 2.75 to 1.00
December 31, 2001 2.75 to 1.00
Thereafter 3.00 to 1.00
3. Representations and Warranties. The Company represents and warrants to
the Agent and the Banks that, on and as of the date hereof, and after giving
effect to this Third Amendment:
3.1 Authorization. The execution, delivery and performance by
the Company of this Third Amendment has been duly authorized by all necessary
corporate action, and this Third Amendment has been duly executed and delivered
by the Company.
3.2 Binding Obligation. This Third Amendment constitutes the legal, valid
and binding obligation of the Company, enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws
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affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
3.3 No Legal Obstacle to Amendment. The execution, delivery
and performance of this Third Amendment will not (a) contravene the Organization
Documents of the Company; (b) constitute a breach or default under any
contractual restriction or violate or contravene any law or governmental
regulation or court decree or order binding on or affecting the Company which
individually or in the aggregate does or could reasonably be expected to have a
Material Adverse Effect; or (c) result in, or require the creation or imposition
of, any Lien on any of the Company's properties. No approval or authorization of
any governmental authority is required to permit the execution, delivery or
performance by the Company of this Third Amendment, or the transactions
contemplated hereby.
3.4 Incorporation of Certain Representations. After giving
effect to the terms of this Third Amendment, the representations and warranties
of the Company set forth in Article VI of the Credit Agreement are true and
correct in all respects on and as of the date hereof as though made on and as of
the date hereof, except to the extent such representations relate solely to an
earlier specified date.
3.5 Default. No Default or Event of Default under the Credit Agreement has
occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Third Amendment
shall be subject to the compliance by the Company with its agreements herein
contained, and to the delivery of the following to Agent in form and substance
satisfactory to Agent on or before December 20, 1999:
4.1 Execution of Third Amendment. The Company, the Agent and the Majority
Banks shall have signed a copy hereof and the same shall have been delivered to
the Agent.
4.2 Pledge Agreement Affirmations. The Agent shall have received
affirmation letters in respect of the Pledge Agreement, substantially in the
form of Exhibit A, from each Pledgor Subsidiary.
4.3 Amendment Fees. Payment to the Agent, for the pro rata
benefit of each Bank approving this Third Amendment on or before 5:00 p.m.,
Pacific time, on December 20, 1999, of an amendment fee in an amount equal to
.325% of the aggregate amount of the Commitments held by the Banks that have
executed and delivered this Third Amendment by such time; and payment of all
other fees and expenses of the Agent in connection with this Third Amendment
(including, without limitation, the fees and expenses of the counsel to the
Agent).
4.4 Other Evidence. Such other evidence with respect to the Company or any
other person as the Agent or any Bank may reasonably request to establish the
consummation of
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the transactions contemplated hereby, the taking of all corporate action in
connection with this Third Amendment and the Credit Agreement and the compliance
with the conditions set forth herein.
Upon satisfaction of the foregoing conditions, the effectiveness of this Third
Amendment shall be retroactive to September 30, 1999.
5. Miscellaneous.
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5.1 Effectiveness of the Credit Agreement and the Notes.
Except as hereby expressly amended, the Credit Agreement and the Notes shall
each remain in full force and effect, and are hereby ratified and confirmed in
all respects on and as of the date hereof.
5.2 Waivers. This Third Amendment is limited solely to the
matters expressly set forth herein and is specific in time and in intent and
does not constitute, nor should it be construed as, a waiver or amendment of any
other term or condition, right, power or privilege under the Credit Agreement or
under any agreement, contract, indenture, document or instrument mentioned
therein; nor does it preclude or prejudice any rights of the Agent or the Banks
thereunder, or any exercise thereof or the exercise of any other right, power or
privilege, nor shall it require the Majority Banks to agree to an amendment,
waiver or consent for a similar transaction or on a future occasion, nor shall
any future waiver of any right, power, privilege or default hereunder, or under
any agreement, contract, indenture, document or instrument mentioned in the
Credit Agreement, constitute a waiver of any other right, power, privilege or
default of the same or of any other term or provision.
5.3 Counterparts. This Third Amendment may be executed in any
number of counterparts, and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
5.4 Governing Law. This Third Amendment shall be governed by and construed
in accordance with the laws of the State of California.
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IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed and delivered as of the date first written above.
SIERRA HEALTH SERVICES, INC.
By:
Name:
Title:
BANK OF AMERICA, N.A., as Administrative
Agent
By:
Name:
Title:
BANK OF AMERICA, N.A., as a Bank
By:
Name:
Title:
FIRST UNION NATIONAL BANK, as a Bank
By:
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH, as
a Bank
By:
Name:
Title:
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BANK ONE, NA, as a Bank
By:
Name:
Title:
XXXXX FARGO BANK, N.A., as a Bank
By:
Name:
Title:
UNION BANK OF CALIFORNIA, N.A., as a Bank
By:
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES, as a Bank
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT A to
Third Amendment
to Credit Agreement
December 14, 1999
Sierra Health Services, Inc.
Sierra Medical Management, Inc.
Prime Holdings, Inc.
c/o Sierra Health Services, Inc.
0000 Xxxxx Xxxxxx Xxx
Xxx Xxxxx, Xxxxxx 00000
Re: Sierra Health Services, Inc.
Gentlemen:
Please refer to (1) the Credit Agreement, dated as of October 30, 1998,
as amended by that certain First Amendment dated as of November 23, 1998 and
that certain Second Amendment dated as of January 15, 1999 (the "Credit
Agreement"), by and among Sierra Health Services, Inc., as the Borrower, the
commercial lending institutions party thereto (collectively, the "Lenders") and
Bank of America, N.A., as agent (herein, in such capacity, called the "Agent")
and (2) the Pledge Agreements dated October 30, 1998 from each of the addressees
in favor of the Lenders and the Agent (the "Pledge Agreements"). Pursuant to an
amendment dated of even date herewith, a copy of which is attached hereto,
certain terms of the Credit Agreement were amended. We hereby request that you
(i) acknowledge and reaffirm all of your obligations and undertakings under your
Pledge Agreement and (ii) acknowledge and agree that your Pledge Agreement is
and shall remain in full force and effect in accordance with the terms thereof.
Please indicate your agreement to the foregoing by signing in the space
provided below, and returning the executed copy to the undersigned.
BANK OF AMERICA, N.A., as Agent
By:______________________________
Title:
Acknowledged and Agreed to
as of the date hereof
SIERRA HEALTH SERVICES, INC.
SIERRA MEDICAL MANAGEMENT, INC.
By:____________________________
Its:___________________________
PRIME HOLDINGS, INC.
By:____________________________
Its:___________________________
