EX-10.1 2 a2047783zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 CREDIT AGREEMENT dated as of June 29, 1999 among The Lenders Party Hereto and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Administrative Agent and UNITED SURGICAL PARTNERS INTERNATIONAL, INC., as Borrower TABLE OF CONTENTS ARTICLE I. Definitions.......................................................... 1 SECTION 1.01. Defined Terms................................. 1 SECTION 1.02. Classification of Loans and Borrowings........ 13 SECTION 1.03. Terms Generally............................... 13 SECTION 1.04. Accounting Terms; GAAP........................ 13 ARTICLE II. The Credits.......................................................... 14 SECTION 2.01. Commitments .................................. 14 SECTION 2.02. Loans and Borrowings ......................... 14 SECTION 2.03. Requests for Borrowings ...................... 15 SECTION 2.04. Intentionally Deleted ........................ 15 SECTION 2.05. Intentionally Deleted ........................ 15 SECTION 2.06. Intentionally Deleted ........................ 15 SECTION 2.07. Funding of Loans ............................. 16 SECTION 2.08. Interest Elections ........................... 16 SECTION 2.09. Termination of Commitments ................... 17 SECTION 2.10. Repayment of Loans, Evidence of Debt ......... 18 SECTION 2.11. Prepayment of Loans .......................... 18 SECTION 2.12. Fees ......................................... 19 SECTION 2.13. Interest ..................................... 19 SECTION 2.14. Alternate Rate of Interest ................... 20 SECTION 2.15. Increased Costs .............................. 21 SECTION 2.16. Break Funding Payments ....................... 22 SECTION 2.17. Taxes ........................................ 22 SECTION 2.18. Payments Generally, Pro Rata Treatment, Sharing of Set-offs........................ 23 SECTION 2.19. Mitigation Obligations, Replacement of Lenders 25 ARTICLE III. Representations and Warranties ...................................... 25 SECTION 3.01. Organization, Powers ........................ 25 SECTION 3.02. Authorization, Enforceability ............... 26 SECTION 3.03. Governmental Approvals; No Conflicts ........ 26 SECTION 3.04. Financial Condition; No Material Adverse Change ................................... 26 SECTION 3.05. Properties .................................. 26 SECTION 3.06. Litigation and Environmental Matters ........ 27 SECTION 3.07. Compliance with Laws and Agreements ......... 27 SECTION 3.08. Investment and Holding Company Status ....... 28 SECTION 3.09. Taxes ....................................... 28 SECTION 3.10. ERISA ....................................... 28 SECTION 3.11. Disclosure .................................. 28 SECTION 3.12. Year 2000 ................................... 28 i SECTION 3.13. Proprietary Rights .......................... 29 SECTION 3.14. Subsidiaries ................................ 29 ARTICLE IV. Conditions ............................................................. 29 SECTION 4.01. Effective Date .............................. 29 SECTION 4.02. Each Credit Event ........................... 31 ARTICLE V. Affirmative Covenants .................................................. 31 SECTION 5.01. Financial Statements, and Other Information .. 31 SECTION 5.02. Notices of Material Events ................... 32 SECTION 5.03. Existence, Conduct of Business ............... 33 SECTION 5.04. Payment of Obligations ....................... 33 SECTION 5.05. Maintenance of Properties; Insurance ......... 33 SECTION 5.06. Books and Records; Inspection Rights ......... 33 SECTION 5.07. Compliance with Laws ......................... 34 SECTION 5.08. Use of Proceeds .............................. 34 SECTION 5.09. Business Loans ............................... 34 SECTION 5.10. Compliance with ERISA ........................ 34 SECTION 5.11. Intentionally Deleted ........................ 34 SECTION 5.12. Cooperation with Syndicator .................. 34 ARTICLE VI. Negative Covenants ..................................................... 35 SECTION 6.01. Indebtedness ................................ 35 SECTION 6.02. Liens ....................................... 36 SECTION 6.03. Fundamental Changes ......................... 36 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions ............... 37 SECTION 6.05. Hedging Agreements .......................... 37 SECTION 6.06. Intentionally Deleted ....................... 37 SECTION 6.07. Transactions with Affiliates ................ 37 SECTION 6.08. Restrictive Agreements ...................... 38 SECTION 6.09. Intentionally Deleted ....................... 38 SECTION 6.10. Intentionally Deleted ....................... 38 SECTION 6.11. Intentionally Deleted ....................... 38 SECTION 6.12. Nature of Business .......................... 38 SECTION 6.13. No Amendment ................................ 38 SECTION 6.14. Fiscal Year ................................. 38 ARTICLE VII. Events of Default .................................................... 38 ARTICLE VIII. The Administrative Agent .............................................. 41 ARTICLE IX. Miscellaneous ............................................................ 43 SECTION 9.01. Notices ..................................... 43 SECTION 9.02. Waivers, Amendments ......................... 45 SECTION 9.03. Expenses, Indemnity, Damage Waiver .......... 45 ii SECTION 9.04. Successors and Assigns ....................... 47 SECTION 9.05. Survival ..................................... 49 SECTION 9.06. Counterparts: Integration, Effectiveness ..... 50 SECTION 9.07. Severability ................................. 50 SECTION 9.08. Right of Setoff .............................. 50 SECTION 9.09. Governing Law, Jurisdiction, Consent to Service of Process ............. 50 SECTION 9.10. WAIVER OF JURY TRIAL ......................... 51 SECTION 9.11. Headings ..................................... 51 SECTION 9.12. Confidentiality .............................. 51 SCHEDULES: Schedule 2.01 Commitment Schedule 3.06 Disclosed Matters Schedule 3.13 Proprietary Rights Schedule 3.14 Subsidiaries Schedule 6.01 Existing Indebtedness Schedule 6.02 Existing Liens Schedule 6.08 Existing Restrictions EXHIBITS: Exhibit A - Form of Assignment and Acceptance Exhibit B - Form of Opinion of Borrower's Counsel Exhibit C - Form of Confidentiality Agreement Exhibit D - Form of Promissory Note Exhibit E - Form of Compliance Certificate iii CREDIT AGREEMENT CREDIT AGREEMENT dated as of June 29, 1999, among United Surgical Partners International, Inc., the LENDERS party hereto, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Administrative Agent. The parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below: "ABR" when used in reference to any Loan, refers to whether such Loan is bearing interest at a rate determined by reference to the Alternate Base Rate. "ADJUSTED LIBO RATE" means, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "ADMINISTRATIVE AGENT" means Chase Bank of Texas, National Association, in its capacity as administrative agent for the Lenders hereunder. "ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "AFFILIATE" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "AGREEMENT" means this Credit Agreement, as the same may be amended, restated or otherwise modified from time to time. "ALTERNATE BASE RATE" means for any day a rate per annum equal to the lesser of (a) the greater of (1) the Prime Rate for that day and (2) the Federal Funds Effective Rate for that day plus 1/2 of 1 % or (b) the Ceiling Rate. The Alternate Base Rate shall be computed on the basis of the actual number of days elapsed in a year consisting of 365 (366 for a leap year) days. If for any reason Administrative Agent shall have determined (which determination shall be conclusive and binding, absent manifest or demonstrated error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including, without limitation, the inability or failure of Administrative Agent to obtain sufficient quotations in accordance with the terms hereof, then the Alternate Base Rate shall, until the circumstances giving rise to such inability no longer exists, be the lesser of (a) the Prime Rate from time to time in effect or (b) the Ceiling Rate. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from 1 and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "APPLICABLE PERCENTAGE" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the unpaid principal of the Loans, giving effect to any assignments. "APPLICABLE RATE" means, for any day, with respect to any ABR Loan or Eurodollar Loan, as the case may be, the applicable rate per annum set forth below under the caption "ABR Spread" or "Eurodollar Spread," as the case may be: ABR Spread Eurodollar Spread ---------- ----------------- Borrowing 0% 1.00% "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of EXHIBIT A or any other form approved by the Administrative Agent. "AVAILABILITY PERIOD" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "BOARD" means the Board of Governors of the Federal Reserve System of the United States of America. "BORROWER" means United Surgical Partners International, Inc., a Delaware corporation. "BORROWING" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "BORROWING REQUEST" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on which commercial banks in Dallas, Texas are authorized or required by law to remain closed; PROVIDED that, when used in connection with a Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. 2 "CEILING RATE" means, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that Chapter 1D establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate ceiling" (as defined in Chapter 1D) for that day. Administrative Agent may from time to time, as to current and future balances, implement any other ceiling under Chapter 1D by notice to Borrower, if and to the extent permitted by Chapter 1D. Without notice to Borrower or any other Person, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates. "CHANGE IN CONTROL" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of shares representing more than thirty percent (30%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower (other than any such Person or group that owns such shares on the date hereof); (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) directors on the date hereof, (ii) nominated by the board of directors of the Borrower nor (iii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Borrower by any Person or group. "CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "CHAPTER 1D" means Chapter 1D of Title 79, Texas Revised Civil Statutes, 1925, as amended. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMITMENT" means, with respect to each Lender, the commitment of such Lender to make Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $25,000,000.00. "COMPLIANCE CERTIFICATE" means the Compliance Certificate in substantially the form attached hereto as EXHIBIT E with such modifications and additions thereto as shall be in accordance' with this Agreement and reasonably satisfactory to Administrative Agent. 3 "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement in the form attached hereto as EXHIBIT C. "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "CREDIT EXPOSURE" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans at such time. "DEFAULT" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "DEFAULT RATE" means, on any day, a rate per annum equal to two percent (2%) plus the greater of (i) the Alternate Base Rate plus the Applicable Rate or (ii) the Adjusted LIBO Rate plus the Applicable Rate; provided in no event shall the Default Rate be in excess of the Ceiling Rate. "DISCLOSED MATTERS" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "DISPOSITION" shall mean any sale, assignment, transfer or other disposition of any Property. (whether now owned or hereafter acquired) by Borrower or any of its Subsidiaries to any other Person excluding any sale, assignment, transfer or other disposition (w) of any Property sold or disposed of in the ordinary course of business and on ordinary business terms, (x) of any Investment permitted under Section 6.04, (y) to the Borrower or any of its wholly-owned Subsidiaries or (z) of any stock (including, without limitation, Preferred Stock), interests, participations, rights in or other equivalents in the equity interests (however designated) in Borrower or any of its Subsidiaries, warrants, or options exercisable for, exchangeable for or convertible into such an equity interest; provided that a sale, assignment, transfer or other disposition under this clause (z) does not constitute a Change in Control. "DOLLARS" or "$" refers to lawful money of the United States of America. "EFFECTIVE DATE" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "ENVIRONMENTAL LAWS" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "ENVIRONMENTAL LIABILITY" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal 4 of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA EVENT" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "EURODOLLAR" when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "EVENT OF DEFAULT" has the meaning assigned to such term in Article VII. "EXCLUDED TAXES" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.17(e), except to the extent that such Foreign 5 Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.17(a). "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "FINANCIAL STATEMENTS" shall mean all balance sheets, income statements and other financial data, statements and reports (whether of Borrower or any of its Subsidiaries), which are required to, have been, or may from time to time hereafter, be required to be furnished to Administrative Agent. "FOREIGN LENDER" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "GOVERNMENTAL AUTHORITY" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "GUARANTEE" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. 6 "GUARANTOR" means Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership, its successors and assigns. "GUARANTY" shall mean that certain guaranty of this Agreement executed by Guarantor dated June 18, 1999, and referenced in Section 4.01 of this Agreement, as the same may be amended and modified from time to time. "HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "HEDGING AGREEMENT" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "INDEBTEDNESS" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments (including, without limitation, an obligation in favor of a stockholder or future stockholder of a Person in connection with the redemption by such Person of capital stock of such Person from such stockholder or future stockholder), (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to Property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of Property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on Property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, to the extent of the fair market value of such Property, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "INDEMNIFIED TAXES" means Taxes other than Excluded Taxes. "INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan, the last day of each fiscal quarter and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Borrowing is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. 7 "INTEREST PERIOD" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three, six months or, with the consent of each Lender, twelve months thereafter, as the Borrower may elect; PROVIDED , that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "INTEREST ELECTION REQUEST" means a request by the Borrower to convert or continue a Borrowing or a portion thereof in accordance with Section 2.08. "INVESTMENT" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock of such Person or any other Person; (b) the acquisition (whether for cash, Property, services or securities or otherwise) of bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such sale); (c) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person); or (d) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent, or extended to such Person. "LENDERS" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO RATE" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on the Reuter Money Rates Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 am., Dallas, Texas time, three Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. If such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of an amount similar to such Eurodollar Borrowing and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at 8 approximately 11:00 a.m., Dallas, Texas time, three Business Days prior to the commencement of such Interest Period. "LIEN" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, all promissory notes, guaranties, all Uniform Commercial Code financing statements, and all other documents executed in connection with this Agreement. "LOANS" means the revolving loans made by the Lenders to the Borrower pursuant to this Agreement. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, assets, operations, prospects, or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its obligations under this Agreement or the Note, (c) the ability of the Guarantor to perform any of its obligations under the Guaranty, or (d) the rights of or benefits available to the Lenders under this Agreement, the Note or any of the documents referenced in Section 4.01(a), (b), (c), (d) or (f) of this Agreement. "MATERIAL INDEBTEDNESS" means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $1,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "MATURITY DATE" means June 30, 2001. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NOTES" shall mean the promissory notes provided for by Section 2.02 and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "OTHER TAXES" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. 9 "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "PERMITTED ENCUMBRANCES" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) landlords', carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens (i) arising in the ordinary course of business, (ii) securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04 and (iii) (A) imposed by law or (B) if the same (1) are usual and customary, including as to scope of collateral, and (2) do not secure obligations for borrowed money, created by contract. (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII; (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; PROVIDED that the term "Permitted Encumbrances" as used in this clause (f) shall not include any Lien securing Indebtedness; and (g) Liens in favor of Administrative Agent and Lenders. "PERMITTED INVESTMENTS" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances, demand deposits and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or 10 placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "PERSON" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "PLAN" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PREFERRED STOCK" means any and all shares, interests, participations or other equivalents (however designated) of Borrower's preferred or preference stock, whether outstanding on or issued after the Effective Date, including, without limitation, the Series A Redeemable Preferred Stock, $.O1 par value per share, and the Series B Convertible Preferred Stock $.O1 par value per share, of Borrower. "PRIME RATE" means the rate of interest per annum publicly announced from time to time by Chase Bank of Texas, National Association as its prime rate in effect at its principal office in Houston, Texas; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "PROPERTY" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "PROPRIETARY RIGHTS" shall mean any patents, registered and common law trademarks, service marks, trade names, copyrights, licenses and other similar rights (including know-how, trade secrets and other confidential information) and applications for each of the foregoing, if any. "REGISTER" has the meaning set forth in Section 9.04. "RELATED PARTIES" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "REQUIRED LENDERS" means, at any time, Lenders having Credit Exposures and unused Commitments representing 66 2/3% of the sum of the total Credit Exposures and unused Commitments at such time. "S&P" means Standard & Poor's Ratings Group. 11 "STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for probation, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "SUBSIDIARY" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, directly or indirectly owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent; provided, that for purposes of this clause (b) only, the Borrower shall Control another Person only if Borrower (x) directly or indirectly owns securities or other ownership interests representing more than 30% of the equity or more than 30% of the ordinary voting power, or in the case of a partnership, more than 30% of the general partnership interests of such Person AND (y) has a management agreement or arrangement with, or with respect to, such Person. "SUBSIDIARY" means any subsidiary of the Borrower. "TAXES" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "TOPS LOAN DOCUMENTS" means that certain Credit Agreement dated on or about the date hereof by and among TOPS Specialty Hospital, Ltd., the lenders party thereto and Chase Bank of Texas, National Association, as Administrative Agent (as the same may be amended, restated or otherwise modified from time to time) and all promissory notes, guarantees, Uniform Commercial Code financing statements and all other documents executed in connection therewith. "TRANSACTIONS" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof. "TYPE" when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan or on the Loans comprising such Borrowing is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. 12 "WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For purposes of this Agreement, Loans or Borrowings may be classified and referred to by Type (e.g. a "Eurodollar Loan" or "Eurodollar Borrowing"). SECTION 1.03. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof' and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "Property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. ACCOUNTING TERMS; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II. THE CREDITS SECTION 2.01. COMMITMENTS. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in such Lender's Credit Exposure exceeding such Lender's Commitment: Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans. 13 Upon the occurrence of an event that, with notice or the passage of time, or both, would constitute an Event of Default (as defined in Article VII), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower suspend the Commitments (and thereupon the Commitments shall immediately be suspended). During the period of any such suspension: (i) no Lender shall be obligated in respect of its Commitment (provided, however, that the Borrower may convert a Borrowing to a different Type or continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in, including the limitations in, Section 2.08) and (ii) any fees due to any one or more of Administrative Agent and the Lenders (including the fees provided for in Section 2.12) shall be calculated without regard to such suspension. Without limiting the first sentence of this paragraph, (x) a grace or cure period in an agreement between the Borrower (or a Subsidiary) and a third party (i.e., a Person that is not the Administrative Agent or a Lender) is included as a passage of time within the contemplation of such first sentence and (y) a notice given by a third party (i.e., a Person not the Administrative Agent or a Lender) to the Borrower or a Subsidiary is included as a notice within the contemplation of such first sentence. This paragraph shall apply notwithstanding anything to the contrary in this Agreement or any of the other Loan Documents. SECTION 2.02. LOANS AND BORROWINGS. (a) Each Loan shall be made as a part of a Borrowing consisting of Loans made by ther Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) All Loans made by each Lender shall be evidenced by a single promissory note of the Borrower, substantially in the form of EXHIBIT D, payable to such Lender in a principal amount equal to the amount of its Commitment as in effect and otherwise duly completed. (c) Subject to Section 2.14, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (d) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $100,000. At the time each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $10,000 and not less than $50,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Commitments. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of five (5) Eurodollar Borrowings outstanding. 14 (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. REQUESTS FOR BORROWINGS. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request in writing (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., Dallas, Texas time, three Business Days before the date of the proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 10:00 a.m., Dallas, Texas time, the date of the proposed Borrowing. Each such Borrowing Request shall be irrevocable and shall be evidenced by a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. INTENTIONALLY DELETED. SECTION 2.05. INTENTIONALLY DELETED. SECTION 2.06. INTENTIONALLY DELETED. SECTION 2.07. FUNDING OF LOANS. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, Dallas, Texas time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the 15 Administrative Agent in Dallas, Texas and designated by the Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation but in no event in excess of the Ceiling Rate or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Borrowing. (c) The entire unpaid principal balance of each Loan shall be finally due and payable on the Maturity Date. SECTION 2.08. INTEREST ELECTIONS. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election in writing by the time that a Borrowing Request would be required under Section 2.03 if Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such Interest Election Request shall be irrevocable and shall be evidenced by a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be 16 specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period." If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.09. TERMINATION OF COMMITMENTS. (a) Unless previously terminated, the Commitments terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; PROVIDED that (i) each reduction of the Commitments shall be in an amount that is (A) $250,000, or (B) the sum of an integral multiple of $100,000 plus $250,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the sum of the Credit Exposures would exceed the total Commitments. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least five Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders 17 of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; PROVIDED that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.10. REPAYMENT OF LOANS, EVIDENCE OF DEBT. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. SECTION 2.11. PREPAYMENT OF LOANS. (a) The Borrower shall have the right at any time and from time to time to prepay the Loans in whole or in part without premium or penalty except as may be contemplated by this Agreement (including Section 2.16), subject to prior notice in accordance with paragraph (b) of this Section; provided each partial prepayment shall be in an aggregate amount that is an integral multiple of $100,000 and shall not be less than $100,000. (b) The Borrower shall notify the Administrative Agent by telecopy or other written notice of any prepayment hereunder not later than five (5) Business Days before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing, to be prepaid. Promptly following receipt of any such notice relating to any Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each prepayment of any Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13. 18 SECTION 2.12. FEES. (a) Borrower shall pay to the Administrative Agent for account of each Lender a commitment fee on the daily average unused amount of such Lender's Commitment, for the period from and including the Effective Date to but not including the earlier of the date such Commitment is terminated and the Maturity Date, at a rate per annum equal to 3/8ths of 1%. Accrued commitment fees shall be payable in arrears on the last day of October, January, April and July of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; PROVIDED that any commitment fees accruing after the date on which the Commitments terminate shall be payable on demand. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, and, if provided therein, for the account of any other Lenders, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.13. INTEREST. (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, then such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to the Default Rate; provided, that for the full term of the debt evidenced hereby the interest rate produced by the aggregate of all sums paid or agreed to be paid hereunder for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest contemplated by this Section 2.13) shall not exceed the Ceiling Rate. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; PROVIDED that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand; (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. 19 (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate and/or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. (f) Notwithstanding any provision to the contrary contained in this Agreement or any of the other Loan Documents, in no case or event shall the aggregate of (i) all interest on the unpaid balance of any of the debt evidenced hereby, accrued or paid from the date hereof, and (ii) the aggregate of any other amounts accrued or paid pursuant to this Agreement or any of the other Loan Documents, which in either case, under applicable laws are or may be deemed to constitute interest upon the debt evidenced hereby from the date hereof, ever exceed the Ceiling Rate. In this connection, Borrower, Administrative Agent and Lenders stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable usury laws (including Chapter 1D). In furtherance thereof, none of the terms of this Agreement or any of the other Loan Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Ceiling Rate. Borrower or other parties now or hereafter becoming liable for payment of the debt evidenced hereby shall never be liable for interest in excess of the Ceiling Rate. If, for any reason whatever, the interest paid or received on any debt evidenced hereby during its full term produces a rate that exceeds the Ceiling Rate, the holder of the instrument evidencing such debt shall credit against the principal of such debt evidenced hereby (or, if such debt evidenced hereby shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid to produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid for the use, forbearance or detention of the debt evidenced hereby shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of this Agreement, so that the interest rate is uniform throughout the full term of this Agreement. The provisions of this paragraph shall control all agreements, whether now or hereafter existing and whether written or oral, among Borrower and Lenders. SECTION 2.14. ALTERNATE RATE OF INTEREST. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the 20 Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and such Borrowing shall be made as an ABR Borrowing and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.15. INCREASED COSTS. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; PROVIDED that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than two hundred seventy (270) days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; PROVIDED further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the two 21 hundred seventy (270) day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.16. BREAK FUNDING PAYMENTS. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked (and the foregoing reference shall not imply any rights of revocation)), (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate (in the case of a Eurodollar Loan) that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.17. TAXES. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; PROVIDED that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.17) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.17) and any 22 penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.18. PAYMENTS GENERALLY, PRO RATA TREATMENT SHARING OF SET-OFFS. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, Dallas, Texas time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 712 Main Street, Houston, Texas 77002, except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest 23 thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, provided, that for the full term of the loan the interest rate produced by the aggregate of all sums paid or agreed to be paid hereunder for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest contemplated by this Section 2.18) shall not exceed the Ceiling Rate. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.07(b) or 2.18(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.19. MITIGATION OBLIGATIONS, REPLACEMENT OF LENDERS. (a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to 24 Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Such Lender's obligations set forth in this paragraph are in all respects subject to Borrower's agreement to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. ARTICLE III. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: SECTION 3.01. ORGANIZATION, POWERS. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. AUTHORIZATION, ENFORCEABILITY. The Transactions are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 25 SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 1998, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended March 31, 1999, in each case certified by its chief financial officer. All such financial statements fairly present, in all material respects, the respective financial condition of the respective entities as at the respective dates, and the respective results, as the case may be, of operations for the respective periods ended on said respective dates, all in accordance with GAAP and practices applied on a consistent basis, subject, in the case of interim statements, to year-end audit adjustments and the omission of footnote disclosure. Borrower and its Subsidiaries do not have on the date of this Agreement any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the most recent of such balance sheets as at said respective dates. (b) As of the Effective Date, there has been no Material Adverse Effect since March 31, 1999. SECTION 3.05. PROPERTIES. Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters, each of Borrower and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except 26 to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each of Borrower and its Subsidiaries is in material compliance with the terms and conditions thereof, and is also in material compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. In addition, except for the Disclosed Matters, no notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or to Borrower's knowledge, threatened by any Governmental Authority or other Person with respect to any alleged failure by a Borrower or any of its Subsidiaries to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Borrower or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any release of any Hazardous Materials generated by Borrower or any of its Subsidiaries, except to the extent that failure to have any such environmental, health or safety permit, license, or other authorization could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of Borrower or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by Borrower or any of its Subsidiaries and that could reasonably be expected to result in a Material Adverse Effect have been made available to the Lenders. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of a Material Adverse Effect. SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. TAXES. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except Taxes that are being contested in good faith 27 by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $500,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $500,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11. DISCLOSURE. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Confidentiality Agreement nor any of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. SECTION 3.12. YEAR 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Borrower's computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which Borrower's systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed by September 30, 1999. The cost to the Borrower of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrower (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. SECTION 3.13. PROPRIETARY RIGHTS. Schedule 3.13 lists all of the Borrower's and its Subsidiaries' material Proprietary Rights, including the name and mark "United Surgical Partners International, Inc" and all such other Proprietary Rights as have been registered, as of the Effective Date. As of the Effective Date, each of the Borrower and its Subsidiaries possesses all material Proprietary Rights necessary to the conduct of its business, and the loss or expiration of any Proprietary Right or group of Proprietary Rights, other than "United Surgical Partners International, Inc, "would not have a Material Adverse Effect. As of the Effective Date, no such loss or expiration is pending or, to Borrower's knowledge threatened, with respect to any Proprietary Rights, including "United Surgical Partners International, Inc." Except as indicated on Schedule 3.13, as of the Effective Date (a) Borrower and its Subsidiaries own all right, title and interest in and to all of their Proprietary Rights, (b) there have been no claims made against Borrower or any Subsidiary thereof for the assertion of the invalidity, abuse, misuse, or unenforceability of any of such rights, and there 28 are no grounds for the same, (c) neither Borrower nor any Subsidiary thereof have received a notice of conflict with the asserted rights of others within the last five years, and (d) the conduct of Borrower's and its Subsidiaries' business has not infringed any Proprietary Rights of others and, Borrower's and its Subsidiaries' Proprietary Rights have not been infringed by other Persons. To the best of Borrower's knowledge after reasonable inquiry, its use of the name "United Surgical Partners International, Inc." would not infringe upon or otherwise adversely affect the right or-claimed right of any person with respect to the use of such name and Borrower and each of its Subsidiaries is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, the "United Surgical Partners International, Inc." name with respect to the use thereof or otherwise. SECTION 3.14. SUBSIDIARIES. As of the date of this Agreement, all of Borrower's Subsidiaries, including Borrower's current ownership interests in such Subsidiaries, and, separately, all of Borrower's wholly-owned Subsidiaries, are listed on Schedule 3.14 attached hereto. ARTICLE IV. CONDITIONS SECTION 4.01. EFFECTIVE DATE. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto (i) either (A) a counterpart of this Agreement and all other Loan Documents required to be executed by the Lenders signed on behalf of such party or (B) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) all other Loan Documents required to be signed by Administrative Agent including the following: 1. $25,000,000.00 Note 2. Guaranty-Welsh, Carson, Anderson & Stowe VII, L.P. 3. Compliance Certificate 4. Any other document required by Administrative Agent (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the Borrower, and of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for Guarantor, substantially in the form of EXHIBIT B and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Administrative Agent shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. 29 (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the president, a vice president or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (f) The Administrative Agent shall have received certificates of insurance evidencing the existence of all insurance (other than workers' compensation) required to be maintained by Borrower and its Subsidiaries pursuant to Section 5.05 and the designation of the Administrative Agent as the loss payee or additional named insured, as the case may be, thereunder to the extent required by Section 5.05, such certificates to be in such form and contain such information as is specified in Section 5.05. In addition, Borrower shall have delivered to the Administrative Agent a certificate of the chief executive officer or the chief financial officer of Borrower setting forth the insurance obtained by it in accordance with the requirements of Section 5.05 and stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (g) The Administrative Agent shall have received evidence that the principal of and interest on, and all other amounts owing in respect of, the Indebtedness (including any contingent or other amounts payable in respect of letters of credit) indicated on Schedule 6.01 that is to be repaid on or before the Effective Date, shall have been (or shall be simultaneously) paid in full, that any commitments to extend credit under the agreements or instruments relating to such Indebtedness shall have been canceled or terminated and that all Guarantees in respect of, and all Liens securing, any such Indebtedness shall have been released (or arrangements for such release satisfactory to the Administrative Agent shall have been made); in addition, the Administrative Agent shall have received from any Person holding any Lien securing any such Indebtedness, such Uniform Commercial Code termination statements, mortgage releases and other instruments, in each case in proper form for recording or filing, as the Administrative Agent shall have requested to release and terminate of record the Liens securing such Indebtedness (or arrangements for such release and termination satisfactory to the Administrative Agent shall have been made). The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., Dallas, Texas time, on June 30, 1999 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct on and as of the date of such Borrowing. 30 (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V. AFFIRMATIVE COVENANTS Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. FINANCIAL STATEMENTS, AND OTHER INFORMATION. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 120 days after the end of the fiscal year of the Borrower ending December 31, 1999, and within 90 days after the end of each fiscal year of Borrower thereafter, its audited consolidated balance sheet and related statements of operations, stockholders equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by KPMG Peat Marwick, L.L.P. or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each fiscal quarter of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a fully executed Compliance Certificate, certified by a Financial Officer of the Borrower as representing fairly in all material respects the information contained therein; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default; (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the 31 Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its stockholders generally, as the case may be; (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request; and (g) as soon as available and in any event on or before sixty (60) days after the beginning of each fiscal year of Borrower, a budget for such fiscal year setting forth anticipated revenues, income, expenses and capital expenditure items for such fiscal year. SECTION 5.02. NOTICES OF MATERIAL EVENTS. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $100,000; (d) as soon as Borrower becomes aware any condition or circumstance which makes any of the environmental representations or warranties set forth in this Agreement incomplete, incorrect or inaccurate in any material respect as of any date; and immediately upon receipt thereof, copies of any material correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a violation of any Environmental Laws by either Borrower, or any of its Subsidiaries, or of any circumstance or condition which requires or may require, a financial contribution by Borrower, or any of its Subsidiaries, or a clean-up, removal, remedial action or other response by or on behalf of Borrower, or any of its Subsidiaries, under applicable Environmental Law(s), or which seeks damages or civil, criminal, or punitive penalties from Borrower, or any of its Subsidiaries, or any violation or alleged violation of Environmental Law(s). (e) any Disposition in excess of $500,000 in the aggregate in any twelve month period; (f) any attempt by a third party to collect or enforce accounts payable against Borrower or any of its Subsidiaries in excess of $250,000; and (g) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 32 Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. EXISTENCE, CONDUCT OF BUSINESS. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges, patents, trademarks and franchises material to the conduct of its business; that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03. SECTION 5.04. PAYMENT OF OBLIGATIONS. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all Property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations, provided that Borrower will in any event maintain (with respect to itself and each of its Subsidiaries) casualty, liability and business interruption insurance in such limits (together with related retention and/or deductible amounts) as are then customary for Persons engaged in the same or similar business similarly situated, and shall designate the Administrative Agent as loss payee with respect to any such casualty insurance. SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07. COMPLIANCE WITH LAWS. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its Property (including, but not limited to, the issuance or sale of any common stock or other securities), except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. USE OF PROCEEDS. The proceeds of the Loans will be used to finance the Borrower's general corporate purposes. No part of any Loan will be used, whether directly or 33 indirectly, (a) for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X or (b) for the payment of any dividends, except for dividends payable on Preferred Stock. SECTION 5.09. BUSINESS LOANS. Borrower warrants and represents to Administrative Agent and Lenders that all Loans are and will be for business, commercial, Investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter 1D. SECTION 5.10. COMPLIANCE WITH ERISA. If Borrower or any of its Subsidiaries maintain(s) or establish(es) a Plan subject to ERISA, (a) comply in all material respects with all requirements imposed by ERISA as presently in effect or hereafter promulgated, including, but not limited to, the minimum funding requirements thereof and (b) furnish to Administrative Agent and each Lender (or cause the plan administrator to so furnish) a copy of the annual return (including all schedules and attachments) for each Plan covered by ERISA, and filed with the Internal Revenue Service by Borrower, or any of its Subsidiaries, not later than thirty (30) days after such report has been so filed. SECTION 5.11. INTENTIONALLY DELETED. SECTION 5.12. COOPERATION WITH SYNDICATOR. Borrower agrees actively to assist Chase Securities Inc. and the Administrative Agent in completing a syndication of the credit facilities evidenced hereby in a manner satisfactory to them. Such assistance shall include (a) the Borrower's use of commercially reasonable efforts to ensure that the syndication efforts benefit materially from Chase Securities Inc's and the Administrative Agent's existing lending relationships, (b) direct contact between senior management and advisors of the Borrower and its Affiliates (including Guarantor) and the proposed Lenders, (c) assistance in the preparation of a confidential information memorandum and other marketing materials to be used in connection with the syndication and (d) the hosting, with Chase Securities Inc., of one or more meetings of prospective Lenders. The Borrower acknowledges and agrees that Chase Securities Inc. will manage all aspects of any syndication, including decisions as to the selection of institutions to be approached and when they will be approached, when their commitments will be accepted, which institutions will participate, the allocations of the commitments among the Lenders and the amount and distribution of fees among the Lenders. The Borrower also acknowledges and agrees that in connection with any proposed syndication Chase Securities Inc. will have no responsibility other than to arrange the proposed syndication, and that such responsibility is solely to the Administrative Agent. To assist Chase Securities Inc. in any syndication efforts, the Borrower agrees promptly to prepare and provide to Chase Securities Inc. and the Administrative Agent all information with respect to the Borrower and the transactions evidenced hereby, including all financial information and budgets, as Chase Securities Inc. may reasonably request in connection with any arrangement and syndication of the credit facilities evidenced hereby; provided, however, that such budgets need not be with respect to time periods more prospective than as set forth in Section 5.01(g). The Borrower acknowledges and agrees that in arranging and syndicating the credit facilities evidenced hereby Chase Securities Inc. may use and rely on the financial information and budgets provided by Borrower without independent verification thereof. 34 Any syndication shall be in accordance with Section 9.04(b). ARTICLE VI. NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. INDEBTEDNESS. The Borrower will not create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness created hereunder, (b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; (c) Guarantees by the Borrower of Indebtedness or other obligations of any Subsidiary; (d) Indebtedness of the Borrower incurred to finance the acquisition, construction; improvement of any Person, securities of any Person or fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets and all improvements, additions and accessions thereto prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (except to the extent of the reasonable out-of-pocket cost of such extension, renewal or replacement); provided that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (d) shall not exceed $1,000,000 at any time outstanding; (e) Indebtedness of Borrower to third parties that has been subordinated to the Indebtedness created hereunder pursuant to a subordination agreement in form and content satisfactory to Administrative Agent; and (f) Indebtedness of Borrower to Baylor Health Services, a Texas non-profit corporation, under that certain Convertible Subordinated Promissory Note dated as of June 1, 1999, in an aggregate principal amount not in excess of $3,287,234.00. SECTION 6.02. LIENS. The Borrower will not create, incur, assume or permit to exist any Lien on any Property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; 35 (b) (i) any Lien on any Property or asset of the Borrower existing on the date hereof and set forth in SCHEDULE 6.02; provided that (A) such Lien shall not apply to any other Property or asset of the Borrower and (B) such Lien shall secure only those obligations which it secures on the date hereof and (ii) extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent of the reasonable out-of-pocket cost of such extension, renewal or replacement); (c) any Lien existing on any Property or asset prior to the acquisition thereof by the Borrower, provided that (i) such Lien is not created in contemplation of or in connection with such acquisition, (ii) such Lien shall not apply to any other Property or assets of the Borrower and all improvements, additions and accessions thereto and identifiable proceeds thereof, and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent of the reasonable out-of-pocket cost of such extension, renewal or replacement); and (d) Liens on fixed or capital assets acquired, constructed or improved by the Borrower; provided that (i) such Liens secure Indebtedness permitted by clause (d) of Section 6.01, (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such Liens shall not apply to any other Property or assets of the Borrower and all improvements, additions and accessions thereto and identifiable proceeds thereof. SECTION 6.03. FUNDAMENTAL CHANGES. Except for transactions permitted by Section 6.04 (whether by merger, consolidation, purchase of securities or otherwise), the Borrower will not merge into, acquire or consolidate with any other Person, or permit any other Person (including but not limited to any professional association) to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04. SECTION 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS. The Borrower will not purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any Investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; 36 (b) Investments by the Borrower existing on the date hereof in the capital stock, partnership or other ownership interests of its Subsidiaries; (c) Investments made by the Borrower in any Subsidiary and made by any Subsidiary in the Borrower or any other Subsidiary; (d) Guarantees constituting Indebtedness permitted by Section 6.01; (e) the redemption by Borrower of its issued and outstanding capital stock for (i) cash consideration of up to $2,000,000 in the aggregate during the term of this Agreement and/or (ii) the cancellation by Borrower of certain promissory notes held by Borrower representing Indebtedness owed to Borrower by its current or former employees, directors and consultants; (f) acquisition of assets, stock or other securities or similar interests (whether by merger, consolidation or otherwise) of any other Person in Borrower's line of business; and (g) Investments in promissory notes that represent Indebtedness owed to Borrower by employees, directors and consultants of Borrower, which promissory notes were executed and delivered in consideration of the issuance of capital stock of Borrower. SECTION 6.05. HEDGING AGREEMENTS. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. INTENTIONALLY DELETED. SECTION 6.07. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any Property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties or (b) transactions between or among the Borrower and its wholly-owned Subsidiaries not involving any other Affiliate. SECTION 6.08. RESTRICTIVE AGREEMENTS. The Borrower will not, directly or indirectly enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower to create, incur or permit to exist any Lien upon any of its material Property or assets, or (b) the ability of Borrower to pay dividends or other distributions with respect to any shares of its capital stock or to make loans or advances to any Subsidiary or to Guarantee Indebtedness of any Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by any Loan Document or TOPS Loan Document, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on SCHEDULE 6.08 or any extension, renewal, amendment or modification thereof which does not expand the scope of any such restriction or condition (but the foregoing shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such 37 restriction or condition), (iii) clause (a) of the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary or an asset pending such sale, provided such restrictions and conditions apply only to the Subsidiary or asset that is to be sold and such sale is permitted hereunder, and (iv) clause (a) of the foregoing shall not apply to customary provisions in leases, licenses and other contracts restricting the assignment thereof. SECTION 6.09. INTENTIONALLY DELETED. SECTION 6.10. INTENTIONALLY DELETED. SECTION 6.11. INTENTIONALLY DELETED. SECTION 6.12. NATURE OF BUSINESS. Borrower and its Subsidiaries presently engaged in such business will not discontinue as their principal business activity the ownership and operation of hospitals, surgical centers and other medical facilities; nor will Borrower or any Subsidiary change the conduct of their businesses as presently being conducted or engage in any new or different business if the result thereof would be to materially and substantially change the business of Borrower and its Subsidiaries taken as a whole. SECTION 6.13. NO AMENDMENT. Borrower will not alter, modify or otherwise amend any contract or agreement including, without limitation, the Management Agreement with respect to TOPS Specialty Hospital) currently or hereafter in existence, the effect of which could reasonably be expected to cause a Material Adverse Effect. SECTION 6.14. FISCAL YEAR. Borrower shall not, and shall cause its Subsidiaries not to, change Borrower's or any of its Subsidiaries' fiscal year without Administrative Agent's prior written approval. ARTICLE VII. EVENTS OF DEFAULT If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such default shall continue for a period ending on the earlier of five (5) calendar days or three (3) Business Days thereafter; (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished 38 pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or any of the other Loan Documents and such Default shall continue for a period of ten (10) Business Days thereafter; provided that such cure period shafl not apply to any failure to observe or perform the covenants set forth in Sections 5.02, 5.03, 5.08 and Article VI of this Agreement; (e) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable subject to any applicable grace or cure period; (f) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (f) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer, in either case not prohibited by this Agreement, of the Property or assets securing such Indebtedness; (g) any event or condition occurs resulting in a default or event of default in respect of any Material Indebtedness in excess of $1,000,000, subject to any applicable grace or cure period; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of; or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; 39 (k) one or more judgments for the payment of money in an aggregate amount in excess of $250,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (1) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; (m) a Change in Control shall occur; (n) if any of this Agreement, the Notes, the Guaranty or the documents referenced in Sections 4.01(b), (c), (d) or (f) of this Agreement, including any and all amendments, modifications, renewals or extensions thereto, shall be terminated, revoked (including any revocation of the Guaranty, as to Indebtedness of Borrower incurred after the effectiveness of such revocation), or otherwise rendered void or unenforceable, in any case, without Lender's prior written consent; (o) any Event of Default shall occur under that certain Credit Agreement dated on or about the date hereof by and among TOPS Specialty Hospital, Ltd., as Borrower, and Chase Bank of Texas, National Association, as Administrative Agent and all lender parties thereto; or (p) Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in any contract or other agreement (including any hospital or surgical center management agreement and any limited partnership agreement (or similar agreement) pertaining to a hospital or a surgical center), subject to applicable grace or cure period, which failure shall result in a Material Adverse Effect; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable. Except to the extent, if any, that notice of Default is expressly required herein or in any of the other Loan Documents, Borrower and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment of any and all Indebtedness 40 evidenced by the Loan Documents may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this Agreement and the other Loan Documents shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or to maintain perfection of any Lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity. ARTICLE VIII. THE ADMINISTRATIVE AGENT Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. 41 The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, with the consent (not to be unreasonably withheld) of the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in Dallas, Texas or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. 42 ARTICLE IX. MISCELLANEOUS SECTION 9.01. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower: United Surgical Partners International, Inc. 17103 Preston Road, Suite 200 North Dallas, Texas 75248 Attention: James K. Lines Tel: 972-713-3519 Fax: 972-713-3550 with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1700 Pacific Avenue Suite 4100 Dallas, Texas 75201 Attention: Alan L. Laves, P.C. Tel: (214) 969-2800 Fax: (214) 969-4343 (b) if to the Administrative Agent: Chase Bank of Texas, National Association 100 North Central Expressway Richardson, Texas 75080 Attention: Ellen W. Smith Tel: 972-680-7348 Fax: 972-680-7377 and Chase Securities Inc. 707 Travis Street, 8th Floor Houston, Texas 77002 Attention: Troy Taylor Tel: 713-216-1267 Fax: 713-216-4583 and 43 Agency Services Chase Bank of Texas, N.A. One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Tel: 212-552-7943 Fax: 212-522-7490 Attention: Muniram Appanna with a copy to: Locke Liddell & Sapp LLP 2200 Ross Avenue, Suite 2200 Dallas, Texas 75201 Attention: Russell F. Coleman, P.C. Tel: (214) 740-8686 Fax: (214) 740-8800 (c) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 9.02. WAIVERS, AMENDMENTS. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each 44 Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section 9.02 or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 9.03. EXPENSES, INDEMNITY, DAMAGE WAIVER. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facility provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any "workout," restructuring or negotiations in respect of such Loans. (b) If Administrative Agent or any of the Lenders, their successors or assigns retains an attorney in connection with any default or to collect, enforce or defend this Agreement or any of the Loan Documents in any lawsuit or in any reorganization, bankruptcy or other proceeding, or if Borrower sues Administrative Agent or any Lender in connection with this Agreement or any of the Loan Documents and does not prevail, then Borrower agrees to pay to Administrative Agent or any Lender, in addition to principal and interest; all reasonable costs and expenses incurred by such Lender in trying to collect the Indebtedness or in any such suit or proceeding, including reasonable attorneys' fees. To the extent not prohibited by applicable law, Borrower will pay all costs and expenses and reimburse Administrative Agent or any Lenders for any and all expenditures of every character incurred or expended from time to time, regardless of whether or not a default has occurred, in connection with (a) the preparation, negotiation, documentation, closing, renewal, revision, modification, increase, review or restructuring of this Agreement or any of the Loan Documents, including legal, accounting, auditing, architectural engineering and inspection services and disbursements, or in connection with collecting or attempting to enforce or collect this Agreement or any of the other Loan Documents, (b) Administrative Agent's or Lenders' evaluating, monitoring, administrating and protecting any collateral ("Collateral") now or hereafter securing payment of any part of this Agreement or any of the Loan Documents and (c) Administrative Agent's or Lenders' creating, perfecting and realizing upon Administrative Agent's or Lenders' security interests in and Liens on any Collateral, and all costs and expenses relating to Administrative Agent's or Lenders' exercising any of its rights and remedies hereunder or under any other Loan Document 45 or at law, including, without limitation, all appraisal fees, consulting fees, filing fees, taxes, (other than Excluded Taxes) brokerage fees and commissions, title review and abstract fees, Uniform Commercial Code search fees, other fees and expenses incident to title searches, reports and security interests, escrow fees, attorneys' fees, legal expenses, court costs, other fees and expenses incurred in connection with any complete or partial liquidation of any Collateral and all fees and expenses for any professional services relating to the Collateral or any operations conducted in connection with it; provided, that no right or option granted by Borrower to Administrative Agent or any Lender or otherwise arising pursuant to any provision of this or any other instrument shall be deemed to impose or admit a duty on Administrative Agent or any Lender to supervise, monitor or control any aspect of the character or condition of the Collateral or any operations conducted in connection with it for the benefit of Borrower or any other person or entity other than Administrative Agent or any Lender. BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD ADMINISTRATIVE AGENT AND ANY LENDER, ITS SHAREHOLDERS, DIRECTORS, OFFICERS, AGENTS, ATTORNEYS, ADVISORS AND EMPLOYEES (COLLECTIVELY "INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY, EXPENSE, ACTION, SUIT, COST AND DISBURSEMENT OF ANY KIND OR NATURE WHATSOEVER (INCLUDING INTEREST, PENALTIES, ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT), REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES, IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE INDEMNIFIED PARTIES GROWING OUT OF OR RESULTING FROM THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY TRANSACTION OR EVENT CONTEMPLATED HEREIN OR THEREIN (EXCEPT THAT SUCH INDEMNITY SHALL NOT BE PAID TO ANY INDEMNIFIED PARTY TO THE EXTENT THAT SUCH LOSS, ETC. DIRECTLY RESULTS FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AN INDEMNIFIED PARTY). If any person or entity (including, without limitation, Borrower or any of its affiliates) ever alleges gross negligence or willful misconduct by an Indemnified Party, the full amount of indemnification provided for in this Agreement shall nonetheless be paid upon demand, subject to later adjustment or reimbursement at such time--if any--as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. Any amount to be paid under this Section by Borrower to Administrative Agent or any Lender shall be a demand obligation owing by Borrower to Administrative Agent or any Lender and shall bear interest from the date of expenditure until paid at the Alternate Base Rate until demand, and thereafter at the Default Rate. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnified Party, on any theory of liability (including, without limitation, strict liability), for special, indirect, consequential or punitive damages (as opposed to 46 direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions or any Loan. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,000, (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire, and (vi) if the Commitments are then in an amount equal to or less than the amount of the Commitments on the Effective Date, the Guaranty is in full force and effect and this Agreement shall not have been amended or otherwise modified in any material respect (and for purposes of this clause (vi) any amendment of a covenant in Article VI or a provision in Article VII shall be deemed material), then not more than three (3) Lenders at any one time shall be parties to this Agreement and provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and 47 obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03 and shall continue to be bound by its obligations under Section 9.12). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in the United States a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower or the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the 48 participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto or be used as a device to avoid compliance with Section 9.04(b). SECTION 9.05. SURVIVAL. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17, 9.03 and 9.12 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 9.06. COUNTERPARTS: INTEGRATION EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements end understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. SEVERABILITY. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of 49 the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, but excluding deposits that such Lender knows are held in a fiduciary capacity for the benefit of others) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. GOVERNING LAW, JURISDICTION, CONSENT TO SERVICE OF PROCESS. (a) VENUE; CHOICE OF LAW. This Agreement is performable in Dallas County, Texas, which shall be a proper place of venue for suit on or in respect of this Agreement. Borrower hereby irrevocably agrees that any legal proceeding in respect of this Agreement shall be brought in the district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division (collectively, the "SPECIFIED COURTS"). Borrower hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts of the State of Texas. Borrower hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the Loan Documents brought in any Specified Court, and hereby further irrevocably waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Borrower further (1) agrees to designate and maintain an agent for service of process in the City of Dallas in connection with any such suit, action or proceeding and to deliver to Lenders evidence thereof and (2) irrevocably consents to the service of process out of any of the Specified Courts in any such suit, action or proceeding by the mailing of copies thereof by certified mail, return receipt requested, postage prepaid, to Borrower. Nothing herein shall affect the right of Administrative Agent or any Lender to commence legal proceedings or otherwise proceed against Borrower in any jurisdiction or to serve process in any manner permitted by applicable law. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ITS CHOICE OF LAW PRINCIPLES, AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. (b) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 50 SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. CONFIDENTIALITY. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any Governmental Authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower; PROVIDED, that with respect to clauses (b) and (c) above, that unless specifically prohibited by applicable law or court order, the party to whom such applicable request is made agrees, prior to disclosure thereof, to notify Borrower of any request for disclosure of any such non-public information (A) by any Governmental Authority or representative thereof (other than any such request in connection with an examination of such party's financial condition by such Governmental Authority) or (B) pursuant to legal process. For the purposes of this Section, "INFORMATION" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; PROVIDED that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 51 NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02: THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES SUBSTANTIALLY CONCURRENTLY HEREWITH TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. UNITED SURGICAL PARTNERS INTERNATIONAL, INC. By: /s/ JAMES K. LINES Name: James K. Lines Title: Chief Financial Officer CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, individually and as Administrative Agent By: /s/ ELLEN W. SMITH Name: Ellen W. Smith Title: Vice President 53 Schedule 3.06 Disclosed Matters TOPS Specialty Hospital. Ltd. A. Medical Malpractice Claims 1. Alexander et al. v. TOPS Specialty Hospital, Ltd. et al. o Case Info: Cause No. 97-51309; 190th Judicial District Court of Harris County, Texas o Date: September 19, 1997 o Service: February 12, 1998 o Background: Mark Alexander allegedly died as a result of a cardiac arrest suffered during surgery to remove a cyst on his shoulder at Columbia TOPS Surgical Specialty Hospital. o Status: Litigation being handled through malpractice carrier, Health Care Indemnity, Inc. (policy #HCII-10197; file #23063) 2. Threatened: During the evening of July 9, 1998, a patient admitted to the hospital was found next to his bed with his left leg still secured to the CPM. On August 7, 1998, the patient sent the hospital notice that a CAT scan showed a stress fracture of the left hip. The malpractice carrier has been notified of this claim. B. Other Litigation l Investigations 1. United States of American ex rel. James F. Alderson v. Columbia/HCA Healthcare Corp., Healthtrust-The Hospital Company and Quorum Health Group, Quorum Health Resources Inc. and All Other Hospitals owned or managed by them since January 1, 1984, Case No. 97-2035-CIV-T-23E, in the Middle District of Florida, Tampa Division This matter was unsealed on October 5, 1998. The Government intervened in this action on October 1, 1998. The Complaint was originally filed in Montana in 1993 but was later transferred to Florida. The Complaint alleges that defendants made false statements in annual Medicare cost reports over a period of ten years. The Complaint further alleges that defendants engaged in a scheme of filing improper reimbursement claims while keeping a "secret" set of books which were known as "reserve cost reports" and concealing these books from Medicare auditors. The Government has not yet served the Complaint on defendants. 2. Government Investigation: Physician Contract AID Subpoena On or about January 9, 1998, Columbia/HCA Healthcare Corporation received a subpoena from the U.S. Attorney for the Middle District of Florida requesting records concerning physician contracts, DME, S-1 pharmacy services contracts and similar kinds of arrangements. The relevant time period for the documents requested by the subpoena is 1/1/89 through 1/21/98. 3. Columbia/HCA Healthcare Corporation ("Columbia") and/or its affiliates are defendants in various cases that are potentially national or regional in scope. Please refer to the Columbia's quarterly report filed with the Securities and Exchange Commission on form 10-K for the period ending December 31, 1998 for a description of the cases. USP North Texas, Inc. A. Health Care Liability 1. McCarter vs. North Texas Surgery Center (NTSC) o Date: August 12, 199$ o Service: Notice pursuant to Article 4590i, Section 4.01(a) of Vernon's Annotated Civil Statutes made on January 26, 1999. o Background: Mr. McCarter, a man in his 70's, complains he was administered an unknown drug which allegedly caused his blood pressure to drop dangerously low during a surgical procedure at NTC to remove in-grown eyelashes. o Status: Claim currently being pursued through Article 4590i of Vernon's Annotated Civil Statutes by AIG Technical Services, the insurance carrier (File #394-003068). The insurance company has assigned the defense and investigation of the claim to Ms. Lynn Sessions of Cowles & Thompson. As of June 24, 1999, depositions had been taken. Current reserve for this claim is $25,000. Instituto Policlinico Santa Teresa, S.A. A. Labor Matters 1. Mercantile contracts actually in force with nine medical professionals, designed to establish the terms of their collaboration, could be considered to indicate an employment relationship. The liability with the social security authorities in this regard has been estimated by United Surgical Partners Europe, S.L.'s ("USPE"') legal advisors at Ptas. 56 million. 2. Miguel Angel Freijeiro Amorin vs Instituto Policlinico Santa Teresa o Date: April 3, 1998 o Liability: 50 Million Ptas. o Description: Former employee claims to have contracted hepatitis C virus as a result of an on the job accident. S-2 o Status: Process was accomplished; currently awaiting; sentence to be given by the Court. Last Court appointment was in March, 1999. o Attorneys: Luis Perez Lago (Despacho de abogados Torres y Diaz, s.l.) B. Tax Matters 1. Inspection by the tax authorities, of the income tax returns for 1984, 1985 and 1986 have given rise to additional assessments of Ptas. 25 Million, including delay interest. These assessments have been appealed by the company. Provision has been made to cover this contingency. The above risks have been guaranteed by the vendor for a period of five years prior to the purchase date. Clinica Maternal Nuestra Senora de la Esperanza, S.L. A. Medical Malpractice 1. Jose Maria Saez de Adana Saenz vs Rafael Resines Llorente, lquimesa and Clinica Nuestra Senora de la Esperanza o Date: November 16, 1998 o Liability: 205 Million Ptas. o Description: Son of the claimant had an apnea crisis three or four hours after birth. Child suffers brain atrophy due to neonatal meningitis, produced by a sepsis originated by a renal infection. o Status: Criminal Court acquitted defendants in April 1998. Civil trial period in Court of 1st instance No. 5 in Vitoria-Gasteiz. Liabilities should be covered by indemnification by vendors. o Attorneys: Jose Vidal Sucunza (Barristers Vitoria school Dean-also was attorney when the criminal judgement took place) B. Tax Matters 1. Briones, Alonso y Martin Rodes & Sala, USPE's legal advisors, have identified tax contingencies of Ptas. 39 million for the years open to inspection by the Spanish tax authorities. The company had not recorded this liability in its financial statements as of 31 December, 1998. The vendor has extended a guarantee of Ptas. 50 million to USPE in respect of this contingent liability. Sagrado Corazon Group* A. Medical Malpractice 1. Phillipe Andre Gillis vs Jesus Bravo Ferrer, Ovidio Belda Laguna and Clinica Sagrado Corazon. S-3 o Date: March 14, 1999 o Liability: 23.9 Million Ptas. o Description: After being treated for gastroenteritis, the claimant was admitted to Clinica Sagrado Corazon where he underwent two colonoscopics. During the second procedure, he suffered an intestinal perforation which required urgent surgery to remove part of the large and small intestine. o Status: Trial period is about to be transferred to the parties from No. 3 Court of 1st instance in Seville. The insurance company which covers Clinica Sagrado Corazon is currently handling this claim. B. Tax/Labor Matters 1. Briones, Alonso y Martin Rodes & Sala, USPE's legal advisors, have identified tax contingencies amounting to Ptas. 477 million. They have also identified social security contingencies of Ptas. 58 million as many of the doctors, nurses and paramedics engaged by the Sagrado Corazon Group as external professionals should be considered as employees under Spanish labor legislation. The above contingencies have not been accrued for in the subsidiaries' financial statements. 2. The personnel of the Sagrado Corazon Group are covered by the Collective Labor Agreement prevailing in the province of Seville for employees of hospitals, and inpatient and outpatient health centers. Under this agreement, employees who retire alter more than 5 years of continued services to the Sagrado Corazon Group are entitled to receive a one-time payment equivalent to one months' salary for every 3 years' service. Based on current economic conditions, the Sagrado Corazon Group has decided to not provide for any retirement liability. *Sagrado Corazon Group consists of (1) Centros Penfericos Asistenciales, S.L.; (2) Servico-Resonancia-TAC-Vascular Clinica Sagrado Corazon, S.L.; (3) Laboratorio del Dr. Repetto, S.L.; (4) R-E-Asesores, S.L.; (5) Servicio de Radiologia Sagrado Corazon, S.A.; (6) Clinica Sagrado Corazon, S.A.; (7) Contechos, S.L.; (8) Hospitales Andaluces, S.L.; (9) Hospitalizacion y Servicios, S.A. and (10) Servicios Asistenciales Clinica Sagrado Corazon, S.A. A. Medical Malpractice 1. Isabel Ferragut Pallach vs Enrique Rubio Garcia, Benjamin Guix Melchor and lnstituto Universitario Dexeus o Date: January 25, 1999 o Liability: 1.000 M Ptas. o Description: The patient, son of the claimant, was in psychiatric treatment and was treated with gamma ray radiotherapy in Dexeus. 15 months after the treatment received in Dexeus, the patient allegedly began losing memory, twisting his mouth and dragging his feet. Subsequently, the patient was diagnosed with secondary process to radionechrosis. S-4 o Status: This claim was presented to a Penal Court and the defendants were declared innocent. The claim has since been filed in civil court. The current status is that the defendants have presented a defense plea in the No. 5 Court of 1st instance in Barcelona. C. Labor 1. Carmen Roma vs Instituto Universitario Dexeus o Date: March 12, 1999 o Liability: 19.5 Million Ptas. o Description: Former finance director of company argues she was terminated illegally and asks for a severance damages. o Status: The company has agreed to pay claimant 19.5 Million Ptas. The claim has been budgeted and 18 Million Ptas. were provided for since January 1999 for severance costs. S-5 Schedule 3.13 Proprietary Rights The following is a list of trade names material to the Borrower and its Subsidiaries. The Company has not registered any of its trade names and has no other material Proprietary Rights. Alpha Quirurgica # Arlington Surgicare Partners, Ltd. Baylor Surgicare Baptist Physicians Pavillion Centro de Patologia Celular, S.A. Centro Radiologica Juan XXIII # Centro Radiologico, S.A. # Centros Perifericos Asistenciales, S.L. Clinica Esperanza Clinica Maternal Nuestra Senora de la Esperanza, S.A. Clinica Sagrado Clinica Sagrado Corazon, S.A. Columbia Healthcare Corporation of Spain, S.L. Contechos, S.L. Creekwood Surgery Center Creekwood Surgery Center, L.L.C. Dallas Surgical Partners, L.P. Dallas Surgicare Day Op Center of Long Island Day Op Management Inc. De Soto Surgicare Partners, Ltd. Decatur Surgery Center Decatur Surgery Center, L.P. Diagnosticos y Tratamientos Medicos, S.A. Densitometria sea Comuterizada, S.L. Denton Surgicare Partners, Ltd. Estudios Funcionales, S.A. Garland Surgicare Partners, Ltd. Grupo CSC, S.A. Health Horizons of Decatur, Inc. Health Horizons of Kansas City, Inc. Health Horizons of Murfreesboro, Inc. Health Horizons of Nashville, Inc. HOSGESA # HOJSGESA, 2000 S.A. # Hospitales Andaluces, S.L. Hospitalizacion y Servicios, S.A. Imagenes Diagnostic, S.A. Institut Universitari Dexeus Instituto Dexeus, S.A. S-6 lnstituto Policlinico Santa Teresa, S.A. Laboratorio del Dr. Repetto, S.L. Mesquite Surgicare Partners, Ltd. Metroplex Surgery Center Metroplex Surgicare Partners, Ltd. Middle Tennessee Ambulatory Surgery Center Middle Tennessee Ambulatory Surgery Center, L.P. North Texas Surgery Center Parkway Surgery Center Parkway Surgery Center, L.L.C. Physicians Pavillion, L.P. Policlinico Santa Teresa, S.A. Premier Ambulatory Surgery of Garland Premier Surgicare Partners, Ltd. R-E-Asesores, S.L. Resonancia Nuclear Magnetica Santa Teresa, S.L. Servicio de Radiologia Sagrado Corazon, S.A. Servicios Asistenciales Clinica Sagrado Corazon, S.A. Servico-Resonancia-TAC-Vascular Clinica Sagrado Corazon, S.L. Shrewsbury ASC Shrewsbury Surgery Center, LLC Southern Hilts Realty Investors, L.P. Texas Health Venture III, L.L.C. Texas Health Venture IV, L.L.C. Texas Health Venture V, L.L.C. Texas Health Venture VI, L.L.C. Texas Health Venture VII, L.L.C. Texas Health Ventures Group, L.L.C. Texas Outpatient Surgicare Center # Texas Outpatient Surgicare Center, Inc. # Texas Surgery Center THVG/HealthFirst, L.L.C. TOPS Specialty Hospital, Ltd. # TOPS Surgical Specialty Hospital Unidad de Recuperacion del Suela Pelvico, S.L. United Surgical Partners Europe, S.L. United Surgical Partners International, Inc. University Surgery Center University Surgery Center, Ltd. USP Administrative Subsidiary, LLC USP Chandler, Inc. USP Dermoestica, S.L. # USP International Holdings, Inc. USP Nevada, Inc. USP New Jersey, Inc. USP North Texas, Inc. UP Winter Park, Inc. Valley View Surgery Center Warner Park Surgery Center, L.P. S-7 # Denotes trade names which will become material to the Borrower and its Subsidiaries upon the consummation of certain acquisitions on or about the time of the consummation of the transactions contemplated by this Agreement. S-8 Schedule 3.14 Subsidiaries Centro Radiologico, S.A. (82.50%) # Centros Perifericos Asistenciales, S.L. (82.50%) Clinica Maternal Nuestra Senora de la Esperanza, S.A. (66.00%) Clinica Sagrado Corazon, S.A. (82.50%) Columbia Healthcare Corporation of Spain, S.L. (82.50%) Contechos, S.L. (82.50%) Creek wood Surgery Center, L.L.C. (50.00%) Dallas Surgical Partners, L.P. (50.00%) Day p Management Inc. (100.00%)* Decatur Surgery Center, L.P. (60.00%) Diagnosticos y Tratamientos Medicos, S.A.(46.49%) Grupo CSC, S.A. (82.5%) Health Horizons of Decatur, Inc. (100.00%)* Health Horizons of Kansas City, Inc. (100.00%)* Health Horizons of Murfreesboro, Inc. (100.00%)* Health Horizons of Nashville, Inc. (100.00%)* Hospitales Andaluces, S.L. (82.50%) Hospitalizacion y Servicios, S.A. (45.50%) Instituto Dexeus, S.A. (65.23%) Instituto Policlinico Santa Teresa, S.A. (51.41%) Laboratorio del Dr. Repetto, S.L. (81.68%) Middle Tennessee Ambulatory Surgery Center, L.P. (39.00%) Parkway Surgery Center, L.L.C. (50.00%) Physicians Pavillion, L.P. (36.00%) @ R-E-Asesores, S.L. (82.50%) Resonancia Nuclear Magnetica Santa Teresa, S.L. (37.27%) Servicio de Radiologia Sagrado Corazon, S.A. (82.50%) Servicios Asistenciales Clinica Sagrado Corazbn, S.A. (82.42%) Servico-Resonancia-TAC-Vascular Clinica Sagrado Corazbn, S.L. (82.50%) Shrewsbury Surgery Center, LLC (50.00%) Southern Hills Realty Investors, L.P. (30.25%) Texas Health Venture III, L.L.C. (50.00%) Texas Health Venture IV, L.L.C. (50.00%) Texas Health Venture V, L.L.C. (50.00%) Texas Health Venture VI, L.L.C. (50.00%) Texas Health Venture VII, L.L.C. (50.00%) Texas Health Ventures Group, L.L.C. (50.00%) Texas Outpatient Surgicare Center, Inc. (100.00%)*# THV/Healthfirst, L.L.C. (51.00%) TOPS Specialty Hospital, Ltd. (62.3%)# United Surgical Partners Europe, S.L. (82.50%) University Surgery Center, Ltd. (70.00%) USP Administrative Subsidiary, LLC (100.00%)* S-9 USP Chandler, Inc. (100.00%)* USP Dermoestica, S.L. (57.75%)# USP International Holdings, Inc. (100.00%)* USP Nevada, Inc. (100.00%)* USP New Jersey, Inc. (100.00%)* USP North Texas, Inc. (100.00%)* USP Winter Park, Inc. (100.00%)* Warner Park Surgery Center, L.P. (100.00%)* * Denotes direct or indirect wholly-owned Subsidiaries. # Denotes entities which will be Subsidiaries upon the consummation of certain acquisitions on or about the time of the consummation of the transactions contemplated by this Agreement. @ As a result of a pending acquisition, Health Horizons of Nashville, Inc., a direct wholly-owned Subsidiary of Borrower, will purchase up to an additional 35.30% ownership in this entity. ^ As a result of a pending acquisition, Health Horizons of Nashville, Inc., a direct wholly-owned Subsidiary of Borrower, will purchase up to an additional 29.75% ownership in this entity. S-10 Schedule 6.01 Existing Indebtedness 1. Agreement and Plan of Reorganization dated July 29, 1998, among United Surgical Partners International, Inc., Health Horizons, Inc., Michael W. Barton & Edward W. Rarrels. * The Borrower has certain contingent payment obligations under the above agreement. 2. Asset Purchase Agreement dated October 15, 1998, among United Surgical Partners International, Inc., United Surgical Center, Inc. and the individuals listed on the signature page thereto. * Pursuant to Section 1.3.3 of the above agreement, the Borrower has certain contingent payment obligations under the above agreement. Upon contemplated assignment of all rights and obligations under the above agreement to its wholly-owned subsidiary USP Winter Park, Inc., pursuant to Section 7.4 of the above agreement, the Borrower guarantees all obligations under the above agreement (including the contingent payment obligations). 3. Asset Purchase Agreement dated December 18, 1998, by and among United Surgical Partners International, Inc., Michael Bingham, Ronald W. Disney, HealthFirst Management, L.L.C., Valley View Surgery Center, Inc., Bingham Management, L.P., Disney Management, L.P., Bingham Forest Edge, L.L.P., and Disney Oak Mount, L.L.P., as modified and supplemented by the Option and Amendment Agreement thereto dated December 22, 1998. * The Borrower has certain additional purchase rights and contingent payment obligations under the above agreement. 4. Contribution and Purchase Agreement dated May 11, 1999, among USP North Texas, Inc., Baylor Health Services, Texas Health Ventures Group L.L.C. and THVG/HealthFirst L.L.C. * Pursuant to Section 13.5 of the above agreement and by virtue of its execution thereof, the Borrower has guaranteed the obligations of USP North Texas, Inc. under the agreement, including certain additional purchase rights and contingent payment obligations. 5. Securities Purchase Agreement dated as of October 26, 1998, among United Surgical Partners, Inc., Welsh, Carson, Anderson & Stowe VI1, L.P,, Health Care Capital Partners, L.P., and the several other purchasers named in Annex I thereto. * Pursuant to Section 1.03(d) of the above agreement, the Borrower may finance certain capital expenditures and operating expenses by issuing up to $20,120,000 of 7% Senior Subordinated Notes (the "Notes"),. On or about November 18, 1998, S-11 the Borrower issued $1,493,337 of the Notes to such holders and in such amounts as listed in the table attached hereto. On or about April 2, 1999, the Borrower issued an additional $9,000,000 of the Notes to such holders and in such amounts as listed in the table attached hereto. Can June 11, 1999, the Company requested the issuance of $9,626,663 of the Notes, representing the remaining balance of the Notes which it may issue. Such issuance will occur on or about June 30, 1999. 6. Convertible Subordinated Promissory Note dated June 1, 1999, executed by United Surgical Partners International, Inc. in favor of Baylor Health Services, in an aggregate principal amount of $3,287,234. 7. Limited Guaranty effective as of June 22, 1999, by and between United Surgical Partners International, Inc. and Suntrust Bank Nashville, N.A. * Pursuant to the above guaranty, the Borrower guarantees all of the obligations of Middle Tennessee Ambulatory Surgery Center, L.P. under that certain Promissory Note dated February 22, 1999 (as amended) in favor of Suntrust Bank Nashville, N.A. in an original principal amount of $1,400,000. 8. Stock Purchase Agreement dated on or about June 30, 1999, by and between Columbia/HCA of Houston, Inc. and United Surgical Partners International, Inc. * The Borrower has certain post-closing contingent purchase obligations. S-12 Schedule 6.02 Existing Liens None. S-13 Schedule 6.08 Existing Restrictions 1. Securities Purchase Agreement dated as of October 26, 1998, among United Surgical Partners, Inc., Welsh, Carson, Anderson & Stowe VII, L.P., Health Care Capital Partners, L.P., and the several other purchasers named in Annex I thereto. * Under Section 4.03 of the above agreement, the representations and warranties of the Borrower under such agreement must be true upon each issuance of additional securities. The additional securities include the 7% Senior Subordinated Notes referenced in Schedule 6.01 (item 5), including those to be issued on or about June 30, 1999. The representations and warranties of the Borrower include Section 2.07 (no liens, except for current real property taxes not yet delinquent and payable, on any of its assets since July 31, 1998) and Section 2.12 (Borrower owns its assets free and clear of all liens). 2. Convertible Subordinated Promissory Note dated June 1, 1999, executed by United Surgical Partners International, Inc. in favor of Baylor Health Services, in an aggregate principal amount of $3,287,234. *Pursuant to Section 1(d) of the above note, as long as such note is outstanding, the Borrower must give the holder of the note at least 15 days prior written notice of the record or effective date of any dividends to be paid on its capital stock. S-14 Exhibit A NOTICE OF ASSIGNMENT AND ACCEPTANCE [Date] TOPS Specialty Hospital, Ltd. _____________________________ _____________________________ _____________________________ Chase Bank of Texas, National Association 100 N. Central Expressway Richardson, Texas 75080 Attention: Jim Cunningham Re: Credit Agreement dated as of June _, 1999 (the "Credit Agreement") between TOPS Specialty Hospital, Ltd. a Texas limited partnership, the Lenders referred to therein, and Chase Bank of Texas, National Association, as Agent for the Lenders Dear Ladies and Gentlemen: We hereby give notice that, effective as of the date hereof, [Name of Assignor] (the "Assignor") has assigned its rights and obligations with respect to _____% (representing $____________) of the Assignor's outstanding Term Loans, representing _____% (representing of the aggregate outstanding Term Loan [Facility A] [Facility B] Commitment and Term Loans (such interest in such rights and obligations being hereinafter referred to as the "Assigned Interest") under the Credit Agreement to (Name of Assignee) (the "Assignee"). The Assignee hereby agrees (i) to become a "Lender" pursuant to Section 9.04 of the Credit Agreement (if not already a Lender under the Credit Agreement) and (ii) agrees to assume all the obligations of the Assignor thereunder with respect to the Assigned Interest. The address for notices, lending office(s) and payment instructions for the Assignee arc as follows: Address for Notices: _____________________________ _____________________________ _____________________________ Attention: Telephone: Telecopier: NOTICE OF ASSIGNMENT 1 Lending Office for Term Loans: _____________________________ _____________________________ _____________________________ Payment Instructions: _____________________________ _____________________________ _____________________________ Please sign and return the enclosed copy of this letter to the undersigned to indicate your receipt hereof, and your consent to or notice of (as applicable) the above-mentioned assignment and assumption, and your agreement to the release of the Assignor from its obligations under the Credit Agreement with respect to the Assigned Interest. As a condition to the effectiveness of the above-mentioned assignment and assumption, the Agent shall have received on the date hereof an assignment fee of $_______________. Very truly yours, [NAME OF ASSIGNOR] By _________________________ Title: [NAME OF ASSIGNEE] By _________________________ Title: ACKNOWLEDGED OR CONSENTED TO (AS APPLICABLE): CHASE BANK OF TEXAS, NATIONAL ASSOCIATION as Agent By _________________________ Title: NOTICE OF ASSIGNMENT 2 EXHIBIT B June ___, 1999 The Lenders and Chase Bank of Texas, National Association, as Administrative Agent 100 North Central Expressway Richardson, Texas 75084 Re: Credit Agreement dated as of the date hereof (the "Credit Agreement"), by and among United Surgical Partners International, Inc., a Delaware corporation (the "Borrower"), the lenders party thereto (the "Lenders") and Chase Bank of Texas, National Association, as administrative agent Ladies and Gentlemen: We have acted as counsel to the Borrower in connection with the Credit Agreement. This opinion is rendered at the request of Borrower pursuant to Section 4.01 (b) of the Credit Agreement. All capitalized items used but not otherwise defined herein shall have the meanings ascribed to then in the Credit Agreement. I. Documents Examined In connection with this opinion, we have examined originals or copies Of executed originals of each of the following documents, cacti of which is dated the date hereof or as of the date hereof, unless otherwise noted (collectively, the "Loan Documents"): 1. the Credit Agreement; 2. the $5,000,000 Revolving Loan Note; and 3. the Guaranty made by the Guarantor for the benefit of the Lenders and the Administrative Agent. In addition, we have examined the following documents (collectively, the "Due Diligence Documents"): 1. an officers' certificate of the Borrower, certifying, among other matters: a. a copy of the Borrower's certificate of incorporation (the "Charter"); b. a copy of the Borrower's bylaws (the "Bylaws"); and c. a copy of resolutions of the board of directors of the Borrower relating to the Credit Agreement; 2. various existence, good standing, qualification to do business and similar certificates from public officials of certain jurisdictions, as listed on Schedule l attached hereto (the "Good Standing Certificates"); 3. an officer's certificate of the Borrower certifying as to compliance with certain agreements and instruments of the Borrower (the "Reviewed Agreements") and certain other matters; 4. the various certificates and other closing documents delivered in connection with the closing of the transactions contemplated by the Loan Documents; and 5. such other documents as we considered necessary in connection with the opinions we express herein. II. Certain Basic Assumptions 1. As to various questions of fact relevant to this letter, we have relied, without independent investigation, upon the Due Diligence Documents and representations and warranties in the Loan Documents, all of which we assume to be true, correct and complete. We have made no investigation or review of any matters relating to the Borrower or any other Person other than as expressly listed herein. We wish to inform you that the scope of the matters addressed in this letter is necessarily limited due to the limited scope of our review. 2. We have assumed (i) the genuineness of all signatures, (ii) the authenticity of all documents submitted to us as originals, (iii) the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies, (iv) the authenticity of the originals of all such certified, conformed or photostatic copies, and (v) the legal capacity of all natural persons. 3. We have assumed (i) the due existence and good standing; of all parties to the Loan Documents other than the Borrower, (ii) the due execution and delivery, pursuant to due authorization, of the Loan Documents by all parties thereto other than the Borrower; (ii) that all parties thereto other than the Borrower have the requisite power and authority to enter into the Loan Documents and to consummate the transactions contemplated thereby; (iv) the absence of any requirement of consent, approval or authorization by any Governmental Authority or any other Person with regard to Persons other than the Borrower; (v) that the execution, delivery and performance of the Loan Documents will not violate any lending limitations (other than applicable usury limitations, if any, under the Included Laws (as defined in Section IV, Paragraph A)) applicable to the Administrative Agent or the Lenders; (vi) that the Loan Documents constitute the legal, valid and binding obligations of the parties thereto other than the Borrower, enforceable against such Persons in accordance with their respective terms; and (vii) that the Administrative Agent and the Lenders will, in exercising any remedies under or in connection with the Loan Documents, comply with all requirements of applicable law at such time regarding the exercise of such remedies. III. Opinions Based upon the foregoing, and subject to the additional assumptions, comments, exceptions, limitations and qualifications ("Exceptions") contained elsewhere in this opinion letter, we are of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with corporate power to execute, deliver and perform its obligations under the Loan Documents to which it is a party. The Borrower has the requisite corporate power to borrow under the Credit Agreement. 2. The execution and delivery by the Borrower of the Loan Documents to which it is a party, and the performance by it of its obligations thereunder, have been duly authorized by all requisite corporate action on the part of the Borrower. The Loan Documents have been duly executed and delivered by the Borrower to the extent that it is a party thereto. 3. The Loan Documents constitute legal, valid and binding obligations of the Borrower (to the extent that it is a party thereto), enforceable against the Borrower in accordance with the(degree) respective terms. 4. The execution, delivery and performance by Borrower of; and the consummation by Borrower of the transactions contemplated by, the Loan Documents to which Borrower is a party do not and will not (a) violate any provision of the agreement or certificate of limited partnership, certificate or articles of incorporation, as applicable, or bylaws of Borrower, (b) violate any provision of the laws of the State of Texas, the State of Delaware laws or the federal laws of the United States of America, or (c) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any material Indebtedness pursuant to the terms of', or result in the creation or imposition of any Lien upon any Property of Borrower (except for the Liens created pursuant to the Loan Documents) pursuant to the terms of, any agreement or instrument to which any Borrower is a party or to which any such Borrower or its assets is subject. 5. To the best of our knowledge, the execution, delivery and performance by Borrower of, and the consummation by Borrower of the transactions contemplated by, the Loan Documents to which it is a party do not and will not violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to any of Borrower. 6. No consent, permission, registration, filing, authorization, order or license of any Governmental Authority (each, a "Consent") is required under any of the Included Laws for the due execution and delivery of the Loan Documents by the Borrower and the performance by the Borrower of its obligations under the Loan Documents except for (i) Consents contemplated by the Credit Agreement, (ii) Consents that have already been obtained and are in full force and effect, (iii) routine Consents necessary in connection with the conduct of the Borrower's business, and (iv) Consents related to environmental matters, ERISA matters, taxes and intellectual property. 7. Except for the Disclosed Matters, there are, to our knowledge, no actions, suits or proceedings pending or threatened against the Borrower or any of its Property. June 30, 1999 To the Lenders and Chase Bank of Texas, National Association, as Agent 100 N. Central Expressway Richardson, Texas 75080 Ladies and Gentlemen: We have acted as special counsel to Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("Guarantor"), in connection with the execution and delivery by the Guarantor of its Continuing; Guaranty, dated as of June 18, 1999 (the "Guaranty"), in your favor with respect to that certain Credit Agreement (the "Credit Agreement") among United Surgical Partners International, Inc., each of the Lenders named therein ("Lenders"), and Chase Bank of Texas, National Association, as agent for the Lenders. For purposes of this opinion we have examined originals, or copies, certified or otherwise identified to our satisfaction, of (i) the Guaranty and (ii) a draft of the Credit Agreement dated as of June ___, 1999 (the "Draft Credit Agreement"). We have also examined the originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates or comparable documents of public officials and of representatives of the Guarantor, including, without limitation, the Agreement of Limited Partnership of Guarantor, and have made such inquiries of such representatives of the Guarantor, as we have (teemed necessary as a basis for the opinions expressed below. In such examination we have assumed the authenticity of all documents submitted to us as original documents, the conformity to original documents of all documents submitted to us as copies thereof and the legal capacity of individuals executing documents in their individual capacities. As to all questions of fact material to such opinions that have not been independently established, we have relied upon certificates or comparable documents of representatives of the Guarantor. Based upon the foregoing and subject to the assumptions, limitations, exceptions rigid qualifications herein stated, we are of the following opinion: To the Lenders and Chase Bank of Texas, N.A. June 30, 1999 Page 2 1. The Guarantor is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. 2. The Guarantor has the limited partnership power and authority to execute and deliver the Guaranty and to perform its obligations thereunder. 3. The execution, delivery and performance by Guarantor of the Guaranty has been duly authorized by all necessary limited partnership action on the part of Guarantor. 4. The Guaranty has been duly executed and delivered by Guarantor. 5. The execution, delivery and performance by Guarantor of the Guaranty does not and will not (a) violate any provision of the agreement or certificate of limited partnership of Guarantor or (b) violate any provision of the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") or the federal laws of the United States of America. 6. To the best of our knowledge, the execution, delivery and performance by Guarantor of the Guaranty do not and will not violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to Guarantor. 7. The Guaranty constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terns. 8. No authorization, approval or consent of, and no filing or registration with, and governmental authority or regulatory authority or agency of the United States of America or the Delaware Act is required on the part of Guarantor for the execution, delivery or performance by Guarantor of the Guaranty. 9. There are, to our knowledge, no actions, suits or proceedings pending or threatened against the Borrower or any of its Property. Exhibit C Form of CONFIDENTIALITY AGREEMENT [Date] [Insert Name and Address of Prospective Participant or Assignee] Re: Credit Agreement dated as of June 29, 1999 (the "Credit Agreement") between UNITED SURGICAL PARTNERS INTERNATIONAL, INC. a Texas limited partnership(the "Borrower"), the lenders referred to therein, and Chase Bank of Texas, National Association, as Administrative Agent for the lenders Dear Ladies and Gentlemen: As a Lender party to the Credit Agreement, we have agreed with Borrower pursuant to Section 9.12 of the Credit Agreement to use reasonable precautions to keep confidential, except as otherwise provided therein, any non-public information supplied to us by Borrower and identified by Borrower as being confidential at the time the same is delivered to us pursuant to the Credit Agreement. As provided in said Section 9.12, we are permitted to provide you, as a prospective [holder of a participation in the Loans (as defined in the Credit Agreement)] [assignee Lender], with certain of such non-public information subject to the execution and delivery by you, prior to receiving; such non-public: information, of a Confidentiality Agreement in this form. Such information will not be made available to you until your execution and return to its of this Confidentiality Agreement. Accordingly, in consideration of the foregoing, You agree (on behalf of yourself and each of your subsidiaries, affiliates, directors, officers, employees arid representatives and for the benefit of us and each of Borrower or its Subsidiaries) that (A) such information will not be used by you except in connection with the proposed [participation] [assignment] mentioned above and (B) you shall use reasonable precautions, in accordance with your customary procedures for handling confidential information and in accordance with safe and sound banking practices, to keep such information confidential, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to your counsel or to counsel for any of the Lenders or the Administrative Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Administrative Agent or any other Lender (or to Chase Securities Inc.), (v) in connection with any litigation to which you or any one or more of the Lenders or the Agent are a party, (vi) to a subsidiary or affiliate of yours as provided in CONFIDENTIALITY AGREEMENT 1 Section 9.12 of the Credit Agreement or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to you a Confidentiality Agreement substantially in the form hereof; provided, further, teat (x) unless specifically prohibited by applicable law or court order, you agree, prior to disclosure thereof, to notify Borrower of any request for disclosure of any such non-public information (A) by any governmental agency or representative thereof (other than any such request in connection with an examination of your financial condition by such governmental agency) or (B) pursuant to legal process and (y) that in no event shall you be obligated to return any materials furnished to you pursuant to this Confidentiality Agreement. If you are a prospective assignee, your obligations under this Confidentiality Agreement shall be superseded by Section 9.12 of the Credit Agreement on the date upon which you become a Lender under the Credit Agreement pursuant to Section 9.04 thereof. Please indicate your agreement to the foregoing by signing as provided below the enclosed copy of this Confidentiality Agreement and returning the same to us. Very truly yours, [INSERT NAME Of LENDER] By_______________________________ The foregoing is agreed to as of the date of this letter. [INSERT NAME OF PROSPECTIVE PARTICIPANT OR ASSIGNEE] By______________________________ CONFIDENTIALITY AGREEMENT 2 REVOLVING CREDIT NOTE $25,000,000.00 Dallas, Texas as of June 29, 1999 FOR VALUE RECEIVED, UNITED SURGICAL PARTNERS INTERNATIONAL, INC., a Delaware corporation ('"Borrower"), hereby promises to pay to Chase Bank of Texas, National Association, a national banking, association (the "Lender"), at its principal offices at 712 Main Street, Houston, Texas 77002, the principal sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to Borrower under the Credit Agreement, as defined below), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money anti funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate, and duration of Interest Period (if applicable) of each Loan made by the Lender to Borrower, and each payment made on account of the principal thereof; shrill be recorded by the Lender oil its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule: attached hereto or any continuation thereof; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of Borrower to make a payment when due of any amount owing under the Credit Agreement or hereunder in respect of the Loans made by the Lender. This Note is the promissory note representing the Commitment rc6crred to in the Credit Agreement dated as of June: 29, 1999 (as modified and supplemented and in effect from time to time, the. "Credit Agreement") between Borrower, the Lender, as Administrative Agent, and the lenders front time to time party to the Credit Agreement, and evidences Loans made by the Lender thereunder. Terms used but not defined in this Note have the; respective meanings assigned to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein, Regardless of any provisions contained in this Note or in any Other Loan Documents, the Lender shall never be deemed to have contracted for or be entitled to receive, collect or apply as interest on the Loans, the Commitments or otherwise any amount in excess of the maximum rate of interest permitted to be charged by applicable law, and if the Lender ever receives, collects or applies as interest such excess, or if acceleration of the maturity of the Loans or the Commitments or if any prepayment by Borrower or any guarantor results in Borrower or any guarantor having paid any interest in excess of such maximum rate, then such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note for which such excess was received, collected or applied, and, if the principal balances REVOLVING CREDIT NOTE 1 of this Note are paid in full, any remaining excess shall forthwith be paid to Borrower or any guarantor. All sums paid or agreed to be paid to the Lender for the use, forbearance or detention of the indebtedness evidenced by this Note and/or the Credit Agreement shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the maximum lawful rate permitted under applicable law. In determining whether or not the interest paid or payable under any specific contingency exceeds the maximum rate of interest permitted by law, Lender shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium, rather than as interest; and (ii) exclude voluntary prepayments and the effect thereof; and (iii) compare the total amount of interest contracted for, charged or received throughout the entire contemplated term of this Note at the maximum lawful rate under applicable law. Borrower and each surety, endorser, guarantor and other party ever liable for payment of any sums of money payable on this Note, jointly and severally waive presentment and demand for payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, protest, notice of protest and nonpayment, and all other notices, as to this Note and as to each and all installments hereof, and agree that their liability under this Note shall not be affected by any renewal or extension in the tine of payment hereof, or in any indulgences, or by any release or change in any security for the payment of this Note, and hereby consent to any and all renewals, extensions, indulgences, releases or changes. This Note shall be governed by, and construed in accordance with, the applicable laws of the United States of America and the substantive laws of the State of Texas, except that Section 3.03 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving tri-party accounts) shall not apply to this Note. THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL, AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. EXECUTED as of the date first written above. UNITED SURGICAL. PARTNERS INTERNATIONAL, INC., a Delaware corporation By: ________________________________________________ Name:_______________________________________________ Title:______________________________________________ REVOLVING CREDIT NOTE 2 SCHEDULE OF REVOLVING CREDIT LOANS This Note evidences Loans made under the within-described Credit Agreement to the Company, an the dates, in the principal amounts, of the Types, bearing interest at the rates and having Interest Periods (if applicable) of the durations set forth below, subject to the payments and prepayments of principal set forth below: Date Made, Duration Continued Principal Type of Amount Unpaid or Amount of Interest Interest Paid or Principal Notation Converted of Loan Loan Rate Period Prepaid Amount Made By --------- ------- ---- ---- ------ ------- ------ ------- REVOLVING CREDIT NOTE 3 Exhibit E [Form of Compliance Certificate] COMPLIANCE CERTIFICATE Reference is made to the Credit Agreement dated June ___, 1999 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), between UNITED SURGICAL PARTNERS INTERNATIONAL, INC., a Delaware corporation ("Borrower"),and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the lenders from time to time party to the Credit Agreement (in such capacity, together with its successors in such capacity, the "Administrative Agent"). Terms defined in the Credit Agreement are used herein as defined therein. Pursuant to Section 5.01 of the Credit Agreement, the undersigned, the ______________ of Borrower, hereby certifies that, as of the Calculation Date (as defined) herein: (a) the representations and warranties contained in Article III of the Credit Agreement are true and correct in all material respects on and as of the date hereof with the same force and effect as though made or as of the date hereof; (b) no change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 except as specifically disclosed on Annex 1 attached hereto, which annex also specifics the effect of such change oil Borrower's financial statements; (c) no Default or Event of Default has occurred and is continuing (or specifying the details of any such Default or Event of Default and any actions taken or proposed to be taken with respect thereto) or is imminent and Borrower has complied with all of the terms, covenants and conditions set forth in the Credit Agreement; and (d) attached hereto as Annex 1 is a true and accurate calculation setting forth, among other information, information that demonstrates compliance (or noncompliance) with each of the covenants set forth in Sections 6.01 (Indebtedness), 6.04 (Investments) and 5.01 (financial statements and other information) of the Credit Agreement. This Compliance Certificate is subject to and shall be construed in accordance with the terms of the Credit Agreement. Borrower hereby agrees and acknowledges that in the event of a conflict between the terms of the Credit Agreement and this Compliance Certificate, the terms of the Credit Agreement shall govern and control. COMPLIANCE CERTIFICATE IN WITNESS WHEREOF, the undersigned has caused this certificate to be duly executed as of this _____ day of _____________________, ______. UNITED SURGICAL. PARTNERS INTERNATIONAL, INC., a Delaware corporation By: ________________________________________________ Name:_______________________________________________ Title:______________________________________________ COMPLIANCE CERTIFICATE COMPLIANCE CERTIFICATE OF UNITED SURGICAL PARTNERS INTERNATIONAL, INC. As of _________, ________ (the "Calculation Date") and for the period (the "Calculation Period") ending on the Calculation Date Calculation of Compliance with Section 6.01 -- Indebtedness (A) Indebtedness-Section 6.01(d) (i) Indebtedness permitted by Section 6.01(d): $_______________ (ii) Is amount in Line (A)(i) less than or equal to $1,000,000? Yes_____ No_____ (B) Indebtedness-Section 6.01(e) (i) Indebtedness permitted by Section 6.01(e): $_______________ (ii) Is amount in Line B(i) subordinated pursuant to a subordination agreement in form and content satisfactory to Administrative Agent? Yes_____ No_____ (C) Indebtedness-Section 6.01 (f) (i) Indebtedness of Borrower to Baylor Health Services: $____________ (ii) Is the principal of the amount in Line C(i) less than or equal to $3,287,234? Yes_____ No_____ Has Borrower created, incurred or suffered to exist only such Indebtedness permitted under Section 6.01? Yes_____ No_____ ANNEX 1 TO COMPLIANCE CERTIFICATE Calculation of Compliance with Section 6.04 - Investments (A) Permitted Investments. Sections 6.04 and 1.01 (i) Obligations unconditionally guaranteed by the United States (or an agency thereof): $_______________ (ii) Commercial paper maturing within 270 days from the date of acquisition: $_______________ (iii) Certificates of deposit, banker's acceptances, demand deposits and time deposits maturing within 180 days: $_______________ (iv) Fully collateralized repurchase agreements with a term not more than 30 days: Investments by Borrower in a Subsidiary: $_______________ (vi) Investments by Subsidiary in Borrower: $_______________ (vii) Investments by Subsidiary in a Subsidiary: $_______________ (viii) Guarantees that constitute Indebtedness: $_______________ (ix) Redemption for cash of outstanding capital stock: $_______________ [Is the amount in clause (ix) in aggregate during the term of this Agreement less than or equal to $2,000,000.00?] Yes____ No____ (x) Acquisitions permitted by Section 6.04 (f): $_______________ (xi) Promissory notes permitted by Section 6.04(g): $_______________ (B) Has Borrower made or permitted to remain outstanding only such Investments permitted under Section 6.04? Yes____ No____ Compliance with Section 5.01 - Financial Statements (A) Borrower has complied with all requirements of Section 5.01 of the Agreement: Yes____ No____ ANNEX 1 TO COMPLIANCE CERTIFICATE