Exhibit 99.2
SUBORDINATION AGREEMENT dated as of May 7, 2001 among
(i) CII Financial, Inc., a California corporation
("Guarantor"), (ii) Bank of America, N.A., a national
banking association as administrative agent (in such
capacity, the "Agent") for the Banks (as defined in the
Credit Agreement referred to below) under the Amended and
Restated Credit Agreement dated as of December 15, 2000, as
amended (said Agreement, as amended, the "Credit Agreement")
among the Agent, the Banks and Sierra Health Services, Inc.,
a Nevada corporation and parent of Guarantor ("Sierra") and
(iii) Xxxxx Fargo Bank Minnesota, National Association, as
trustee under the Indenture referenced herein (in such
capacity, the "Trustee").
Introductory Statement
Pursuant to the terms of Guarantor's pending exchange offer (the "Exchange
Offer"), Guarantor is offering to exchange its new 9 1/2% Senior Debentures due
September 15, 2004 (the "New Debentures") or cash for Guarantor's outstanding 7
1/2% Convertible Subordinated Debentures due September 15, 2001 (the "Old
Debentures"), subject to the terms and conditions set forth in Guarantor's
Registration Statement on Form S-4 (File No. 333-52726) (as amended, the
"Registration Statement") as filed with the Securities and Exchange Commission.
The New Debentures will be issued pursuant to an indenture (the "Indenture") to
be entered into by Guarantor and the Trustee. The Indenture and the New
Debentures to be issued thereunder and the other documents, instruments and
agreements contemplated thereby as they may be amended or otherwise modified
form time to time in conformity with the provisions of Section 1 hereof, shall
hereinafter be referred to as "Senior Obligation Documents". For purposes of
this Subordination Agreement, unless otherwise defined herein, capitalized terms
used herein shall have the respective meanings given to such terms in the
Indenture.
The Guarantor has guaranteed the obligations of Sierra under the Credit
Agreement pursuant to Guarantor's guaranty (the "Guaranty") dated August 23,
2000 in favor of each of the Agent and the Banks (referred to herein as the
"Subordinated Creditors") under the Credit Agreement. The obligations of the
Guarantor to perform under its Guaranty and all amounts payable by the Guarantor
to the Agent and the Banks in connection therewith are hereinafter referred to
as the "Subordinated Obligations".
Subordinated Creditors have agreed, subject to the provisions of this
Subordination Agreement, that the Subordinated Obligations shall be subordinate
to the Senior Obligations (as hereinafter defined) and pursuant to an amendment
to the Credit Agreement, dated as of April 13, 2001, a copy of which is attached
hereto, the Banks have authorized and directed the Agent to execute
documentation to evidence the subordination of the rights of the Subordinated
Creditors with respect to the Senior Obligations (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Agreement to Subordinate. The Subordinated Creditors agree that the
Subordinated Obligations are and shall be subordinate and subject in right of
payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full of the Senior Obligations and that payment of the Subordinated
Obligations is and shall be subordinate, as hereinafter set forth, to the Senior
Obligations. The term "Senior Obligations" shall mean all obligations of the
Guarantor under the Senior Obligation Documents including, without limitation,
whether outstanding at the date hereof or hereafter incurred or created, all
obligations to pay principal (which may not exceed $14,963,000 plus the
aggregate principal amount of any New Debentures issued under the Indenture
after the date hereof in exchange for the same aggregate principal amount of Old
Debentures), premium, if any, interest (including, without limitation, interest
accruing after the commencement of any bankruptcy, insolvency, reorganization or
similar proceedings with respect to the Guarantor, whether or not determined to
be an allowed claim in any such proceeding), charges, costs, expenses and fees
including, without limitation, the disbursements and reasonable fees of counsel
to the Trustee, all obligations to reimburse or indemnify the Trustee in any
way, and all renewals, extensions, restructurings, refinancings or refunding of
any indebtedness under the Senior Obligation Documents in the nature of a
"workout" or otherwise.
The expressions "prior payment in full", "payment in full, "paid in full"
or any other similar term(s) or phrase(s) when used herein with respect to
Senior Obligation Documents shall mean the payment in full, in cash, of all of
the Senior Obligations.
Notwithstanding the foregoing, nothing in this Agreement shall prevent the
Subordinated Creditors from exercising rights or remedies against Sierra or
against any guarantor of Sierra's obligations under the Credit Agreement
(including, without limitation, the Guarantor).
2. Performance on Subordinated Obligations. Guarantor will not perform on
the Subordinated Obligations, or take any other action, in contravention of the
provisions of this Agreement.
3. Additional Provisions Concerning Subordination. The Subordinated
Creditors and the Guarantor agree as follows:
(a) In the event of (x) any dissolution, winding up, liquidation or
reorganization of the Guarantor (whether voluntary or involuntary and whether in
bankruptcy, insolvency or receivership proceedings, or upon an assignment for
the benefit of creditors or proceedings for voluntary or involuntary
liquidation, dissolution or other winding up of the Guarantor, whether or not
involving insolvency or bankruptcy, or any other marshalling of the assets and
liabilities of the Guarantor or otherwise); or (y) any acceleration of maturity
regarding the Senior Obligations:
(i) all Senior Obligations shall first be paid to the Trustee for the
benefit of the holders of the New Debentures in full before any payment or
distribution is made upon the principal of or interest on or any fees,
costs, charges or expenses in connection with the Subordinated Obligations;
and
(ii) any payment or distribution of assets of the Guarantor, whether
in cash, property or securities to which the Subordinated Creditors would
be entitled except for the provisions hereof, shall be paid or delivered by
the Guarantor, or any receiver, trustee in bankruptcy, liquidating trustee,
disbursing agent, agent or other person making such payment or
distribution, directly to the Trustee for the benefit of the holders of the
New Debentures, to the extent necessary to pay in full all Senior
Obligations remaining unpaid, after giving effect to any concurrent payment
or distribution to the holders of the New Debentures before any payment or
distribution is made to the Subordinated Creditors;
(b) In any proceeding referred to or resulting from any event referred to
in subsection (a) of this Section 3 commenced by or against the Guarantor:
(i) The Trustee may, and is hereby irrevocably authorized and
empowered (in its own name or in the name of the Subordinated Creditors or
otherwise), but shall have no obligation to, (A) demand, xxx for, collect
and receive every payment or distribution referred to in subsection (a) of
this Section 3 and give acquittance therefor, (B) file claims and proofs of
claim in respect of the Subordinated Obligations and (C) take such other
action as the Trustee may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of the Trustee hereunder; and
(ii) The Subordinated Creditors will duly and promptly take such
action as the Trustee may reasonably request to collect the Subordinated
Obligations for the account of the holders of the New Debentures and to
file appropriate claims or proofs of claim with respect thereto, to execute
and deliver to the Trustee such powers of attorney, assignments or other
instruments as the Trustee may request in order to enable it to enforce any
and all claims with respect to the Subordinated Obligations, and to collect
and receive any and all payments or distributions which may be payable or
deliverable upon or with respect to the Subordinated Obligations;
(c) All payments or distributions upon or with respect to the Subordinated
Obligations which are received by the Subordinated Creditors contrary to the
provisions of this Agreement shall be deemed to be the property of the holders
of the New Debentures, shall be received in trust for the benefit of the holders
of the New Debentures, shall be segregated from other funds and property held by
the Subordinated Creditors and shall be forthwith paid over to the Trustee for
the benefit of the holders of the New Debentures in the same form as so received
(with any necessary endorsement) to be applied to the payment or prepayment of
the Senior Obligations until the Senior Obligations shall have been paid in
full;
4. Subrogation. The Subordinated Creditors agree that no payment or
distribution to the Trustee pursuant to the provisions of this Agreement shall
entitle the Subordinated Creditors to exercise any rights of subrogation in
respect thereof until the Senior Obligations shall have been paid in full. Upon
payment in full of the Senior Obligations, the Subordinated Creditors shall be
subrogated to the rights of the Trustee and holders of the New Debentures to
receive payments or distributions of assets of the Guarantor applicable to the
Senior Obligations until the Subordinated Obligations shall be paid in full.
5. Negative Covenants of the Agent. So long as any of the Senior
Obligations shall remain outstanding, the Agent will not, without the prior
written consent of the Trustee sell, assign, pledge, encumber or otherwise
dispose of the Guaranty unless such sale, assignment, pledge, encumbrance or
other disposition is made expressly subject to this Agreement and the other
party to such sale, assignment, pledge, encumbrance or other disposition
consents in writing to be bound by the terms hereof.
6. Obligations Unconditional. All rights and interests of the Trustee
hereunder, and all agreements and obligations of the Subordinated Creditors and
the Guarantor hereunder, shall remain in full force and effect irrespective of:
(a) Any lack of validity or enforceability of any Senior Obligation
Document or any other agreement or instrument relating thereto;
(b) Any (i) change in the time, manner or place of payment of, or in any
other term of, all or any of the Senior Obligations, other than a change in the
stated maturity or the interest rate of the Senior Obligations, or (ii) other
amendment or waiver of or any consent to departure from any Senior Obligation
Document;
(c) Any exchange, release or nonperfection of any collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Senior Obligations; or
(d) Any other circumstances which might otherwise constitute a defense
available to, or a discharge of, either the Guarantor in respect of the Senior
Obligations or of the Subordinated Creditor or the Guarantor in respect of this
Agreement.
7. Additional Agreements and Waivers by the Subordinated Creditors. The
Subordinated Creditors agree that the Trustee shall not have any liability or
obligation to the Subordinated Creditors on account of exercise of the rights
and remedies of the Trustee under any Senior Obligation Document except in the
case of the gross negligence or willful misconduct of the Trustee. The
Subordinated Creditors waive the right to commence or pursue any legal action
(whether suit, counterclaim, cross claim or other action) on account of the
exercise of the rights and remedies of the Trustee under any Senior Obligation
Document and alleging or based on a theory of breach of fiduciary obligations of
the Trustee, equitable subordination of claims of the Trustee against the
Guarantor, conflicts of interest by the Trustee or similar theories premised in
any such case on the exercise of control or influence on management by the
Trustee, actual management or control of the Guarantor by the Trustee, voting
any of the stock of the Guarantor, or other pursuit of rights or remedies by the
Trustee under any Senior Obligation Document.
8. Further Assurances. The Subordinated Creditors and the Guarantor will,
at their own expense and at any time and from time to time, promptly execute and
deliver all further instruments and documents, and take all further action that
the Trustee may reasonably request, in order to perfect or otherwise protect any
right or interest granted or purported to be granted hereby or to enable the
Trustee to exercise and enforce its rights and remedies hereunder.
9. Expenses. The Guarantor agrees to pay to the Trustee, upon demand, the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of counsel for the Trustee, which the Trustee may incur in connection
with the exercise or enforcement of any of the rights or interests of the
Trustee hereunder.
10. Notice. All demands, notices and other communications which any party
hereto may desire or may be required to give to any other party hereunder shall
be in writing (including telegraphic communication) and shall be mailed,
telecopied, telegraphed or delivered to such other party at its address as
follows:
(a) to the Trustee at:
Xxxxx Fargo Bank Minnesota, National Association
Sixth & Marquette Avenue: MAC X0000-000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxx Xxxxx
Facsimile: 000-000-0000
(b) to the Guarantor at:
CII Financial, Inc.
0000 Xxxxx Xxxxxx Xxx
Xxx Xxxxx, Xxxxxx 00000
Attention: Xxxxx Xxxxxxxxxx
Facsimile: 000-000-0000
(c) to the Subordinated Creditors at:
Bank of America, N.A.
000 Xxxxx Xxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxx
Facsimile: 000-000-0000
or to any such party at such other address as shall be designated by such party
in a written notice to each other party, complying as to delivery with the terms
of this Section 10. All such demands, notices, and other communications shall be
effective when received or five business days after mailing, whichever is
earlier.
11. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Agent on behalf of itself and the
Subordinated Creditors, the Guarantor and the Trustee, and no waiver of any
provision of this Agreement, and no consent to any departure therefrom, shall be
effective unless it is in writing and signed by the Trustee, and any such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
(b) No failure on the part of the Trustee 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.
(c) Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or invalidity without invalidating the remaining portions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
(d) This Agreement shall be binding on the Subordinated Creditors and the
Guarantor and their respective successors and assigns including without
limitation any holders of the instruments evidencing the Subordinated
Obligations.
(e) This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above
written.
CII FINANCIAL, INC.
By: /s/ Xxxxxxxx X. Xxxxxx
Name: Xxxxxxxx X. Xxxxxx
Title: President, Chief Executive
Officer and Chairman
BANK OF AMERICA, N.A., as Administrative
Agent for itself and on behalf of the other
Subordinated Creditors
By: /s/ Xxxxx Xxxxx
Name: Xxxxx Xxxxx
Title: Vice President
XXXXX FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Xxxx X. Xxxxxxxxx
Name: Xxxx X. Xxxxxxxxx
Title: Assistant Vice President
