CREDIT AGREEMENT
DATED AS OF SEPTEMBER 25, 1996
SAFEGUARD HEALTH ENTERPRISES, INC.,
A DELAWARE CORPORATION
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
TABLE OF CONTENTS
Page
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1. DEFINITIONS AND FINANCIAL REQUIREMENTS . . . . . . . . . . . . . . . . 1
1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 FINANCIAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . 6
1.3 OTHER INTERPRETIVE PROVISIONS. . . . . . . . . . . . . . . . . 6
2. CREDIT FACILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 REVOLVING ACQUISITION FACILITY . . . . . . . . . . . . . . . . 7
2.2 REVOLVING WORKING CAPITAL FACILITY . . . . . . . . . . . . . . 9
2.3 RATES OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . 9
2.4 INTEREST RATE PROTECTION . . . . . . . . . . . . . . . . . . . 11
2.5 MANDATORY PAYMENT. . . . . . . . . . . . . . . . . . . . . . . 11
3. TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . 11
3.1 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 INCREASED COSTS AND REDUCTION OF RETURN. . . . . . . . . . . . 12
3.4 FUNDING LOSSES . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 INABILITY TO DETERMINE RATES . . . . . . . . . . . . . . . . . 13
3.6 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 FACILITY FEE . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 COMMITMENT FEE . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 PROPERTY PLEDGED . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 STOCK PLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . 14
6. EXTENSIONS OF CREDIT, PAYMENTS AND INTEREST CALCULATIONS . . . . . . . 14
6.1 PROCEDURE FOR BORROWING. . . . . . . . . . . . . . . . . . . . 14
6.2 REQUEST FOR BORROWING. . . . . . . . . . . . . . . . . . . . . 14
6.3 CONVERSION AND CONTINUATION ELECTIONS. . . . . . . . . . . . . 15
6.4 DISBURSEMENTS AND PAYMENTS . . . . . . . . . . . . . . . . . . 15
6.5 BRANCH ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . 15
6.6 EVIDENCE OF INDEBTEDNESS . . . . . . . . . . . . . . . . . . . 15
6.7 DIRECT DEBIT (PRE-BILLING) . . . . . . . . . . . . . . . . . . 16
6.8 DIRECT DEBIT (REVOLVING WORKING CAPITAL FACILITY). . . . . . . 16
6.9 INTEREST CALCULATION . . . . . . . . . . . . . . . . . . . . . 16
6.10 LATE PAYMENTS; COMPOUNDING . . . . . . . . . . . . . . . . . . 17
6.11 DEFAULT RATE . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BANK. . . . . . . . . . 17
7.2 ADDITIONAL CONDITIONS TO EXTENSION OF CREDIT FOR THE AMERICAN
ACQUISITION
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AND THE TRC ACQUISITION. . . . . . . . . . . . . . . . . . . . 20
7.3 CONDITIONS TO EACH EXTENSION OF CREDIT FOR THE PERMITTED
ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 CONDITION TO EACH EXTENSION OF CREDIT UNDER REVOLVING WORKING
CAPITAL FACILITY . . . . . . . . . . . . . . . . . . . . . . . 20
8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 20
8.1 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 NO CONFLICTS . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 GOOD STANDING. . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . 21
8.6 TITLE TO PROPERTIES. . . . . . . . . . . . . . . . . . . . . . 21
8.7 PERMITS, FRANCHISES. . . . . . . . . . . . . . . . . . . . . . 21
8.8 PERFECTED SECURITY INTEREST IN COLLATERAL. . . . . . . . . . . 21
8.9 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.10 NO EVENT OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 22
8.11 OTHER OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . 22
8.12 INFORMATION SUBMITTED. . . . . . . . . . . . . . . . . . . . . 22
8.13 NO MATERIAL ADVERSE CHANGE . . . . . . . . . . . . . . . . . . 22
8.14 ERISA PLAN COMPLIANCE. . . . . . . . . . . . . . . . . . . . . 22
8.15 LOCATION OF BORROWER . . . . . . . . . . . . . . . . . . . . . 23
9. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 23
9.1 NOTICE OF CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . 23
9.2 FINANCIAL AND OTHER INFORMATION. . . . . . . . . . . . . . . . 23
9.3 BOOKS, RECORDS, AUDITS AND INSPECTIONS . . . . . . . . . . . . 25
9.4 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . 25
9.6 ADDITIONAL ACTS. . . . . . . . . . . . . . . . . . . . . . . . 25
9.7 MINIMUM LIQUIDITY. . . . . . . . . . . . . . . . . . . . . . . 25
9.8 MAXIMUM TOTAL LIABILITIES TO TANGIBLE NET WORTH. . . . . . . . 26
9.9 MINIMUM FIXED CHARGE COVERAGE RATIO. . . . . . . . . . . . . . 26
9.10 OUT-OF-DEBT REQUIREMENT. . . . . . . . . . . . . . . . . . . . 27
9.11 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 27
9.12 EXISTENCE AND PROPERTIES . . . . . . . . . . . . . . . . . . . 27
9.13 CHANGE IN NAME, STRUCTURE OR LOCATION. . . . . . . . . . . . . 27
10. NEGATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 OTHER INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . 28
10.2 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3 CAPITAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 29
10.4 ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.5 DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.6 LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.7 LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.8 CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . . . . . 29
10.9 SALES AND LEASEBACKS . . . . . . . . . . . . . . . . . . . . . 29
10.10 LIQUIDATIONS AND MERGERS . . . . . . . . . . . . . . . . . . . 29
10.11 SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 29
10.12 BUSINESS ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . 29
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11. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.1 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . 32
12.2 CONSENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . 32
12.3 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . 32
12.4 ADMINISTRATION COSTS . . . . . . . . . . . . . . . . . . . . . 32
12.5 ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . 32
12.6 INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.7 PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . 32
12.8 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 33
12.9 HAZARDOUS WASTE INDEMNIFICATION. . . . . . . . . . . . . . . . 33
12.10 ARBITRATION; REFERENCE PROCEEDING. . . . . . . . . . . . . . . 33
12.11 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.12 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.13 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBITS
EXHIBIT A - COMPLIANCE CERTIFICATE
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CREDIT AGREEMENT
This Credit Agreement ("Agreement") is entered into as of September 25,
1996, between Bank of America National Trust and Savings Association ("Bank")
and Safeguard Health Enterprises, Inc., a Delaware corporation ("Borrower").
1. DEFINITIONS AND FINANCIAL REQUIREMENTS.
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated for the purposes
hereof:
"Acquisitions" means the American Acquisition, the Permitted Acquisitions
and the TRC Acquisition.
"Agreement" means this Credit Agreement.
"American" means First American Dental Benefits, Inc., a Texas corporation,
dba American Dental Corporation.
"American Acquisition" means the acquisition by Borrower of all of the
issued and outstanding capital stock of American.
"Availability Period" means the period commencing on the date of this
Agreement and ending on the Maturity Date.
"Banking Day" means with respect to advances bearing interest rates at the
LIBOR Rate, a day, excluding Saturdays and Sundays, on which Bank is open for
business in California and is dealing in offshore dollars in the London
inter-bank market. With respect to all other amounts payable under this
Agreement, a "Banking Day" means a day other than a Saturday or a Sunday on
which Bank is open for business in California.
"Borrowing Date" means any date on which an advance is made under Sections
2.1 and 2.2 of this Agreement.
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other governmental authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of a bank or of any organization controlling a bank.
"Cash Flow" means, for any fiscal period, net income, plus tax expense,
plus depreciation, plus non-cash amortization, plus amortization expense arising
from any covenants not to compete, plus interest expense, less extraordinary
income/gains, minus gains (or plus losses) on fixed asset sales, minus cash
taxes payable, minus cash paid for stock repurchases, and minus non-financed and
non-acquisition capital expenditures.
"Closing Date" means the date on which all of the conditions precedent set
forth in Sections 7.1 and 7.2 are satisfied or waived by Bank.
"Collateral" means the personal property described in the Collateral
Agreements.
"Collateral Agreements" means the security agreement(s) and/or pledge
agreement(s)
1
required under Section 5 of this Agreement.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit A.
"Consideration" means cash paid, funded debt incurred, the market value of
any shares of the capital stock of Borrower issued to a seller, assumed
liabilities, excluding normal payables and accruals, and the present value of
amounts paid by Borrower in connection with any covenants not to compete, if
any, discounted at Reference Rate, in connection with a Permitted Acquisition.
"Credit Limit" means the amount of Thirty Million Dollars ($30,000,000),
which represents the total of the Revolving Acquisition Credit Limit and the
Revolving Working Capital Credit Limit.
"Default" means any event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.
"EBITA" means net income plus interest expense, plus taxes, plus
amortization, plus losses and minus gains on the sale of fixed assets and minus
extraordinary income and gains computed for Borrower on a consolidated basis.
"EBITDA" means net income plus interest expense, plus taxes, plus
depreciation plus amortization, plus losses and minus gains on the sale of fixed
assets and minus extraordinary income and gains computed for Borrower on a
consolidated basis.
"Equity Prepayment" means the reduction in the commitment of the Bank under
the Revolving Acquisition Facility described in Section 2.1(b)(ii)(2) of this
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Plan" means any employee pension benefit plan maintained or
contributed to by Borrower and insured by the Pension Benefit Guaranty
Corporation under Title IV of ERISA.
"Event of Default" means any of the events or circumstances specified in
Section 11 of this Agreement.
"Fixed Charges" means the sum of gross interest expense, plus payments in
connection with any covenants not to compete obtained in connection with a
Permitted Acquisition, plus scheduled principal payments on all indebtedness
including, but not limited to, payments under capital leases and the amounts as
stated under Sections 2.1(b)(ii)(1) and 9.9(a) of this Agreement.
"GAAP" means generally accepted accounting principals set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any
2
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"LIBOR Rate" means, for LIBOR Rate Interest Periods, the interest rate
determined by the following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by Bank as of the
first day of the LIBOR Rate Interest Period.)
LIBOR Rate = London Rate
---------------------------
(1.00 - Reserve Percentage)
(a) "London Rate" means the interest rate at which Bank's London
Branch, London, Great Britain, would offer U.S. Dollar deposits for the
applicable interest period to other major banks in the London inter-bank market
at approximately 11:00 a.m. London time two (2) Banking Days before the
commencement of the interest period.
(b) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member banks of the
Federal Reserve System for Eurocurrency Liabilities, as defined in Federal
Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and will include, but not be
limited to, marginal, emergency, supplemental, special, and other reserve
percentages.
"LIBOR Rate Interest Period" means, for any extension of credit bearing
interest at the LIBOR Rate, the period commencing on the date of the interest
rate designation and ending from two (2) weeks to six (6) months thereafter, as
requested by Borrower.
"LIBOR Rate Portion" means all or such part of the principal balance of
credit provided under this Agreement for which interest is payable at the rate
related to the LIBOR Rate.
"Loan Documents" means this Agreement and all other documents required to
be executed and delivered to Bank in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of Borrower or Borrower and its Material
Subsidiaries, taken as a whole, or as to any Material Subsidiary, (b) a material
impairment of the ability of Borrower to perform under any Loan Document and to
avoid any Event of Default, or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against Borrower of any Loan
Document.
"Material Subsidiary" means Safeguard Health Plans, Inc., a California
corporation, SafeHealth Life Insurance Company, a California corporation,
Safeguard Health Plans, Inc., a Texas corporation, American Dental and TRC, and
includes, without limitation, any Subsidiary whose net revenues, at any time,
represent ten percent (10%) or more of the consolidated revenues of Borrower.
"Maturity Date" means March 31, 2002.
"Metroplex Dental" means contracts assigned to American pursuant to the
Assignment and Assumption Agreement dated September 26, 1996.
"Minimum Fixed Charge Coverage Ratio" means the ratio of Cash Flow to Fixed
3
Charges.
"Permitted Acquisition" means a transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in the
acquisition or purchase of the assets, business or securities of a Person
("Target"), provided:
(a) Such acquisition or purchase has been approved by the board of
directors or similar governing body of the Target;
(b) The Consideration paid through the Maturity Date for any such
acquisition or purchase does not, when added to the total Consideration paid in
connection with earlier Permitted Acquisitions, exceed Five Million Dollars
($5,000,000), plus the net proceeds received by Borrower in respect of the
issuance and sale of shares of its capital stock, less the amount of any Equity
Prepayment, up to a maximum of Ten Million Dollars ($10,000,000);
(c) The indebtedness of the Target will not, when assumed by
Borrower and added to the outstanding indebtedness of Borrower, violate any of
the financial covenants contained in Section 9 below;
(d) The Target is engaged in the same or a similar line of business
as Borrower or any Subsidiary;
(e) No contingent liability is assumed by Borrower or any
Subsidiary;
(f) The Target has a positive trailing four quarter EBITA, computed
in accordance with GAAP consistently applied;
(g) The acquisition complies in all material respects with all
applicable requirements of law of Governmental Authorities having jurisdiction
over the transaction and Borrower;
(h) Financial statements of the Target, as of the most recently
ended fiscal year have been audited by a "Big Six" CPA firm, or another
nationally recognized CPA firm which is acceptable to Bank;
(i) The transaction does not involve the incurrence of debt by a
Subsidiary;
(j) Seller financing incurred by Borrower plus the assumption of
funded debt by Borrower or Target does not exceed One Million Dollars
($1,000,000); provided that any debt incurred by Borrower must be unsecured, or
in the case of assumed debt, secured solely by the specific fixed assets
financed, as evidenced by copies of lien searches and filings submitted to Bank;
(k) Bank receives a Compliance Certificate executed by a
Responsible Officer certifying that after taking into consideration the
Permitted Acquisition, Borrower is in compliance with all financial covenants
listed on Section 9 of this Agreement, and Borrower and Target are in compliance
with all financial responsibility and other material requirements of
Governmental Authorities having jurisdiction over Borrower and Target; and
(l) Bank receives and finds acceptable a summary of sources and
uses of funds for the acquisition.
4
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
or joint venture.
"Reference Rate" means the rate of interest publicly announced from time to
time by Bank in San Francisco, California, as its reference rate. Any change in
the Reference Rate shall take effect on the day specified in the public
announcement of such change. The Reference Rate is set by Bank based on various
factors, including Bank's costs and desired return, general economic conditions
and other factors, and is used as a reference point for pricing some loans.
Bank may price loans at, above or below the Reference Rate.
"Reference Rate Portion" means all or such part of the principal balance of
credit provided under this Agreement for which interest is payable at the
Reference Rate.
"Responsible Officer" means the chief executive officer or president of
Borrower, or any other officer having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants, the
chief financial officer or the treasurer of Borrower, or any other officer
having substantially the same authority and responsibility.
"Revolving Acquisition Credit Limit" means the amount of Twenty-Two Million
Dollars ($22,000,000).
"Revolving Acquisition Facility" means the line of credit described in
Section 2.1 of this Agreement.
"Revolving Credit Facilities" means the Revolving Acquisition Facility and
the Revolving Working Capital Facility.
"Revolving Working Capital Credit Limit" means the amount of Eight Million
Dollars ($8,000,000).
"Revolving Working Capital Facility" means the line of credit described in
Section 2.2 of this Agreement.
"Selling Shareholders" means Xxxxx X. Xxxxxxxxx, D.D.S., Xxxxxx Xxxxxx,
D.D.S. and Xxxxxxx X. Xxxx, Xx.
"Subsidiary" or "Subsidiaries" means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50%) of the voting stock, membership interests
or other equity interests is owned or controlled, directly or indirectly, by
Borrower.
"Tangible Net Worth" means the gross book value of the assets of Borrower
(exclusive of goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred charges and
other like intangibles, and monies due from affiliates, officers, directors or
shareholders of Borrower) less (a) reserves applicable thereto, and (b) all
liabilities (including accrued and deferred income taxes).
"Total Funded Debt" means all indebtedness for borrowed money, including,
but not limited to, outstanding debt under the Bank credit facilities, seller
notes, non-compete agreements, purchase money agreements, and lease agreements.
"Total Liabilities" means all liabilities of Borrower defined in accordance
with GAAP.
5
"TRC" means T.R.C. Agency, Inc., a Texas corporation.
"TRC Acquisition" means the acquisition by Borrower of all of the issued
and outstanding capital stock of TRC.
1.2 FINANCIAL REQUIREMENTS. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
financial computations required under this Agreement shall be made, and all
financial information required under this Agreement shall be prepared in
accordance with GAAP.
1.3 OTHER INTERPRETIVE PROVISIONS.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified. The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term "including" is not limiting and means
"including without limitation". In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and the
word "through" means "to and including".
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(d) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
This Agreement and other Loan Documents may use several different limitations,
tests or measurements to regulate the same or similar matters. All such
limitations, tests and measurements are cumulative and shall each be performed
in accordance with their terms. Unless otherwise expressly provided, any
reference to any action of the Bank by way of consent, approval or waiver shall
be deemed modified by the phrase "in its sole discretion."
(e) The Loan Documents are the result of negotiations between, and
have been reviewed by counsel to, Bank and Borrower, and are the products of
both parties. Accordingly, they shall not be construed against Bank merely
because of Bank's involvement in their preparation.
2. CREDIT FACILITIES.
2.1 REVOLVING ACQUISITION FACILITY. From time to time during the
Availability Period, Bank, on a revolving basis, will make advances to Borrower
as provided herein. The total of all advances, may not exceed at any one time
the amount provided herein.
6
(a) ADVANCES UNDER REVOLVING ACQUISITION FACILITY.
(i) TOTAL ADVANCES. The total of all advances outstanding at
any one time under the Revolving Acquisition Facility may not exceed the
Revolving Acquisition Credit Limit;
(ii) INITIAL ADVANCE. The initial advance under the Revolving
Acquisition Facility (the "Initial Advance") shall be for an amount not to
exceed Nineteen Million Dollars ($19,000,000);
(iii) USE OF PROCEEDS. Borrower shall use the proceeds of
the Initial Advance to concurrently finance the American Acquisition and
the TRC Acquisition; and
(iv) PERMITTED ACQUISITIONS. The balance of the Revolving
Acquisition Credit Limit, including amounts available under the Revolving
Acquisition Credit Facility shall be used by Borrower solely to finance
Permitted Acquisitions.
(b) REPAYMENT.
(i) INTEREST PAYMENTS. Except as provided in
Section 2.3(b)(iii) below, interest on advances under the Revolving
Acquisition Facility shall be due and payable on a monthly basis commencing
on the last day of the month following the Closing Date and continuing
through the Maturity Date; provided, that in the event the Closing Date
falls on or after the twentieth (20th) day of a month, interest payments
will commence on the last day of the next succeeding month;
(ii) REVOLVING ACQUISITION CREDIT LIMIT REDUCTIONS.
(1) QUARTERLY REDUCTIONS. On the last day of every
calendar quarter, commencing June 30, 1997, the Revolving Acquisition
Credit Limit shall be reduced by the amounts set forth below:
Period Amount
------ ------
On June 30, 1997 $500,000
On September 30, 1997
and December 31, 1997 $750,000 per quarter
From March 31, 1998
through December 31, 1998 $875,000 per quarter
From March 31, 1999
through December 31, 2001 $1,000,000 per quarter
On March 31, 2002 $1,500,000
(2) EQUITY PREPAYMENT. The Revolving Acquisition Credit
Limit shall be automatically reduced by an amount equal to fifty
percent (50%) of the net proceeds received by Borrower from any
issuance and sale of shares of its capital stock ("Equity
Prepayment") up to a maximum reduction in the Revolving Acquisition
Credit Limit of Ten Million Dollars ($10,000,000);
7
(3) STEP DOWN. The Revolving Acquisition Credit
Limit shall be automatically reduced by Three Million Dollars
($3,000,000) on September 30, 1998 ("Principal Reduction"); provided,
however, that the reduction required under this subsection (3) shall
not be required if on or before September 30, 1998, the Revolving
Acquisition Credit Limit has been reduced by at least Three Million
Dollars ($3,000,000) as a result of Equity Prepayment(s);
(4) VOLUNTARY PREPAYMENTS. The Revolving
Acquisition Credit Limit shall not be reduced by voluntary
prepayments made by Borrower; and
(5) FINAL PAYMENT. Borrower shall repay the
entire unpaid balance of advances under the Revolving Acquisition
Facility, including accrued but unpaid interest, on the Maturity
Date.
2.2 REVOLVING WORKING CAPITAL FACILITY. From time to time during the
Availability Period, Bank, on a revolving basis, will make advances to Borrower
as provided herein. The total of all advances may not exceed at any one time
the amount provided herein.
(a) ADVANCES UNDER THE REVOLVING WORKING CAPITAL FACILITY.
(i) TOTAL ADVANCES. The total of all advances outstanding at
any one time under the Revolving Working Capital Facility may not exceed
the Revolving Working Capital Credit Limit.
(ii) USE OF PROCEEDS. Borrower shall use the proceeds of
advances under the Revolving Working Capital Facility for working capital
and other general corporate purposes of Borrower and its Subsidiaries,
excluding Acquisitions and investments other than investments in marketable
securities.
(b) REPAYMENT.
(i) INTEREST PAYMENTS. Except as provided in Section
2.3(b)(iii) below, interest on advances under the Revolving Working Capital
Facility shall be due and payable on a monthly basis commencing on the last
day of the month following the initial advance under the Revolving Working
Capital Facility and continuing through the Maturity Date.
(ii) FINAL PAYMENT. Borrower shall repay the entire principal
balance of outstanding advances under the Revolving Working Capital
Facility, as well as accrued but unpaid interest, on the Maturity Date.
2.3 RATES OF INTEREST.
(a) REFERENCE RATE. Advances under the Revolving Credit Facilities
shall bear interest during each quarter at a rate per annum equal to the
Reference Rate plus the percentage points set forth below corresponding to the
ratio set forth below as of the end of the immediately preceding quarterly
accounting period.
8
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Funded Debt/Trailing Reference Rate Spread LIBOR Rate Spread
Four Quarter EBITDA
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
>1.75:1 0.25% 2.00%
--------------------------------------------------------------------------------
> or equal to 1.75:1>1.00 0.125% 1.875%
--------------------------------------------------------------------------------
< or equal to 1.00 0.00% 1.75%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(b) LIBOR RATE. In lieu of the interest rate related to the
Reference Rate, Borrower may elect to have all or portions of advances under the
Revolving Credit Facilities bear interest during each calendar quarter at the
LIBOR Rate plus the percentage points set forth above corresponding to the ratio
set forth above as of the end of the immediately preceding quarterly accounting
period; and further subject to the following requirements:
(i) Each LIBOR Rate Portion shall be for an amount not less
than Five Hundred Thousand Dollars ($500,000).
(ii) A LIBOR Rate Interest Period shall not end later than the
last day of the Availability Period.
(iii) Borrower shall pay interest on each LIBOR Rate Portion
on the earlier of the last day of each LIBOR Rate Interest Period for such
portion, or ninety (90) days from the date of the advance of such portion.
(iv) A LIBOR Rate Portion shall not be converted to a different
interest rate during its LIBOR Rate Interest Period. Upon the expiration
of a LIBOR Rate Interest Period, the LIBOR Rate Portion shall thereafter
bear interest at the rate related to the Reference Rate unless Borrower
elects a new interest rate as provided hereunder.
(v) Any payment of a LIBOR Rate Portion prior to the last day
of the LIBOR Rate Interest Period for such portion, whether voluntary, by
reason of acceleration or otherwise, including any mandatory payments
required under this Agreement and applied by Bank to an LIBOR Rate Portion,
shall be accompanied by the amount of accrued interest on the amount repaid
and by the amount (if any) by which (1) the additional interest which would
have been payable on the amount repaid had it not been paid until the last
day of its LIBOR Rate Interest Period exceeds, and (2) the interest which
would have been recoverable by Bank by placing the amount repaid on deposit
in the London inter-bank market for a period starting on the date it was
repaid and ending on the last day of the LIBOR Rate Interest Period for
such portion.
(vi) Bank shall have no obligation to accept an election for a
LIBOR Rate Portion if any of the following described events has occurred
and is continuing:
(1) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate Portion are not
available in the London inter-bank market; or
(2) The LIBOR Rate does not accurately reflect the cost
of a LIBOR Rate Portion.
9
(vii) Upon the occurrence of an Event of Default, Bank may
terminate the availability of the rate related to the LIBOR Rate for LIBOR
Rate Interest Periods commencing after the occurrence of the Event of
Default.
2.4 INTEREST RATE PROTECTION. Concurrently with the execution of this
Agreement, and on terms acceptable to Bank, Borrower shall enter into an
interest rate swap for a fixed rate covering (a) at least seventy-five percent
(75%) of the projected annual outstanding principal balance of the Revolving
Acquisition Facility for a term of two (2) years, (b) at least fifty percent
(50%) of the projected annual outstanding principal balance of the Revolving
Acquisition Facility for a term of one (1) year thereafter, and (c) protecting
the LIBOR Rate index from exceeding seven and one-half percent (7.5%).
2.5 MANDATORY PAYMENT. If at any time and for any reason the total
amount of credit outstanding under the Revolving Credit Facilities exceeds the
limitations set forth herein, Borrower shall pay Bank, upon Bank's election and
demand, the amount of the excess. Payments under this Section 2.5 may be
applied to the obligations of Borrower to Bank in the order and manner as Bank
in its discretion may determine.
3. TAXES, YIELD PROTECTION AND ILLEGALITY.
3.1 TAXES. If any payments to Bank under this Agreement are made from
outside the United States, Borrower will not deduct any foreign taxes from any
payments it makes to Bank. If any such taxes are imposed on any payments made
by Borrower (including payments under this Section), Borrower will pay the taxes
and will also pay to Bank, at the time interest is paid, any additional amount
which Bank specifies as necessary to preserve the after-tax yield Bank would
have received if such taxes had not been imposed. Borrower will confirm that it
has paid the taxes by giving Bank official tax receipts (or notarized copies)
within thirty (30) days after the due date.
3.2 ILLEGALITY.
(a) If Bank determines that the introduction of any requirement of
law, or any change in any requirement of law, or in the interpretation or
administration of any requirement of law, has made it unlawful, or that any
central bank or other governmental authority has asserted that it is unlawful,
for Bank or any applicable lending office of Bank to make LIBOR Rate Portions,
then, on notice thereof by Bank to Borrower, any obligation of Bank to make
advances for which interest is payable at the LIBOR Rate shall be suspended
until Bank notifies Borrower that the circumstances giving rise to such
determination no longer exists.
(b) If Bank determines that it is unlawful to maintain LIBOR Rate
Portions, Borrower upon its receipt of notice of such fact and demand from Bank,
prepay in full all LIBOR Rate Portions then outstanding, together with interest
accrued thereon and amounts required under Section 3.3, either on the last day
of the LIBOR Rate Interest Period thereof, if Bank may lawfully continue to
maintain LIBOR Rate Portions to such day, or immediately, if Bank may not
lawfully continue to maintain LIBOR Rate Portions. If Borrower is required to
so prepay any LIBOR Rate Portion, then concurrently with such prepayment,
Borrower shall borrow from Bank, in the amount of such repayment, a Reference
Rate Portion.
3.3 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If Bank determines that, due to either (i) the introduction of
or any change
10
in or in the interpretation of any law or regulation, or (ii) the compliance by
Bank with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), there shall be any increase
in the cost to Bank of agreeing to make or making, funding or maintaining any
LIBOR Rate Portion, then Borrower shall be liable for, and shall from time to
time, upon demand, pay to Bank, additional amounts as are sufficient to
compensate Bank for such increased costs.
(b) If Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by Bank (or any
applicable lending office of Bank) or any corporation controlling Bank with any
Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by Bank or any corporation controlling
Bank and (taking into consideration Bank's or such corporation's policies with
respect to capital adequacy and Bank's desired return on capital) determines
that the amount of such capital is increased as a consequence of its commitment
under this Agreement, then, upon demand of Bank to Borrower, Borrower shall pay
to Bank, from time to time as specified by Bank, additional amounts sufficient
to compensate Bank for such increase.
3.4 FUNDING LOSSES. Borrower shall reimburse Bank and hold Bank harmless
from any loss or expense which Bank may sustain or incur as a consequence of:
(a) the failure of Borrower to make on a timely basis any payment of principal
of any LIBOR Rate Portion; (b) the failure of Borrower to borrow, continue or
convert an advance after Borrower has requested an advance or has given (or is
deemed to have given) a Notice of Conversion/Continuation; (c) the failure of
Borrower to make any prepayment in accordance with any notice delivered under
Section 6.3; (d) the prepayment or other payment (including after acceleration
thereof) of a LIBOR Rate Portion on a day that is not the last day of the
relevant LIBOR Rate Interest Period; or (e) the automatic conversion under
Section 6.3 below of any LIBOR Rate Portion to a Reference Rate Portion on a day
that is not the last day of the relevant LIBOR Rate Interest Period; including
any such loss or expense arising from the liquidation or reemployment of funds
obtained by it to maintain any LIBOR Portions or from fees payable to terminate
the deposits from which such funds were obtained.
3.5 INABILITY TO DETERMINE RATES. If Bank determines that for any reason
adequate and reasonable means do not exist for determining the LIBOR Rate for
any requested Interest LIBOR Rate Period with respect to a proposed LIBOR Rate
Portion, for any requested Interest Period, does not adequately and fairly
reflect the cost to Bank of funding such advance, Bank will promptly so notify
Borrower. Thereafter, the obligation of Bank to make or maintain LIBOR Rate
Portions hereunder shall be suspended until Bank revokes such notice in writing.
Upon receipt of such notice, Borrower may revoke any notice of borrowing then
submitted by it. If Borrower does not revoke such notice, Bank shall make,
convert or continue the advance, as proposed by Borrower, in the amount
specified in the applicable notice submitted by Borrower, but such advances
shall be made, converted or continued as a Reference Rate Portion instead of a
LIBOR Rate Portion.
3.6 SURVIVAL. The agreements and obligations of Borrower in this Section
3 shall survive the payment of all other obligations.
4. FEES AND EXPENSES.
4.1 FACILITY FEE. Borrower shall pay Bank a fee ("Facility Fee") of
Seventy-Five
11
Thousand Dollars ($75,000) on or before the date of last execution of this
Agreement.
4.2 COMMITMENT FEE. Borrower shall pay Bank a fee ("Commitment Fee") on
the average daily unused portion of the Credit Limit computed on a quarterly
basis in arrears on the last business day of each calendar quarter based upon
the daily utilization for that quarter as calculated by Bank, equal to
one-quarter of one percent (0.25%) per annum. This fee is due quarterly in
arrears on the last day of each accounting quarter commencing on the Closing
Date, and on the last day of each accounting quarter thereafter until the
expiration of the Availability Period.
4.3 EXPENSES.
(a) Borrower agrees to pay to Bank, on demand, all out-of-pocket
costs and expenses reasonably incurred by Bank in connection with the
preparation of the Loan Documents in excess of those fees and costs listed
above. Expenses include, but are not limited to, reasonable attorneys' fees,
including any reasonably allocated costs of Bank's in-house counsel, auditors,
filing, recording and search fees and documentation fees.
(b) Borrower agrees to reimburse Bank for the cost of periodic
audits of the books and records of Borrower and the Material Subsidiaries and
periodic audits and appraisals of the Collateral. Such audits and appraisals
shall not be conducted more than once a year, provided Borrower is not in
default hereunder. The audits and appraisals may be performed by employees of
Bank or by independent auditors or appraisers.
5. COLLATERAL.
5.1 PROPERTY PLEDGED. All obligations of Borrower under this Agreement
shall be secured by one or more security agreements approved by Bank and
executed by Borrower as debtor in favor of Bank as secured party, granting Bank
a first priority security interest in all personal property ("Personal
Property") of Borrower including, but not limited to:
(a) Receivables.
(b) Fixed assets, excluding leasehold improvements.
(c) Patents, trademarks and other general intangibles.
The Personal Property shall be more particularly described in the security
agreement(s) approved by Bank and executed by Borrower. The Personal Property
securing the obligations of Borrower under this Agreement shall also secure all
other present and future obligations of Borrower to Bank and all personal
property securing any other present or future obligations of Borrower to Bank
shall also secure Borrower's obligations under this Agreement.
5.2 STOCK PLEDGE. All obligations of Borrower under this Agreement shall
also be secured by all of the issued and outstanding shares of the capital stock
of all Subsidiaries now or hereinafter formed or acquired (the "Shares" and,
together with the Personal Property, the "Collateral"), all as more particularly
described in the pledge agreement(s) approved by Bank and executed by Borrower.
6. EXTENSIONS OF CREDIT, PAYMENTS AND INTEREST CALCULATIONS.
6.1 PROCEDURE FOR BORROWING. Bank may honor any instructions for
advances or
12
repayments or for the designation of optional interest rates which are in
writing and signed by two (2) authorized employees of Borrower. Advances will
be deposited into and repayments will be withdrawn from Borrower's commercial
account number 14559-00150 at the North Orange County Regional Commercial
Banking Office of Bank, or such other account(s) as may be specified in writing
by Borrower. Bank shall honor any instructions made by any two (2) individuals
authorized to sign loan agreements on behalf of Borrower, or any other
individual designated by any such authorized signers. Bank shall be entitled to
rely upon written instructions from persons it reasonably believes to be
authorized by Borrower to make such requests without making independent inquiry.
Borrower hereby indemnifies Bank for, and holds Bank harmless from, any and all
losses, damages, claims and expenses (including reasonable attorneys' fees and
allocated costs of Bank's in-house counsel), however arising, which Bank suffers
or incurs based on or arising out of extensions of credit or payments made on
any written request except that Bank shall not be indemnified against its own
gross negligence or willful misconduct. The provisions of this Section 6.1
shall survive termination of this Agreement.
6.2 REQUEST FOR BORROWING. Each request for an extension of credit must
be received by Bank prior to 9:00 a.m. Los Angeles time (a) two (2) Banking Days
prior to the requested Borrowing Date, in the case of a LIBOR Rate Portion; and
(b) on the requested Borrowing Date, in the case of a Reference Rate Portion,
specifying: (i) the amount of the advance, which shall be in a minimum amount of
Five Hundred Thousand Dollars ($500,000) or any multiple of Two Hundred Fifty
Thousand Dollars ($250,000) in excess thereof; (ii) the requested Borrowing
Date, which shall be a Business Day; (iii) the type of advance requested; and
(iv) the duration of the Interest Period applicable to such extension of credit.
If Borrower fails to specify the duration of the interest period for a LIBOR
Rate Portion, such interest period shall be thirty (30) days.
6.3 CONVERSION AND CONTINUATION ELECTIONS.
(a) Borrower may (i) elect, as of any Banking Day, in the case of a
Reference Rate Portion, or as of the last day of the applicable Interest Period,
in the case of a LIBOR Rate Portion to convert any such advance (or any part
thereof in an amount not less than Five Hundred Thousand Dollars ($500,000), or
that is in an integral multiple of One Million Dollars ($1,000,000) in excess
thereof) into an advance of any other type; or (ii) elect, as of the last day of
the applicable Interest Period, to continue an advance having an Interest Period
expiring on such day (or any part thereof in an amount not less than Five
Hundred Thousand Dollars ($500,000), or that is in an integral multiple of Two
Hundred Fifty Thousand Dollars ($250,000) in excess thereof)
("Conversion/Continuation Date"); PROVIDED, that if at any time the amount of
any LIBOR Rate Portion is reduced, by payment, prepayment, or conversion of part
thereof to be less than Five Hundred Thousand Dollars ($500,000), such LIBOR
Rate Portion shall automatically convert into a Reference Rate Portion, and on
and after such date the right of Borrower to continue such advance, and convert
such advance into a Reference Rate Portion or LIBOR Rate Portion, as the case
may be, shall terminate.
(b) Borrower shall make the election provided for in subsection (a)
above not later than 9:00 a.m. (Los Angeles time) at least (i) three (3) Banking
Days in advance of the Conversion/Continuation Date, if any loan is to be
converted into or continued as a LIBOR Rate Portion; (ii) on the
Conversion/Continuation Date, if any loan is to be converted into a Reference
Rate Portion, specifying: (1) the proposed Conversion/Continuation Date; (2)
the amount of the loan to be converted or continued; (3) the type of loan
resulting from the proposed conversion or continuation; and (4) other than in
the case of conversions into Reference Rate Portions, the duration of the
requested interest period.
6.4 DISBURSEMENTS AND PAYMENTS. Each disbursement by Bank and each
payment by
13
Borrower under this Agreement shall be made in immediately available funds, or
such other type of funds selected by Bank, and at such branch of Bank as Bank
may from time to time select.
6.5 BRANCH ACCOUNTS. Each extension of credit under this Agreement shall
be made for the account of such branch of Bank as Bank may from time to time
select.
6.6 EVIDENCE OF INDEBTEDNESS. Principal, interest and all other sums due
Bank under this Agreement shall be evidenced by entries in records maintained by
Bank, and, if required by Bank, by a promissory note or notes. Each payment on
and any other credits with respect to principal, interest and all other sums due
under this Agreement shall be evidenced by entries to records maintained by
Bank.
6.7 DIRECT DEBIT (PRE-BILLING).
(a) Borrower hereby authorizes Bank to debit Borrower's account
number 14559-00150 at the North Orange County Regional Commercial Banking Office
of Bank (the "Designated Account") in the amount of principal, interest, fees or
any other amount due under this Agreement or under any instrument or agreement
required under this Agreement. Bank shall debit the account on the date such
amounts become due, or, if such due date is not a Banking Day, on the next
Banking Day after such due date. If there are insufficient funds in the account
to cover the amount debited to the account in accordance with this Section 6.7,
such debit will be reversed and such amount will remain unpaid.
(b) Approximately ten (10) days prior to each due date, Bank will
mail to Borrower a statement of the amounts that will be due on that due date
(the "Billed Amount"). The calculation will be made on the assumption that no
new extensions of credit or payments will be made between the date of the
billing statement and the due date, and that there will be no changes in the
applicable interest rate.
(c) Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued Amount"). If the
Billed Amount debited to the Designated Account differs from the Accrued Amount,
the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following due date will be increased by the amount of
the discrepancy. Borrower will not be in default by reason of any such
discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following due date will be decreased by the amount of
the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding. Bank
will not pay Borrower interest on any overpayment.
6.8 DIRECT DEBIT (REVOLVING WORKING CAPITAL FACILITY). Borrower agrees
that Bank may create advances under the Revolving Working Capital Facility to
pay interest and any fees that are due under this Agreement. Bank shall create
such advances on the dates the payments become due. If a due date does not fall
on a Banking Day, Bank shall create the advance on the first Banking Day
following the due date. If the creation of an advance under the Revolving
Working Capital Facility causes the total amount of credit outstanding
thereunder to exceed the limitations set forth in this Agreement, Borrower shall
immediately pay the excess to Bank upon
14
Bank's demand.
6.9 INTEREST CALCULATION. Except as otherwise stated in this Agreement,
all interest and fees, if any, payable under this Agreement shall be computed on
the basis of a three hundred sixty (360) day year and actual days elapsed, which
results in more interest or a larger fee than if a three hundred sixty-five
(365) day year were used.
6.10 LATE PAYMENTS; COMPOUNDING. Any sum payable by Borrower hereunder
(including unpaid interest) if not paid when due shall bear interest (payable on
demand) from its due date until payment in full at a rate per annum equal to the
Reference Rate plus two (2) percentage point(s). At the option of Bank, in each
instance, any sum payable hereunder which is not paid when due (including unpaid
interest) may be added to principal of the applicable Revolving Facility and
shall thereafter bear interest at the rate applicable to principal.
6.11 DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default, and without constituting a waiver of any such Event of
Default, advances under the applicable Revolving Facility shall at the option of
Bank bear interest at a rate per annum which is two (2) percentage point(s)
higher than the rate of interest otherwise provided under this Agreement.
7. CONDITIONS PRECEDENT.
7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BANK. Bank's obligation to
extend credit under this Agreement is subject to Bank's receipt of the
following, each of which must be in form and substance satisfactory to Bank.
(a) PURCHASE AGREEMENTS. The Purchase Agreement for the American
Acquisition and the TRC Acquisition and all documents to be delivered in
connection therewith (the "Purchase Documents"), including, but not limited to,
the non-competition agreements with Xxxxxxx X. Xxxx, Xx., Xxxxx X. Xxxxxxxxx,
D.D.S., and Xxxxxx X. Xxxxxx, D.D.S., the Assignment and Assumption Agreement,
dated September 26, 1996, executed by American, D&R Dental Services Group
(Metroplex Dental Group/Irving L.L.P) ("D & R") and the Selling Shareholders,
the Cross Marketing Agreement, dated as of September 26, 1996, and the NorWest
Bank Texas Escrow Agreement Holdback, dated as of September 26, 1996 are in form
and substance substantially the same as the Purchase Documents reviewed and
found acceptable by Bank, and have been executed by the parties thereto;
(b) LOAN DOCUMENTS. The Loan Documents executed by Borrower;
(c) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the
board of directors of Borrower and D & R authorizing the transactions
contemplated hereby, certified as of the Closing Date by the Secretary of
Borrower and D & R; and (ii) a certificate of the Secretary of Borrower and D &
R certifying the names and true signatures of the officers of Borrower and D & R
who are authorized to execute, deliver and perform, as applicable, this
Agreement, and all other Loan Documents to be delivered by it hereunder;
(d) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents: (i) the articles or certificate of incorporation and the bylaws of
Borrower and each Subsidiary as in effect on the Closing Date, certified by the
Secretary of Borrower and each Subsidiary as of the Closing Date; and (ii) a
good standing and tax clearance certificate for Borrower and each Material
Subsidiary from the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation and each state where Borrower and each
15
Material Subsidiary is qualified to do business as a foreign corporation as of a
recent date, together with a bring-down certificate by facsimile, dated the
Closing Date for those Subsidiaries located in California and Texas and as soon
as possible after the Closing Date for all other Material Subsidiaries;
(e) LEGAL OPINION. A favorable opinion of counsel to Borrower,
addressed to Bank, with respect to such legal matters relating hereto as Bank
may request;
(f) PAYMENT OF FEES. Evidence of payment by Borrower of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with attorney fees and expenses of Bank to the
extent invoiced prior to or on the Closing Date, plus such additional amounts of
attorney fees and expenses as shall constitute Bank's reasonable estimate of
costs and expenses incurred or to be incurred by it through the closing
proceedings (provided that such estimate shall not thereafter preclude final
settling of accounts between Borrower and Bank); including any such costs, fees
and expenses arising under or referenced in Sections 12.4 and 12.5 below;
(g) CERTIFICATE. A certificate executed by a Responsible Officer
dated as of the Closing Date, stating that: (i) the representations and
warranties contained in Section 8 are true and correct on and as of such date,
as though made on and as of such date; (ii) no Default or Event of Default
exists or would result from the execution and delivery of this Agreement; (iii)
there has occurred since June 30, 1996, no event or circumstance that has
resulted or could reasonably be expected to result in a Material Adverse Change;
(iv) Borrower and its Material Subsidiaries are in compliance with all material
regulations of Governmental Authorities having jurisdiction over Borrower and
each such Material Subsidiary; (v) after taking into consideration the
transactions contemplated by this Agreement, Borrower is in compliance with the
financial covenants described in Section 9 below and Borrower and its Material
Subsidiaries are in compliance with all financial responsibility and other
material requirements of all Governmental Authorities having jurisdiction over
Borrower and its Material Subsidiaries, including the California Department of
Corporations and the Texas Department of Insurance; and (vi) stating the sources
and uses of funds for the American Acquisition and the TRC Acquisition;
(h) TERMINATION STATEMENTS. Evidence of the satisfaction and
termination of all liens affecting the Collateral;
(i) PERMITS. Evidence that Borrower and each Material Subsidiary
possess the necessary licenses and permits to conduct its business as presently
conducted;
(j) REGULATORY APPROVAL. Evidence that Borrower has received all
approvals, clearances or expirations of waiting periods for the Acquisitions
required by all federal, state and local Governmental Authorities having
jurisdiction over Borrower, its Material Subsidiaries and the transactions
contemplated by this Agreement;
(k) FINANCIAL STATEMENTS. Bank shall have received and found
acceptable the following financial statements:
(i) The combined and combining income statements of American,
TRC and Metroplex Dental for the fiscal year ended December 31, 1995, with
proforma adjustments made to the historical financial statements to take
into consideration the effect of the termination of Borrower's contract
with the Employees Retirement System of Texas and compensation formerly
paid to the Selling Shareholders, and interim combined and combining
financial statements of Borrower, American, TRC and Metroplex Dental
16
for the six (6) month period ending June 30, 1996. The financial
statements shall be accompanied by the opinion of Deloitte and Touche
("Deloitte") which report shall state that they have examined the proforma
adjustments in accordance with the standards established by the American
Institute of Certified Public Accountants;
(ii) The audited financial statements of TRC for fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995, and
interim audited financial statement of TRC for the six (6) month period
ended June 30, 1996;
(iii) The interim financial statement of American for the
six (6) month period ended June 30, 1996, audited by Xxxxxx Xxxxx, CPA;
(iv) The audited financial statement of Safeguard Health Plans,
Inc., a California corporation, Safeguard Health Plans, Inc., a Texas
corporation, and SafeHealth Life Insurance Company, a California
corporation for the fiscal year ended December 31, 1995, and unaudited
year-to-date results for each corporation;
(v) The financial statement of Metroplex Dental for the most
recent fiscal year and the interim financial statement for the quarter
ended June 30, 1996, prepared by Borrower;
(vi) CPA management letters for fiscal years ended December 31,
1994 and 1995 for Borrower and American;
(vii) Consolidated and consolidating projections for
Borrower, American and TRC for fiscal years 1996 through and including
2000, and a certificate executed by a Responsible Officer, certifying to
Bank that the financial projections are:
(1) either based on (A) facts which are true, correct
and complete in all material respects, or (B) consistent with such
facts; and
(2) reasonably consistent with such facts and
assumptions.
(viii) Pre-closing and post-closing pro forma Borrower
prepared consolidated and consolidating balance sheets of Borrower,
American, TRC and Metroplex Dental, to include accompanying explanatory
notes.
(l) MATERIAL CONTRACTS. A listing and summary of all material
contracts of Borrower, its Material Subsidiaries and Target, the terms of which
shall be acceptable to Bank. Borrower shall provide Bank with copies of any
material contracts requested by Bank;
(m) UCC-1 FINANCING STATEMENTS. Borrower shall deliver to Bank two
(2) UCC-1 Financing Statements in paper form for filing with the California and
Delaware Secretaries of State and Bank shall have received a certificate of the
Secretary of State of California and Delaware showing said financing statements
to be subject to no prior filings;
(n) INSURANCE. Borrower shall deliver to Bank, within thirty (30)
days, a copy of the Property insurance policy for Borrower listing Bank as loss
payee or; and
(p) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as Bank may request.
17
7.2 ADDITIONAL CONDITIONS TO EXTENSION OF CREDIT FOR THE AMERICAN
ACQUISITION AND THE TRC ACQUISITION. Bank's obligation to extend credit for the
American Acquisition and the TRC Acquisition is subject to Bank's receipt of the
following, each of which must be in form and substance satisfactory to Bank:
(a) PURCHASE DOCUMENTS. Evidence that all conditions to the
effectiveness of the Purchase Documents have been satisfied or waived.
(b) CONDITIONS PRECEDENT. Satisfaction of all of the conditions of
Section 7.1 above.
(c) COMPLIANCE CERTIFICATE. Bank shall have received a Compliance
Certificate executed by a Responsible Officer in form and substance reasonably
satisfactory to Bank.
7.3 CONDITIONS TO EACH EXTENSION OF CREDIT FOR THE PERMITTED
ACQUISITIONS. Bank's obligation to extend credit for a Permitted Acquisition is
subject to Bank's receipt of the following, each of which must be in form and
substance satisfactory to Bank.
(a) COMPLIANCE CERTIFICATE. Bank shall have received a Compliance
Certificate executed by a Responsible Officer in form and substance reasonably
acceptable to Bank.
(b) PURPOSE STATEMENT. A certificate executed by a Responsible
Officer stating the specific purpose of the requested advance.
(c) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. Bank shall
have received a certificate executed by a Responsible Officer that the
representations and warranties of Borrower set forth in this Agreement are true
and correct as though made at and as of the date of the certificate.
7.4 CONDITION TO EACH EXTENSION OF CREDIT UNDER REVOLVING WORKING CAPITAL
FACILITY. Before each extension of credit, including the first, Bank shall have
received a certificate executed by a Responsible Officer setting forth the
specific corporate or working capital needs that will be met with the proceeds
of an extension of credit including, to the extent applicable, the Subsidiary on
whose behalf the advance will be utilized.
8. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants (and each request for an extension of
credit under this Agreement shall be deemed a representation and warranty made
on the date of such request) that:
8.1 ORGANIZATION. Borrower and each of its Subsidiary is a corporation
duly organized and existing under the laws of the state of its organization and
the execution, delivery, and performance of this Agreement and of any instrument
or agreement required by this Agreement are within Borrower's powers, have been
duly authorized, and are not in conflict with the terms of any charter, bylaw,
or other organization papers of Borrower.
8.2 NO CONFLICTS. The execution, delivery, and performance of this
Agreement and of any instrument or agreement required by this Agreement are not
in conflict with any law or any indenture, agreement, or undertaking to which
Borrower or any Material Subsidiary is a party or by which Borrower is bound or
affected.
18
8.3 ENFORCEABILITY. This Agreement is a legal, valid and binding
agreement of Borrower, enforceable against Borrower in accordance with its
terms, and any instrument or agreement required under this Agreement, when
executed and delivered, will be similarly legal, valid, binding and enforceable.
8.4 GOOD STANDING. Borrower and each Material Subsidiary is properly
licensed and in good standing in each state in which Borrower is doing business
and Borrower has qualified under, and complied with, where required, the
fictitious name statute of each state in which Borrower is doing business.
8.5 COMPLIANCE WITH LAWS. Borrower and each Material Subsidiary has
complied with all federal, state, and local laws, rules, and regulations
affecting the business of Borrower including, but not limited to, laws
establishing capital, equity, liquidity and surplus requirements for Borrower
and its Material Subsidiaries.
8.6 TITLE TO PROPERTIES. All property of Borrower and each Subsidiary
shall be owned or leased free and clear of all security interests, liens,
encumbrances and rights of others except the rights of any lessor under any
lease or security interest, the rights of Bank under any security agreements or
deeds of trust required under this Agreement and those consented to in writing
by Bank.
8.7 PERMITS, FRANCHISES. Borrower and each Material Subsidiary possess
all permits, memberships, franchises, contracts and licenses required and all
trademark rights, trade name rights, patent rights and fictitious name rights
necessary to enable it to conduct the business in which it is now engaged.
8.8 PERFECTED SECURITY INTEREST IN COLLATERAL. Except for the filing of
a financing statement with respect to the Collateral and the delivery to Bank of
any Collateral as to which possession is the only method of perfecting a
security interest therein, no further action is necessary in order to establish
and perfect Bank's lien on or security interest in the Collateral.
8.9 LITIGATION. There is no litigation, tax claim, proceeding or dispute
pending, or, to the knowledge of Borrower, threatened, against or affecting the
property of Borrower or any Material Subsidiary, the adverse determination of
which might affect the financial condition or operations of Borrower or any
Material Subsidiary, or impair Borrower's ability to perform its obligations
hereunder or under any instrument or agreement required hereunder.
8.10 NO EVENT OF DEFAULT. No event has occurred and is continuing or
would result from the extension of credit under this Agreement which constitutes
or would constitute an Event of Default or which, upon a lapse of time or notice
or both, would become an Event of Default.
8.11 OTHER OBLIGATIONS. Except as disclosed in writing to Bank, neither
Borrower nor any Material Subsidiary is in default under any other agreement
involving the borrowing of money, the extension of credit, or the lease of real
or personal property to which Borrower is a party as borrower, guarantor,
installment purchaser or lessee.
8.12 INFORMATION SUBMITTED. All financial and other information that has
been or will be submitted by Borrower to Bank, including Borrower's financial
statements dated as of June 30, 1996, is and will be:
(a) Prepared in accordance with GAAP consistently applied;
19
(b) True and correct in all material respects and is complete
insofar as may be necessary to give Bank a true and accurate knowledge of the
subject matter thereof;
(c) In form and content required by Bank; and
(d) In compliance with all government regulations applicable
thereto.
8.13 NO MATERIAL ADVERSE CHANGE. There has been no Material Adverse
Change in the financial condition or operation of Borrower and its Material
Subsidiaries since the date of the most recent financial statements submitted to
Bank.
8.14 ERISA PLAN COMPLIANCE.
(a) Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Internal Revenue Code of 1986, as
amended from time to time, (the "Code") with respect to each ERISA Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code, and has not incurred any liability with respect to any
ERISA Plan under Title IV of ERISA;
(b) No reportable event has occurred under Section 4043(b) of ERISA
for which the Pension Benefit Guaranty Corporation requires 30 day notice;
(c) No action by Borrower to terminate or withdraw from any ERISA
Plan has been taken and no notice of intent to terminate an ERISA Plan has been
filed under Section 4041 of ERISA; and
(d) No proceeding has been commenced with respect to an ERISA Plan
under Section 4042 of ERISA, and no event has occurred or condition exists which
might constitute grounds for the commencement of such a proceeding.
8.15 LOCATION OF BORROWER. Borrower's place of business (or, if Borrower
has more than one place of business, its chief executive office) is located at
the address listed under Borrower's signature on this Agreement.
9. AFFIRMATIVE COVENANTS.
So long as credit is available under this Agreement and until full and
final payment of all of Borrower's obligations under this Agreement and any
instrument or agreement required under this Agreement, unless Bank waives
compliance in writing, Borrower shall, and shall cause its Subsidiaries to:
9.1 NOTICE OF CERTAIN EVENTS. Immediately give written notice to Bank
of:
(a) All litigation where the amount claimed is One Million Dollars
($1,000,000) or more;
(b) Any material dispute which may exist with any governmental
regulatory body or law enforcement authority;
(c) Any Event of Default or any event which, upon a lapse of time
or notice or both, would become an Event of Default;
20
(d) The occurrence of any reportable event under Section 4043(b) of
ERISA for which the Pension Benefit Guaranty Corporation requires thirty (30)
day notice; any action by Borrower to terminate or withdraw from an ERISA Plan
or the filing of any notice of intent to terminate under Section 4041 of ERISA;
any notice of noncompliance made with respect to an ERISA Plan under Section
4041(b) of ERISA; or the commencement of any proceeding with respect to an ERISA
Plan under Section 4042 of ERISA;
(e) Any material notice received from a governmental authority; or
(f) Any other matter which has resulted or might result in a
Material Adverse Change in the financial condition or operations of Borrower and
its Material Subsidiaries.
9.2 FINANCIAL AND OTHER INFORMATION. Deliver to Bank in form and detail
satisfactory to Bank, and in such number of copies as Bank may request:
(a) Within one hundred twenty (120) days after the end of each
fiscal year, the audited consolidated financial statements of Borrower and its
Subsidiaries for such year together with (i) an unqualified opinion of a "Big
Six" CPA firm, or another nationally recognized CPA firm, which is acceptable to
Bank, that the financial statements present fairly the financial position of
Borrower and its Subsidiaries for the period indicated in conformity with GAAP
applied on a basis consistent with prior years, (ii) a copy of the CPA
management letter, and (iii) a Compliance Certificate which includes all
computations made by the accounting firm to determine the compliance by Borrower
and each Material Subsidiary with all financial responsibility requirements
imposed by any Governmental Authority having jurisdiction over Borrower and each
Material Subsidiary;
(b) Within forty-five (45) days after the end of each quarterly
accounting period, the consolidated financial statements of Borrower and its
Subsidiaries for such period prepared by Borrower together with a Compliance
Certificate executed by a Responsible Officer certifying the compliance by
Borrower and the Subsidiaries with all financial responsibility requirements of
Governmental Authorities having jurisdiction over Borrower and each Material
Subsidiary;
(c) Within forty-five (45) days after the end of each quarterly
accounting period, a Compliance Certificate in the form of Exhibit A;
(d) Within forty-five (45) days after the end of each quarterly
accounting period, financial statements of each Material Subsidiary, including a
Compliance Certificate executed by a Responsible Officer certifying that each
such Material Subsidiary is in compliance with all financial responsibility
requirements of Governmental Authorities having jurisdiction over Borrower and
each Material Subsidiary;
(e) Within ten (10) days after the date of filing with the
Securities and Exchange Commission, copies of Borrower's Form 10-K Annual
Report, Form 10-Q Quarterly Report and Form 8-K Current Report;
(f) Within ten (10) days after the date of filing with the
California Department of Corporations, the Texas Department of Insurance, and
any other Governmental Authority having jurisdiction over the business and
affairs of Borrower and any Material Subsidiary, a copy of each filing required
as a result of, or which indicates that, Borrower or any Material Subsidiary is
not in compliance with all financial responsibility requirements of the
applicable
21
Governmental Authority;
(g) Within thirty (30) days prior to the end of a fiscal year,
consolidated financial projections for Borrower and its Subsidiaries for the
remaining fiscal years through the Maturity Date based upon (i) Borrower's
knowledge and belief that the facts are materially true, correct, and complete
in all respects, and (ii) assumptions which are reasonable, complete, and
consistent with such facts.
(h) Within sixty (60) days of closing of a Permitted Acquisition,
consolidated and consolidating balance sheet of Borrower and the Target audited
by an independent accountant acceptable to Bank, which balance sheet shall not
contain any materially adverse information from that provided to the Bank
pursuant to Section 7.1(k)(viii);
(i) Within one hundred twenty (120) days after the end of each
fiscal year, the financial statements of each Material Subsidiary for such
period, prepared by Borrower; and
(j) Promptly upon request of Bank, such other statements, lists of
property and accounts, budgets, forecasts or reports as to Borrower and each
Subsidiary as Bank may reasonably request.
9.3 BOOKS, RECORDS, AUDITS AND INSPECTIONS. Maintain for Borrower and
each Subsidiary adequate books, accounts and records and prepare all financial
statements required hereunder in accordance with GAAP, and in compliance with
the regulations of any Governmental Authority having jurisdiction over Borrower
or a Subsidiary or Borrower's or a Subsidiary's business and permit employees or
agents of Bank at any reasonable time to inspect the Collateral and Borrower's
or a Subsidiary's properties, to conduct appraisals of the Collateral, and to
examine or audit Borrower's or a Subsidiary's books, accounts, and records and
make copies and memoranda thereof. In the event any Collateral, properties,
books, accounts or records are in the possession of or under the control of a
third party, Borrower or its Subsidiary shall direct and hereby authorizes such
third party to permit access to Bank's employees or agents for the purpose of
performing the inspections, appraisals, examinations or audits permitted under
this Section, and to respond to any requests from Bank for information
concerning the amount, status or condition of any Collateral in such third
party's possession or control.
9.4 INSURANCE. Maintain and keep in force fire and hazard insurance
policies covering the tangible property comprising the Collateral. Each such
insurance policy shall be in an amount equal to the full replacement value of
such Collateral, shall include a replacement cost endorsement, shall be issued
by an insurance company with at least a B+, V rating, as set forth in the most
current issue, at any point in time, of "Best's Insurance Guide", and shall
include a loss payable endorsement in favor of Bank in a form acceptable to
Bank. Borrower shall also maintain and keep in force insurance satisfactory to
Bank as to amount, nature and carrier covering property damage (including use
and occupancy) to any of Borrower's other properties, public liability insurance
including coverage for contractual liability, product liability, property damage
and workers' compensation, and any other insurance which is usual for Borrower's
business. Borrower shall require all its Subsidiaries to maintain the same or
better insurance coverage that Bank is requiring of Borrower, including, if
appropriate, professional liability insurance. Borrower shall deliver to Bank
upon Bank's request a copy of each personal property insurance policy listing
Bank as loss payee and a certificate of insurance listing all insurance in force
for Borrower and its Subsidiaries.
9.5 COMPLIANCE WITH LAWS. At all times comply with, or cause to be
complied with,
22
all laws, statutes (including but not limited to any fictitious name statute),
rules, regulations, orders and directions of any Governmental Authority having
jurisdiction over the business and operations of Borrower and its Subsidiaries.
9.6 ADDITIONAL ACTS. Perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest provided for
herein or otherwise to carry out the intent of this Agreement.
9.7 MINIMUM LIQUIDITY. Maintain on a consolidated basis, a total of
unencumbered and unrestricted cash and market value of cash equivalents and
marketable securities plus the unused amount of advances under the Revolving
Working Capital Facility ("Liquidity") of at least Seven Million Dollars
($7,000,000).
9.8 MAXIMUM TOTAL LIABILITIES TO TANGIBLE NET WORTH. Maintain on a
consolidated basis a ratio of Total Liabilities to Tangible Net Worth of not
more than the ratio indicated for each period set forth below:
Period Ratio
------ -----
From the Closing Date
through December 30, 1996 3.60 to 1
From December 31, 1996
through December 30, 1997 2.80 to 1
From December 31, 1997
through December 30, 1998 1.80 to 1
From December 31, 1998
and thereafter 1.10 to 1
9.9 MINIMUM FIXED CHARGE COVERAGE RATIO. As of the end of each quarterly
accounting period maintain on a consolidated basis a ratio of Cash Flow to Fixed
Charges at least equal to the ratio indicated:
Period Ratio
------ -----
For the one quarter period
ending December 31, 1996 1.10 to 1
For the two quarter period
ending March 31, 1997 1.10 to 1
For the three quarter period
ending June 30, 1997 1.10 to 1
For the four quarter period
ending September 30, 1997 1.15 to 1
For the four quarter periods
ending December 31, 1997 through
September 30, 1998 1.20 to 1
23
For the four quarter periods
ending December 31, 1998 and
thereafter 1.25 to 1
This ratio shall be calculated quarterly using the income statement results
for the periods stated above. For purposes of computing the Minimum Fixed
Charge Coverage Ratio, the following shall apply:
(a) The amount of Five Hundred Thousand Dollars ($500,000) per
quarter shall be deemed payable for the quarters ending December 31, 1996, and
March 31, 1997; and
(b) The amount of Three Million Dollars ($3,000,000) representing
the principal reduction in the Revolving Acquisition Facility Credit Limit
required under Section 2.1(b) above, shall not be included in calculating the
ratio.
9.10 OUT-OF-DEBT REQUIREMENT. Repay all advances outstanding under the
Revolving Working Capital Facility and not draw any new advances for a period of
at least thirty (30) consecutive calendar days during each rolling twelve (12)
month period during the Availability Period and, in the event the Availability
Period is extended, during each subsequent twelve (12) month period.
9.11 USE OF PROCEEDS. Use the proceeds of the Revolving Acquisition
Facility to finance the Acquisitions; and use the proceeds of the Revolving
Working Capital Facility for working capital and other general corporate
purposes (excluding Acquisition financing).
9.12 EXISTENCE AND PROPERTIES. Maintain and preserve Borrower's existence
and all rights, privileges and franchises now enjoyed, conduct the business of
Borrower and its Subsidiaries in an orderly, efficient and customary manner,
keep all properties of Borrower and its Subsidiaries in good working order and
condition, and from time to time make all needed repairs, renewals or
replacements thereto and thereof so that the efficiency of such property shall
be fully maintained and preserved.
9.13 CHANGE IN NAME, STRUCTURE OR LOCATION. Notify Bank in writing prior
to any change in (a) Borrower's name, (b) Borrower's business or legal
structure, or (c) Borrower's place of business or chief executive office if
Borrower has more than one place of business.
10. NEGATIVE COVENANTS.
So long as credit is available under this Agreement and until full and
final payment of all of Borrower's obligations under this Agreement and any
instrument or agreement required under this Agreement, and unless Bank waives
compliance in writing, Borrower shall not, and shall not permit any Subsidiary
to:
10.1 OTHER INDEBTEDNESS. Create or incur any indebtedness for borrowed
money or for the deferred purchase price of property under capital leases, or
become liable as a surety, guarantor, accommodation endorser, or otherwise for
or upon the obligation of any other person, firm or corporation; provided,
however, that this Section shall not be deemed to prohibit:
(a) Direct or contingent obligations owed to Bank;
(b) The acquisition of goods, supplies or merchandise on normal
trade credit;
24
(c) The execution of bonds or undertakings in the ordinary course
of its business as presently conducted;
(d) The endorsement of negotiable instruments received in the
ordinary course of its business as presently conducted;
(e) Indebtedness and lease obligations existing as of the date of
this Agreement and which have been disclosed to Bank in writing; and
(f) Additional indebtedness, including lease obligations, for the
acquisition of fixed or capital assets to the extent permitted under this
Agreement.
10.2 LIENS. Create, assume or suffer to exist any security interest, lien
(including the lien of an attachment, judgment or execution) or encumbrance,
securing a charge or obligation, on or of any of its property, real or personal,
whether now owned or hereafter acquired, except:
(a) Security interest(s) and deed(s) of trust in favor of Bank;
(b) Liens, security interests and encumbrances in existence as of
the date of this Agreement which have been disclosed to Bank in writing;
(c) Liens for current taxes, assessments or other governmental
charges which are not delinquent or remain payable without any penalty;
(d) Purchase money security interests in personal or real property
hereafter acquired when the security interest does not extend beyond the
property purchased and the aggregate amount of liabilities secured thereby do
not exceed, at any one time, One Million Dollars ($1,000,000) and on terms
otherwise acceptable to Bank; provided, however, that this exception shall not
apply to any Subsidiary; and
(e) Any mechanic's, materialmen's or other lien on account of labor
or material furnished or used in connection with any construction or
improvements on any of their real or personal property, provided that the
aggregate of all such liens shall not at any point in time exceed One Hundred
Thousand Dollars ($100,000).
10.3 CAPITAL ASSETS. Expend or incur in any fiscal year, obligations
(including obligations incurred under any capital leases) of more than Three
Million One Hundred Thousand Dollars ($3,100,000) for the acquisition of fixed
or capital assets in aggregate.
10.4 ACQUISITIONS. Acquire or purchase the assets or business of any
Person other than the Acquisitions.
10.5 DIVIDENDS. Declare or pay any dividends on any of its shares except
dividends paid to Borrower from its Subsidiaries and dividends payable in
capital stock of Borrower, and not purchase, redeem or otherwise acquire for
value any of its shares, or create any sinking fund in relation thereto in
excess of Two Hundred Fifty Thousand Dollars ($250,000) during each fiscal year
during the Availability Period.
10.6 LOANS. Make any loans, advances or other extensions of credit to any
of Borrower's or its Subsidiary's executives, officers, or directors or
shareholders (or any relatives of any of the foregoing) in excess of Two Hundred
Fifty Thousand Dollars ($250,000) in the
25
aggregate outstanding at any one time.
10.7 LOSSES. Suffer a loss on a quarterly basis. For purposes of this
Section 10.7, the term "loss" means the absence of a net profit after taxes
computed in accordance with GAAP.
10.8 CHANGE OF CONTROL. Cause, permit, or suffer a Change of Control.
For purposes of this Agreement, the term "Change of Control" means (a) the sale,
lease or transfer of all or substantially all of the assets of Borrower or a
Material Subsidiary, (b) except for the transfer by sale or otherwise to Xxxxxx
X. Xxxxxxx, D.D.S. and his affiliates, the transfer by sale or otherwise of more
than thirty percent (30%) of the outstanding voting shares of Borrower, (c) the
change in the composition of the board of directors of Borrower such that the
members of the board of director of Borrower does not consist of at least a
majority of the current members of the board of directors of Borrower, or (d)
the shareholders of Borrower approve and adopt a plan of liquidation or
dissolution of Borrower.
10.9 SALES AND LEASEBACKS. Dispose of any of its assets except for full,
fair and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets.
10.10 LIQUIDATIONS AND MERGERS. Liquidate or dissolve or enter into any
consolidation, merger, partnership, joint venture or other combination.
10.11 SALE OF ASSETS. Sell, lease, or otherwise dispose of its business or
assets, except in the ordinary course of its business theretofore conducted,
without the prior written consent of Bank; and not to sell, lease or otherwise
dispose of any assets in the ordinary course of business for less than fair
market value.
10.12 BUSINESS ACTIVITIES. Engage in any business activities or operations
substantially different from or unrelated to present business activities and
operations.
11. EVENTS OF DEFAULT.
The occurrence of any of the following Events of Default shall terminate
any obligation on the part of Bank to extend credit under this Agreement and, at
the option of Bank under all Sections (except automatically in the case of
Sections 11.5 and 11.6), shall make all obligations of Borrower to Bank under or
in respect of this Agreement and any instrument or agreement required under this
Agreement immediately due and payable, without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or other
notices or demands of any kind or character.
11.1 FAILURE TO PAY. Borrower fails to pay, within three (3) days after
the date when due, any installment of interest or principal or any other sum due
under the Loan Documents in accordance with the terms thereof.
11.2 BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty
herein or in any agreement, instrument or certificate executed pursuant hereto
or in connection with any transaction contemplated hereby proves to have been
false or misleading in any material respect when made.
11.3 FALSITY OF INFORMATION. Any financial or other information delivered
by Borrower to Bank proves to be false or misleading in any material respect.
11.4 SECURITY INTEREST. Bank fails to have a valid and enforceable
perfected security
26
interest in or lien on the Collateral or such security interest or lien fails to
be prior to the rights and interest of others except those consented to in
writing by Bank.
11.5 FAILURE TO PAY DEBTS; VOLUNTARY BANKRUPTCY. Borrower or any Material
Subsidiary fails to pay Borrower's or such Material Subsidiary's debts generally
as they come due, or files any petition, proceeding, case, or action for relief
under any bankruptcy, reorganization, insolvency, or moratorium law, or any
other law or laws for the relief of, or relating to, debtors.
11.6 INVOLUNTARY BANKRUPTCY. An involuntary petition is filed under any
bankruptcy or similar statute against Borrower or any Material Subsidiary, or a
receiver, trustee, liquidator, assignee, custodian, sequestrator, or other
similar official is appointed to take possession of the properties of Borrower
or any Material Subsidiary. Such Event of Default shall be deemed cured if such
petition or appointment is set aside or withdrawn or ceases to be in effect
within thirty (30) days from the date of said filing or appointment; provided,
however, that Bank shall not be obligated to extend any additional credit to
Borrower during such period.
11.7 SUITS. One or more suits are filed against Borrower or any Material
Subsidiary by a trade creditor or trade creditors of Borrower or any Material
Subsidiary in the aggregate amount of One Million Dollars ($1,000,000) or more.
11.8 JUDGMENTS. One or more judgments or arbitration awards are entered
against Borrower or any Material Subsidiary, or Borrower or any Material
Subsidiary enters into any settlement agreements with respect to any litigation
or arbitration, in the aggregate amount of One Million Dollars ($1,000,000) or
more on a claim or claims not covered by insurance.
11.9 SUSPENSION OF BUSINESS. Borrower or any Material Subsidiary
voluntarily suspends its business for more than five (5) days in any thirty (30)
day period.
11.10 GOVERNMENTAL ACTION. Any Governmental Authority takes or institutes
action which, in the opinion of Bank, will have a material adverse affect on the
financial condition, operations or ability of Borrower to pay its obligations
under this Agreement or any instrument or agreement required under this
Agreement.
11.11 DEFAULT OF OTHER FINANCIAL OBLIGATIONS. Any default occurs under any
other agreement involving the borrowing of money or the extension of credit to
which Borrower or any Material Subsidiary may be a party as borrower, guarantor
or installment purchaser if such default consists of the failure to pay any
obligation when due or if such default gives to the holder of the obligation
concerned the right to accelerate the obligation.
11.12 MISUSE OF COLLATERAL. Bank, in good faith, considers any Collateral
to be unsafe or in danger of misuse to the extent that Bank's prospect of or
right to payment or performance under this Agreement or any instrument or
agreement required hereunder is materially impaired.
11.13 DEFAULT OF OTHER BANK OBLIGATIONS. Any default occurs under any
other obligation of Borrower or any Material Subsidiary to Bank or to any
subsidiary or affiliate of Bank.
11.14 MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs in the
financial condition or results of operations of Borrower or any Subsidiary, or a
material change occurs in the ability of Borrower to perform its obligations
under this Agreement or under any instrument or agreement required by this
Agreement.
27
11.15 ERISA PLAN TERMINATION. Any ERISA Plan termination or any full or
partial withdrawal from an ERISA Plan occurs which could result in liability of
Borrower to the Pension Benefit Guaranty Corporation or to the ERISA Plan in an
aggregate amount which, in the reasonable opinion of Bank, will have a material
adverse effect on the financial condition of Borrower.
11.16 CHANGE IN CONTROL. A Change in Control occurs regarding Borrower or
any Material Subsidiary.
11.17 OTHER BREACH UNDER AGREEMENT. Borrower breaches, or defaults under,
any term, condition, covenant, provision, representation or warranty contained
in this Agreement not specifically referred to in this Section; provided,
however, that if in Bank's opinion such default is capable of being remedied,
such default shall not be considered an Event of Default hereunder for a period
of thirty (30) days after the date on which Bank gives written notice of such
default to Borrower; it is further provided that, notwithstanding any other
provision of this Agreement, Bank shall be under no obligation to extend
additional credit under this Agreement following the occurrence of any default
hereunder unless and until such default has been cured.
12. MISCELLANEOUS.
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that Borrower shall not assign this Agreement or any of the
rights, duties or obligations of Borrower hereunder without the prior written
consent of Bank.
12.2 CONSENTS AND WAIVERS. No consent or waiver under this Agreement
shall be effective unless in writing. No waiver of any breach or default shall
be deemed a waiver of any breach or default thereafter occurring.
12.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California.
12.4 ADMINISTRATION COSTS. Borrower agrees to pay to Bank, on demand, all
reasonable costs and expenses incurred by Bank in connection with the
administration of this Agreement and any instrument or agreement required under
this Agreement including, but not limited to, documentation, audit and filing
costs.
12.5 ATTORNEYS' FEES. Borrower agrees to pay to Bank, on demand, all
reasonable costs, expenses and attorneys' fees (including allocated costs for
in-house legal services) incurred by Bank in connection with the enforcement and
preservation of any rights or remedies under this Agreement and any instrument
or agreement required under this Agreement, and including any amendment, waiver,
"workout" or restructuring under this Agreement. In the event a legal action or
arbitration proceeding is commenced in connection with the enforcement of this
Agreement or any instrument or agreement required under this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees (including
allocated costs for in-house legal services), costs and necessary disbursements
incurred in connection with such action or proceeding, as determined by the
court or arbitrator.
12.6 INTEGRATION. This Agreement and any instrument, agreement or
document attached hereto or referred to herein (a) integrate all the terms and
conditions mentioned herein or incidental hereto, (b) supersede all oral
negotiations and prior writings in respect to the subject matter hereof, and (c)
are intended by the parties as the final expression of the agreement with
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respect to the terms and conditions set forth in this Agreement and any such
instrument, agreement or document and as the complete and exclusive statement of
the terms agreed to by the parties. In the event of any conflict between the
terms, conditions and provisions of this Agreement and any such instrument,
agreement, or document, the terms, conditions and provisions of this Agreement
shall prevail.
12.7 PARTICIPATION. Bank may at any time sell, assign, grant
participation in, or otherwise transfer to any other person, firm, or
corporation (a "Participant") all or part of the obligations of Borrower under
this Agreement. Borrower agrees that each such disposition will give rise to a
direct obligation of Borrower to the Participant. Borrower authorizes Bank and
each Participant, upon the occurrence of an Event of Default, to proceed
directly by right of setoff, banker's lien, or otherwise, against any assets of
Borrower which may be in the hands of Bank or such Participant, respectively.
Borrower authorizes Bank to disclose to any prospective Participant and any
Participant any and all information in Bank's possession concerning Borrower,
this Agreement and the Collateral. Borrower will not be required to pay any
additional loan fee, placement fee or agency fee in connection with the
syndication of this credit.
12.8 INDEMNIFICATION. Borrower agrees to indemnify Bank against, and hold
Bank harmless from, all claims, actions, losses, costs and expenses (including
attorneys' fees and allocated costs for in-house legal services) incurred by
Bank and arising from any contention, whether well-founded or otherwise, that
there has been a failure to comply with any law regulating Borrower's sales to
or performance of services for receivable debtors and disclosures in connection
therewith. The provisions of this Section shall survive termination of this
Agreement.
12.9 HAZARDOUS WASTE INDEMNIFICATION. Borrower shall indemnify and hold
harmless Bank, its parent company, subsidiaries and all of their directors,
officers, employees agents, successors, attorneys and assigns from and against
any loss, damage, cost, expense or liability directly or indirectly arising out
of or attributable to the use, generation, manufacture, production, storage,
release, threatened release, discharge, disposal or presence of a Hazardous
Substance on, under or about Borrower's or any Subsidiary's property or
operations or property leased to Borrower or any Subsidiary, including, but not
limited to, attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). For purposes of this Agreement, "Hazardous
Substance" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity shall survive
termination of this Agreement.
12.10 ARBITRATION; REFERENCE PROCEEDING.
(a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Agreement
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort, shall at the
request of any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Agreement, and under
the Commercial Rules of the American Arbitration Association ("AAA"). The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
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(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to Bank which is secured by real
property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subparagraphs (a) and (b) shall, at the request of any
party, be determined by a reference in accordance with California Code of Civil
Procedure Sections 638 ET SEQ. If such an election is made, the parties shall
designate to the court a referee or referees selected under the auspices of the
AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings.
The presiding referee of the panel, or the referee if there is a single referee,
shall be an active attorney or retired judge. Judgment upon the award rendered
by such referee or referees shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil Procedure
Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party
to resort to arbitration or reference. At Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
12.11 NOTICES. All notices required hereunder shall be delivered by
certified mail return receipt requested, postage prepaid, to the addresses set
forth on the signature page of this Agreement, or to such other addresses as the
parties hereto may specify from time to time in writing.
12.12 SEVERABILITY. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
12.13 COUNTERPARTS. This Agreement may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
[SIGNATURE PAGE CONTINUES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Bank of America National Trust and Safeguard Health Enterprises, Inc., a
Savings Association Delaware corporation
By: XXX XXXXXXX By: XXXXXX X. XXXXXXX, D.D.S.
------------------------------- ---------------------------------------
Typed Name: Xxx Xxxxxxx Typed Name: Xxxxxx X. Xxxxxxx, D.D.S.
----------------------- -------------------------------
Title: Vice President Title: President and Chief Operating Ofcr.
-------------------------- -----------------------------------
By: N/A By: XXXXXX X. XXXXXXXX, X.X.
------------------------------- ---------------------------------------
Typed Name: Typed Name: Xxxxxx X. Xxxxxxxx, X.X.
----------------------- -------------------------------
Title: Title: Sr. Vice President and Secretary
---------------------------- ------------------------------------
Address where notices to Bank are Address where notices to Borrower are
to be sent: to be sent:
Bank of America National Trust and Safeguard Health Enterprises, Inc.
Savings Association 505 North Euclid
x/x Xxxxx Xxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxx, XX 00000
Banking Office #1456 Attention: Xxxxxx X. Xxxxxxxx, Esq.
000 Xxxxx Xxxxxx Xxxx.
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxx, Vice
President With a copy to:
Xxxxxx, Xxxx & Xxxxxxxx
0 Xxxx Xxxxx, Xxxxx 0000
With a copy to: Xxxxxx, XX 00000
Bank of America National Trust and Attention: Xxxxxx X. Xxxxxxxxx, Esq.
Savings Association
Xxxxx Xxxxxxxxxx #0000
000 Xxxxx Xxxxxx Xx., Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
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