EXHIBIT 8
August 7, 2001
TRIOD LLC
c/o Xxxx X. Xxxxxxx & Company, LLC
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
ANAM LLC
c/o Xxxx X. Xxxxxxx & Company, LLC
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
General Electric Capital Corporation ("GE Capital") hereby offers to enter into
a mutually binding commitment with you to provide financing, either directly or
through an affiliate, to a subsidiary of NextHealth, Inc. in connection with
TRIOD, LLC's ("TRIOD") acquisition of all of the assets of Sierra Tucson LLC
("Sierra Tucson") upon the acquisition of NextHealth, Inc. (the "Commitment").
This offer is subject to the terms of this letter (the "Commitment Letter") and
the attached Summary of Key Terms & Conditions. The Commitment Letter and
attached Summary of Key Terms & Conditions do not set forth all of the terms and
conditions of the proposed transaction; rather, they are only an outline of the
major points of understanding which will be the basis of the final transaction
documentation, including loan facility documentation and other related
documentation (which are collectively referred to herein as the "Transaction
Documents") which will be in form and substance reasonably satisfactory to
Borrower, GE Capital and its counsel. All terms used in this Commitment Letter
and not otherwise defined herein shall have the meanings ascribed to them in the
attached Summary of Key Terms & Conditions.
TRIOD and ANAM LLC ("ANAM") hereby agree to: i) indemnify and hold harmless GE
Capital and its affiliates, officers, employees, agents, attorneys, and
directors (collectively, the "Indemnified Persons") against any and all losses,
claims, damages, or liabilities of every kind whatsoever to which the
Indemnified Persons may become subject in connection in any way with this
Commitment, including without limitation expenses incurred in connection with
investigating or defending against any liability or action whether or not a
party thereto, except to the extent any of the foregoing is found in a final
judgment by a court of competent jurisdiction to have arisen solely from
TRIOD LLC
August 3, 2001
Page 2 of 17
such Indemnified Person's gross negligence or willful misconduct (such
determination would not impair a right of recovery by other Indemnified
Persons); and ii) assert no claim against any Indemnified Persons seeking
consequential damages on any theory of liability in connection in any way with
this Commitment. The obligations described in this paragraph are independent of
all other obligations of XXXX and TRIOD hereunder and of TRIOD and/or Sierra
Tucson under the Transaction Documents, and shall survive the expiration,
revocation or termination of the Commitment. GE Capital's obligations under the
Commitment are enforceable solely by TRIOD, ANAM and Sierra Tucson and may not
be assigned by any of them to, or relied upon by, any other person.
Except as necessary to consummate the transaction contemplated in this
Commitment Letter (including discussions with potential equity investors,
potential subordinated lenders or potential lenders to Sierra Health Styles, as
long as such potential lenders are not proposing to provide senior debt
financing to Sierra Tucson) or as required by law, i) neither this letter nor
its contents will be disclosed publicly or privately except to those individuals
who are your, NextHealth Inc.'s, or Sierra Tucson's officers, employees or
advisors who have a need to know as a result of being specifically involved in
this transaction and then only on the condition that such matters may not be
further disclosed and ii) no one shall use the name of, or refer to, GE Capital,
or any of its affiliates in any correspondence, discussions, advertisement or
disclosure made in connection with the transaction without the prior written
consent of GE Capital, which consent may not be unreasonably withheld. GE
Capital understands that in connection with certain filings with the Securities
and Exchange Commission attendant to the acquisition of NextHealth Inc.,
contents of this Commitment may have to be disclosed.
In order for GE Capital to proceed with business and legal due diligence and to
prepare loan facility documents, please provide a check for $50,000 which, along
with the deposit previously made, will be applied towards third party legal
expenses and other Transaction Expenses. GE Capital may require further
deposits for Transaction Expenses as the financing progresses. Any of the funds
provided to GE Capital for Transaction Expenses that are not fully utilized will
be applied to amounts payable by Borrower at closing or will be refunded to
TRIOD if the transaction does not close. In any case, TRIOD hereby agrees to
pay all Transaction Expenses related to this financing if the Loan Facility
documents are not executed, unless the Lender breaches the Commitment to provide
financing.
TRIOD LLC
August 3, 2001
Page 3 of 17
Please sign and return a copy of this offer along with the $50,000 deposit to:
i) accept this offer and create a mutually binding commitment under the terms
and conditions contained herein and in the attached Summary of Key Terms and
Conditions; and ii) confirm your desire that GE Capital engage outside counsel
to perform legal due diligence and prepare the loan facility documents. Unless
signed and returned by you to us on or before August 7, 2001, this Commitment
will expire at the close of business on that date.
Very truly yours,
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Xxxx X. Xxxx
--------------------------------
Its: Vice President
AGREED TO, AND ACCEPTED FOR, TRIOD LLC
By: /s/ Xxxxxx X. Xxxx
-------------------------------
(signature)
Name: Xxxxxx X. Xxxx
-------------------------------
Title: Vice President
-------------------------------
Date: August 7, 2001
-------------------------------
AGREED TO, AND ACCEPTED FOR, ANAM LLC
By: /s/ Xxxxxx X. Xxxx
-------------------------------
(signature)
Name: Xxxxxx X. Xxxx
-------------------------------
Title: Vice President
-------------------------------
Date: August 7, 2001
-------------------------------
SUMMARY OF KEY TERMS AND CONDITIONS
I. Transaction Overview
--------------------
Use of Proceeds: To consummate the acquisition by TRIOD LLC ("TRIOD") of the
Sierra Tucson facility (the "Facility"), through a series of
steps, by acquiring all the assets of its present parent,
NextHealth, Inc. Following the acquisition, TRIOD, will
have two major operating subsidiaries, Sierra Tucson LLC
(owner of the Facility) and Sierra Health-Styles LLC ("SHS")
(owner of the Miraval operations).
Sources and Uses
of Funds (in thousands):
Sources of Funds:
GE Capital Senior Secured Term Loan $30,000
Other Debt (Health-Styles LLC,
non-recourse to Sierra Tucson) 15,000 - 20,000
Investor Equity and Subordinated
Debt Contributions (TRIOD) 16,000 - 21,000
Management's Capital Contribution (TRIOD) 24,000
-------
$90,000
=======
Uses of Funds:
Assumed Purchase Price @ $5.65 per Share $82,779
Acquisition of STAC Building 5,000
Financing and Transaction Costs 2,721
Working Capital 2,100
-------
Less: Projected Cash and Cash Equivalents (2,600)
-------
Total Uses of Cash $90,000
=======
II. Senior Secured Term Loan
------------------------
Borrower: Sierra Tucson LLC
Guarantor A wholly owned subsidiary of TRIOD, which owns 100% of the
Equity of Borrower.
Lender: GE Capital and/or its assignees or designees
Maximum Amount: $30 Million
Term: Seven years from the Closing Date (as defined below)
Prepayment: The Senior Secured Term Loan will not be subject to
prepayment prior to the third anniversary of the Closing
Date (as defined below).
TRIOD LLC
July 17, 2001
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Thereafter, the Borrower may, at its sole option, at any
time prepay the Senior Secured Term Loan by:
a. Prepaying the outstanding principal balance under the
Senior Secured Term Loan;
b. Paying the accrued interest under the Senior Secured
Term Loan;
c. Paying any break funding costs associated with such
prepayment; and
d. Paying the "Prepayment Penalty" equal to a percentage of
the outstanding principal balance as follows:
During year 4: 2.0% of the outstanding principal
balance;
During year 5: 1.0% of the outstanding principal
balance;
During year 6: 0.0% of the outstanding principal
balance;
During year 7: 0.0% of the outstanding principal
balance.
Amounts prepaid may not be reborrowed.
Closing Date: Presently assumed to be October 1, 2001, but in no case
sooner than the achievement of all conditions precedent
noted in Section III, and no later than October 30, 2001,
unless extended for up to thirty days by mutual consent.
Interest Rate: Floating at 30 day Libor plus 450 b.p.
Amortization: Amortization according to the schedule below to be paid
quarterly (in equal installments) in arrears:
Years 1 and 2 of Senior Secured Term Loan: $3 million
Year 3 of Senior Secured Term Loan: $4 million per year
Years 4 through 7 of Senior Secured Term Loan: $5 million
per year
Closing Fee: One and a half percent (1.5%) of the Maximum Amount.
Security: A fully perfected first priority lien on all assets of
Sierra Tucson, including but not limited to accounts
receivable, inventory, supplies, equipment, furniture,
fixtures and intangibles. After the Closing Date, no assets
will be removed from Sierra Tucson in connection with the
acquisition by TRIOD. In addition, GE Capital will require
an assignment of all material contracts, licenses, permits,
authorizations,
TRIOD LLC
July 17, 2001
Page 6 of 17
certifications and lease agreements necessary to maintain
the Facility (to the extent permitted by law). Furthermore,
Guarantor will provide a perfected first priority pledge to
GE Capital of its ownership interests in Sierra Tucson. The
Operating Agreement of Sierra Tucson will be amended to make
it a bankruptcy remote entity. GE Capital will only exercise
its rights under the pledge agreement in the instance of an
Event of Default under the financing agreements or as
required to implement/protect the bankruptcy remote
provisions noted above.
Excess Cash
Flow Sweep: During the term of the Senior Secured Term Loan financing, a
cash flow sweep of fifty percent (50%) of excess cash flow
("Excess Cash Flow") will be applied if the facility falls
below a Fixed Charge Coverage Ratio of 1.5X for one fiscal
quarter or 1.5X for the average of two, three or four fiscal
quarters. The Excess Cash Flow Sweep will continue until the
Fixed Charge Coverage Ratio equals or exceeds 1.5X for the
aggregate of the four immediately preceding quarters. For
purposes of this financing, Excess Cash Flow is defined as
Net Cash Flow from Operations (defined as gross income less
all fixed and variable operating costs) adjusted for: (i)
all taxes of TRIOD's equity holders relating to TRIOD (based
on a formulation to be determined prior to closing); (ii)
changes in Sierra Tucson's working capital; (iii) actual
permitted capital expenditures by Sierra Tucson; (iv)
permitted allocated overhead costs for Sierra Tucson; and
(v) scheduled debt service under the Senior Secured Term
Loan. For purposes of this financing, Fixed Charge Coverage
Ratio is defined as Net Cash Flow from Operations adjusted
for: (i) permitted allocated overhead cost for Sierra
Tucson; (ii) changes in Sierra Tucson's working capital; and
(iii) actual permitted capital expenditures by Sierra Tucson
divided by Debt Service (as defined under Events of
Default). All Excess Cash Flow swept will be applied to the
Senior Secured Term Loan in inverse order of maturity.
III. Conditions Precedent
--------------------
Conditions Precedent
to Closing: Xxxxxx's obligation to close and fund will be subject to
satisfaction of certain conditions customary for a financing
of this nature, including, without limitation, the following
(each to be reasonably satisfactory in form and substance to
Lender and its legal counsel):
(a) Completion of all business, legal, tax and
environmental due diligence (including without
limitation an independent environmental, health and
safety ("EH&S") due diligence review).
TRIOD LLC
July 17, 2001
Page 7 of 17
(b) Negotiation and execution of definitive financing
agreements.
(c) Receipt of opinions as to legal, solvency, tax,
environmental, licensing/permitting and any other
matters reasonably determined by the Lender.
(d) The infusion of at least $60 million of equity,
subordinated debt or other debt (each non-recourse to
Borrower) into TRIOD or its affiliates as of the
Closing Date, provided that approximately $24MM is in
the form of equity ($19MM equity and $5MM donated
property) and $12MM is in the form of equity or
subordinated debt.
(e) Acquisition of the assets of Sierra Tucson and SHS,
free of all liens and encumbrances (except permitted
liens to be negotiated prior to closing), by TRIOD, for
a price of no more than $90 million (including the
assumption of any debt). TRIOD shall deposit all assets
of Sierra Tucson back into Sierra Tucson. Further,
Sierra Tucson will not assume any long-term liabilities
as part of the purchase, including but not limited to
debt, lease obligations (except for the existing lease
of the Facility's underlying land and other leases
currently in place), installment contracts or other
long term financings, as well as any long-term
contingencies.
(f) Receipt of a first priority mortgage and security
interest in all assets of Sierra Tucson and an
assignment of all material agreements, leases, licenses
and permits (to the extent permitted by law).
(g) Audited financial statements of NextHealth for fiscal
years ending 12/31/98, 12/31/99 and 12/31/00. In
addition, GE Capital shall have reviewed the workpapers
and supporting documentation of such audits in order to
verify, to its satisfaction, that the unaudited
financial statements of Sierra Tucson for the years
ended 12/31/98, 12/31/99, and 12/31/00 properly reflect
allocation of revenues and expenses to Sierra Tucson .
Audited financial statements for Sierra Tucson,
prepared by an independent auditor selected by TRIOD
and approved by GE Capital, for the period commencing
1/1/01 and ending 06/30/01. In addition, the
independent auditor will prepare a roll-forward review
of Sierra Tucson's financial statements for the period
commencing 7/1/01 and ending no later than 21 calendar
days before the Closing Date. The financial statements
of Sierra Tucson as of the Closing Date shall not be
materially different from those compiled by the
auditors (as described in the prior sentence). The
financial statements will consist of a balance sheet,
income statement and cash flow statement.
TRIOD LLC
July 17, 2001
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(h) Borrower will provide GE Capital with a detailed budget
for Sierra Tucson, prepared on a quarterly basis for
the first year after the Closing Date and on an annual
basis for the second and third years after the Closing
Date. This budget will include a balance sheet, income
statement, and cash flow statement as well as
assumptions for the primary revenue drivers and an
expected capital expenditures plan.
(i) A pro forma balance sheet of Sierra Tucson (based on
the financial statements referred to in Section III(g)
above) which shows positive equity for the equity
holders of Sierra Tucson after the completion of the
acquisition of the assets of Sierra Tucson and the
placement of the Senior Secured Term Loan.
(j) Transfer to Sierra Tucson of all permits, licenses,
approvals and other governmental certifications
required to own and operate the facility (or issuance
of appropriate new replacements thereof). All periods
of challenge (either public or governmental) or
probation shall have expired as of the Closing Date.
(k) Xxxxxx XxXxxxx ("XxXxxxx") shall have executed a three-
year employment agreement (the "XxXxxxx Employment
Agreement"), agreed to a six month non-compete
provision, and agreed to be on-site conducting day to
day management of TRIOD as of the Closing Date.
(l) Xxxxx Xxxxxxx' ("Xxxxxxx") existing two-year employment
agreement, executed December 4, 2000, including a six
month non-compete provision (the "Xxxxxxx Employment
Agreement") shall be in full force and effect as of the
Closing Date, and Xxxxxxx shall have agreed to be on-
site conducting day to day management of Sierra Tucson
as of the Closing Date.
(m) Review of all material agreements of Sierra Tucson,
including without limitation all leases.
(n) Direct agreement with lessor of the land under the
Facility including step-in and cure rights.
(o) No material litigation pertaining to Sierra Tucson,
Sierra Tucson's equity owners or otherwise relating to
the proposed Transaction shall be pending or
threatened.
(p) Existence of a minimum $1MM of working capital in
Sierra Tucson as of the Closing Date. In addition,
TRIOD will provide a $3MM Working Capital Facility to
Sierra Tucson for the Term of the Senior Secured Term
Loan. This Working Capital Facility will be fully
subordinated to the Senior Secured Term Loan in all
material respects.
(q) Review of all insurance coverages.
TRIOD LLC
July 17, 2001
Page 9 of 17
(r) ANAM's acquisition of Sierra Tucson and SHS shall have
been approved by NextHealth's Board of Directors and
stockholders and any other private or governmental
entities whose consent may be necessary.
(s) No material adverse change in the actual or projected
business or financial condition of Sierra Tucson.
IV. Representations and Warranties
------------------------------
Representations and
Warranties: The financing agreements will contain such representations
and warranties from TRIOD and Sierra Tucson as are customary
for a financing of this type and that GE Capital and its
counsel shall deem appropriate.
V. Affirmative and Negative Covenants
----------------------------------
A. Affirmative
Covenants: The financing agreements will contain such Affirmative
Covenants as are customary for a financing of this type and
that GE Capital and its counsel shall deem appropriate,
including but not limited to the following:
(i) Borrower will provide to GE Capital a quarterly financial
report detailing Sierra Tucson's operations, by the
fifteenth business day of the month immediately following
the end of the quarter for which the report is to be
prepared. The report will contain a balance sheet, income
statement and cash flow statement all in form and substance
reasonably satisfactory to GE Capital. The report will
include a variance analysis against the prior quarter, the
budget for that quarter, and the same quarter one year
previous to the current year. The report will also detail
year to date financial performance and variance analysis
against the prior year and the budget. The report will
include, but not be limited to, the number of patients
admitted, average daily census, average length of stay,
average per diem paid by that months' patients, a breakdown
of revenues by program type and a detailed accounts
receivable aging. In addition, the Chief Financial Officer
of Borrower shall certify that no default or event of
default is in existence at Sierra Tucson under the financing
agreements.
(ii) Borrower will, at the end of each fiscal year, but in no
event later than 90 days after the end of any such year,
provide GE Capital with audited financial statements of
Sierra Tucson (balance sheet, income statement and cash flow
statement) and
TRIOD LLC
July 17, 2001
Page 10 of 17
a report of a nationally recognized auditing firm on those
statements. In addition, the auditors will prepare a letter
indicating whether there are any instances of default under
the financing agreements.
(iii) Borrower will provide to GE Capital, within ten business
days of the end of each fiscal year, a budget for Sierra
Tucson (prepared on a monthly basis) substantially in the
form of the quarterly financial report noted in (i) above.
(iv) Sierra Tucson will maintain minimum EBITDA / Senior Interest
Coverage Ratios as measured on the last day of any calendar
quarter ended after the Closing Date as follows. For the
calendar year ending:
Minimum EBITDA /
Year Senior Interest Coverage
---- ------------------------
2002 2.50x
2003 3.00x
2004 3.00x
2005 3.50x
2006 4.00x
2007 4.00x
2008 4.00x
(v) Sierra Tucson will maintain minimum EBITDA / Senior Debt
Service Coverage Ratios as measured on the last day of any
calendar quarter ended after the Closing Date as follows.
For the calendar year ending:
Minimum EBITDA /
Year Senior Debt Service Coverage
---- ----------------------------
2002 1.50x
2003 1.50x
2004 1.65x
2005 1.75x
2006 1.75x
2007 1.75x
2008 1.75x
TRIOD LLC
July 17, 2001
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(vi) Sierra Tucson will have minimum EBITDA of $9MM for the 12
month period immediately preceding the Closing Date and
annually thereafter as follows. For the calendar year
ending:
Year Minimum EBITDA
---- --------------
2002 $ 9.0MM
2003 $10.0MM
2004 $10.0MM
2005 $10.0MM
2006 $10.0MM
2007 $10.0MM
2008 $10.0MM
(vii) Sierra Tucson will maintain a positive working capital
(acceptable definition of eligible working capital
components to be defined prior to closing) as of:
Quarter Minimum Working Capital
------- -----------------------
3/31/02 $1.2MM
6/30/02 $1.4MM
9/30/02 $1.6MM
12/3102 $1.8MM
3/31/03 and quarterly
thereafter until
Senior Secured Term
Loan Paid in Full $2.0MM
In addition, TRIOD will maintain in place the $3MM Working
Capital Facility described in Conditions Precedent (item p)
for the Term of the Senior Secured Term Loan.
(viii) Sierra Tucson will maintain insurance coverages for those
risks, in those amounts and with deductibles reasonably
specified by GE Capital in the financing agreements
(including but not limited to property, general liability,
medical malpractice, auto liability, and workers
compensation). The insurance coverages will be maintained
with entities with at least an A.M. Best rating of A:X. GE
Capital will be named an additional named insured and loss
payee on all property policies and an additional insured on
all liability policies. GE Capital will be provided with
thirty days prior written notice of any amendments,
modifications, failure to pay premiums or cancellations of
any policy. In addition, Sierra Tucson will provide GE
Capital with Certificates of Insurance and a Broker Letter.
TRIOD LLC
July 17, 2001
Page 12 of 17
(ix) Sierra Tucson will comply with all laws in all material
respects and will maintain in full force and effect all
material permits, licenses, approvals and governmental
(federal, state and local) certifications required to
operate and maintain the Facility. This shall include all
environmental, health and safety matters as well as all
regulatory matters pertaining to the dispensing of
controlled substances and the handling of blood and other
medical waste, and all industry standards with respect to
acceptable levels of care for medical treatment and patient
care.
(x) If TRIOD relieves XxXxxxx of his duties or XxXxxxx leaves
TRIOD prior to the end of the XxXxxxx Employment Agreement
and a replacement for XxXxxxx reasonably acceptable to GE
Capital has not agreed within 120 days after the relief of
XxXxxxx to replace him or has not actually done so within
150 days after the relief of XxXxxxx, XX Capital shall have
an acceleration right for the full outstanding balance of
the Senior Secured Term Loan (including all accrued and
unpaid interest), unless Xxxxxxx X. X'Xxxxxxx Xx. takes over
day-to-day on-site management of TRIOD and remains in that
capacity until such time as a replacement reasonably
acceptable to GE Capital is found.
(xi) If Sierra Tucson relieves Xxxxxxx of his duties or Xxxxxxx
leaves Sierra Tucson prior to the expiration of the Xxxxxxx
Employment Agreement and a replacement for Xxxxxxx
reasonably acceptable to GE Capital has not agreed within
120 days after the relief of Xxxxxxx to replace him or has
not actually done so within 150 days after the relief of
Xxxxxxx, XX Capital shall have an acceleration right for the
full outstanding balance of the Senior Secured Term Loan
(including all accrued and unpaid interest), unless XxXxxxx
takes over day-to-day on-site management of Sierra Tucson
and remains in that capacity until such time as a
replacement reasonably acceptable to GE Capital is found.
(xii) If, within any 90 day time period, TRIOD relieves XxXxxxx
and Sierra Tucson relieves Xxxxxxx of their duties, or
XxXxxxx and Xxxxxxx both leave TRIOD and Sierra Tucson,
respectively prior to the expiration of the XxXxxxx
Employment Agreement and Xxxxxxx Employment Agreement,
respectively, GE Capital shall have an acceleration right
for the full outstanding balance of the Senior Secured Term
Loan (including all accrued and unpaid interest) if
replacements reasonably acceptable to GE Capital have not
agreed to replace XxXxxxx and Xxxxxxx within 120 days after
the relief of XxXxxxx and Xxxxxxx nor actually replaced them
within 150 days after their departure, unless Xxxxxxx X.
X'Xxxxxxx, Xx. has taken over the day-to-day on-site
TRIOD LLC
July 17, 2001
Page 13 of 17
management of Sierra Tucson and remains in that capacity
until such time as replacements reasonably acceptable to GE
Capital are found.
(xiii) Any payments to the owners of Sierra Tucson, TRIOD or ANAM
for the reimbursement of any taxes related to their
ownership interests shall be fully subordinated in all
respects to the Debt Service obligations due to the Lender.
B. Negative
Covenants: The financing agreements will contain such negative
covenants as are usual for transactions of this nature and
that GE Capital and its counsel shall deem appropriate for
financings of this type including, but not limited to, the
following:
(i) Sierra Tucson shall not spend more than the following
amounts for capital expenditures for the calendar years
noted below without the prior written approval of GE
Capital:
Year Capital Expenditures
---- --------------------
2002 $ 1.8MM
2003 $ 1.2MM
2004 $ 1.3MM
2005 $ 1.4MM
2006 $ 1.4MM
2007 $ 1.4MM
2008 $ 1.4MM
(ii) Sierra Tucson shall not pay to its manager more than the
following amounts for corporate overhead for Sierra Tucson
without the prior written approval of GE Capital:
Year Allocated Corporate Overhead
---- ----------------------------
2002 $425M
2003 $430M
2004 $445M
2005 $460M
2006 $475M
2007 $475M
2008 $475M
and such allocated amounts shall not be greater than 50% of
TRIOD's total corporate overhead.
TRIOD LLC
July 17, 2001
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(iii) Neither Sierra Tucson nor TRIOD shall merge, acquire or sell
any portion of the Facility or Sierra Tucson, the business
of the Facility or Sierra Tucson or any material assets of
the Facility or Sierra Tucson. The proceeds of any permitted
asset sale shall be used in full to prepay the Senior
Secured Term Loan in inverse order of maturity. However,
subject to Xxxxxx's written approval, proceeds of an asset
sale may be used to fund replacement asset acquisitions.
(iv) Sierra Tucson shall not change its line of business outside
its current scope or engage in any line of business not in
its current scope or naturally evolving from and consistent
with its current activities.
(v) Sierra Tucson shall not, after the Closing Date, incur any
incremental debt (senior or subordinated), lease financing
(except for leases in the ordinary course of business which
result in, in the aggregate, no more than $100,000 of
incremental lease rentals per annum), purchase money
financing nor guarantee the debt of any third party.
(vi) TRIOD and Sierra Tucson shall not permit any lien to exist
nor incur any lien against any of the assets securing the
Senior Secured Term Loan other than permitted liens.
(vii) Sierra Tucson shall not guarantee any obligations of TRIOD
or its affiliates.
(viii) Sierra Tucson shall not enter into any transactions with
TRIOD or its affiliates, except for those which are at arms
length and which have been approved in writing by GE Capital
(which shall include leases for the Facility and management
arrangements).
(ix) Sierra Tucson shall not invest in TRIOD or any of its
affiliates.
(x) Sierra Tucson has no subsidiaries at closing and shall not
create any subsidiaries during the term of the Senior
Secured Term Loan.
(xi) Sierra Tucson shall always operate as a separate business
entity from TRIOD and its affiliates.
(xii) Sierra Tucson shall not lend money to any other person or
entity except for non-material amounts in the ordinary
course consistent with past business practices.
(xiii) Xxxxxxx X. X'Xxxxxxx, Xx. shall be precluded from selling
more than one-half of his $21MM equity interest in TRIOD
during the term of the financing. Sale must be to a TRIOD
member or their affiliates. Notwithstanding, all equity
interest in TRIOD may only be pledged to Subordinated
Lenders of TRIOD and the realization of the pledge by the
subordinated lenders will not cause a default under the
Transaction Documents.
TRIOD LLC
July 17, 2001
Page 15 of 17
VI. Events of Default
-----------------
Events of
Default: Events of Default under the financing agreements will include,
but not be limited to, the following:
(i) Failure by the Borrower to make payments of interest and/or
principal (together, "Debt Service") immediately when due.
(ii) Bankruptcy, insolvency, reorganization, arrangements with
creditors or any similar proceedings by, for or against the
Borrower or Guarantor, be they of a voluntary or involuntary
nature.
(iii) Any representation or warranty made by the Borrower shall
have been incorrect or misleading in any material respect
when made.
(iv) Failure to meet or comply with any Affirmative or Negative
Covenant contained in the financing agreements.
(v) Loss of, suspension for more than ten business days that
materially impacts operations, or failure to renew any
license, approval or permit material to the operation of the
Facility or Sierra Tucson.
(vi) Other Events of Default considered customary for
transactions of this type and customary for GE Capital
transactions of a similar nature.
Grace and/or cure periods, to the extent applicable, will be
agreed upon in connection with the negotiation of definitive
financing agreements.
VII. Other Terms and Conditions
--------------------------
Transaction
Expenses: The Borrower will be responsible for all reasonable and
documented costs paid to third parties by GE Capital, including
the cost of legal counsel and environmental consultants as well
as title insurance, subject to the provisions below. These
amounts can be financed at the Closing Date out of the proceeds
of the Senior Secured Term Loan. Should the Transaction fail to
close, the owners of TRIOD will reimburse GE Capital for all
reasonable and documented third-party costs. The maximum
reimbursement for environmental consultants shall be $15,000.00.
If legal fees are likely to exceed $100,000, GE Capital will so
inform the Borrower and will request approval for additional
expenses if necessary, such approval not to be unreasonably
withheld.
Documentation: Transaction documentation will be prepared by Xxxxxx's legal
counsel.
TRIOD LLC
July 17, 2001
Page 16 of 17
Governing Law: State of New York.
Syndication: Lender, at no cost to Borrower, will be permitted to assign,
and to sell participations in, its rights and obligations
under the financing Agreements. Any assignments will be
acknowledged by the Borrower. Participations/Assignments
will be without restrictions. Participants will have the
same benefits as the Lender with regard to increased costs,
capital adequacy, etc., and provision of information on the
Borrower; provided, that the right of participants to vote
on amendments, waivers, etc. will be limited to certain
customary issues such as, without limitation, extension of
the final scheduled maturity date of the financing. Borrower
will agree to have a "clear market" in the event Lender
elects to assign and/or sell participations for up to one
(1) year.
Other Financing: GE Capital will have a right of first offer, during the term
of the Senior Secured Term Loan, for any additional
permitted third party financing that TRIOD considers with
respect to Sierra Tucson.
VIII. Warrants
--------
Warrants: GE Capital will be granted warrants that will reflect 3.0%
of the outstanding equity of Sierra Tucson (at a nominal
price to be agreed upon). These warrants will provide GE
Capital with management visitation rights but no voting
rights. This warrant position will be exercisable in part
or in full by GE Capital at any time after the fifth
anniversary of the Closing Date of the loan, and will not be
subject to any dilution prior to the exercise of the
warrants. For this purpose, the sale or transfer of equity
(to third parties) in Sierra Tucson, at a price at or above
fair market value at the time of such sale, shall not be
deemed dilutive. (Any sale of incremental equity in Sierra
Tucson would dilute all existing owners on a pro-rata basis
in accordance with their respective ownership interests).
Sierra Tucson will have a call right ("Call") at a preagreed
pricing formula (based upon to be determined EBITDA
multiples but not to exceed a value of 3.0% of the equity of
Sierra Tucson) exercisable on the first to occur of the
following: (i) completion by the company of an underwritten
public offering; (ii) the repayment in full (but not the
prepayment) of the Senior Secured Term Loan; or (iii) upon
the sale of all of the equity of Sierra Tucson, provided
however, that upon Sierra Tucson's exercise of its call
right under (i) above, GE Capital will have the option to be
paid in common stock or cash. Further, GE Capital will have
a put right ("Put"), exercisable upon full prepayment of the
Senior Secured
TRIOD LLC
July 17, 2001
Page 17 of 17
Term Loan or at any time after the end of the fifth
anniversary of the Closing Date until payment in full of the
Senior Secured Term Loan. This Put shall enable GE Capital
to put any or all of its warrant position back to the owners
of Sierra Tucson at a preagreed pricing formula (based upon
to be determined EBITDA multiples but not to exceed a value
of 3.0% of the equity of Sierra Tucson). The warrant
agreements will contain typical terms and conditions and
events of default as is customary for transactions of this
type and customary for GE Capital transaction of a similar
nature.
